Requirement 1 a. Does the use of masking prices violate GAAP? Why?...

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Requirement 1
a. Does the use of masking prices violate GAAP? Why? Is it appropriate for Toshiba to increase profit (by the amount of the masking difference) at the time of supplying parts to ODMs?
Why? When and how should Toshiba record the masking differences in its consolidated financial statements? Explain.
b. For the PCs that are manufactured by its subsidiary TIH, is it appropriate for Toshiba to record the masking difference as a reduction in the cost of goods manufactured? Why?

Requirement 2
a. Refer to the table of masking differences in the ‘Practice of Channel Stuffing’ section of the case. For each fiscal year from 2008 to 2014, compute the income misstatement and specify whether the reported income is overstated or understated. For simplicity, assume that there were no masking differences at the beginning of FY 2008. Present your answer in the following table:

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Income misstatement
Overstated or understated?

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Requirement-1
Solution-a
The masking price difference is the difference which creates due to the difference of procurement price and the price changed to the ODM.
Also the use of masking price violates the ruling of GAAP because the company more focuses on the masking difference for the parts which is recognize as negative costs of manufacturing of goods on transaction of parts, so reducing the cost of goods sold and inflation of the current period profits. When the assembled computers were delivered back to Toshiba through TTIP, in that case the receivable will be mark as the paid and the difference of masking is not considered....

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