Financial Reporting and Analysis Week 2 Assignment Harnischfeger Case - 1

Financial Reporting and Analysis Week 2 Harnischfeger Case - Assignment Example With the coming in of the straight-line method for financial reporting which is a change that has built on the previously used method which was the principally accelerated method, some level of changes have been recorded on the income of the company. Even though it is described to be insignificant, there has been an upsurge in the reported income of the company by $11.0 million. Into the future, this change will only affect profits positively when the company is able to maintain its current expenditure or is able to keep that also lower than it currently stand (Cao, 2009). The accounting changes that were recorded also affected changes in the depreciation lives, which focused on specific areas of the company’s operations. These included U.S plants, machinery and equipment and residual values on selected items. The effect of this was an increase in net income by $3.2 million for 1984 alone. In the most immediate future, reported profits are expected to go up as a result of this. However, Conrad (2009) also noted that increased income can only be likened to guaranteed profits if expenditure is also low. The current economic assumptions that Harnischfeger’s plant and machinery will last longer and only lose their value slowly can be noted to be justified. This is because of a number of reasons. In the first place, most of the challenges that the business was facing as part of its business conditions in the primary industries are no more. Secondly, the depreciation accounting will now ensure that there is less pressure on plant and machinery, giving room for the lifespan of these to last longer. LIFO liquidation is simply a method of inventory costing that states for last in, first out. LIFO liquidation is noted to take place in situations where current sales are noted to be higher than current purchases, leading to the need to liquidate all inventory that were not sold in the previous periods (Hull and White, 2010). The effect of LIFO liquidation on income