Bausch and Lomb

1. Does the new distribution and sales strategy make sense from a
logistical standpoint? Why or why not?
To compete more effectively with J&J, B&L changed its sales strategy from
direct shipment to high-volume customers to distributors. From a logistical
standpoint, it is a good strategy for B&L, because it can save the cost putting on
logistics and put it on disposable and planned replacement lens to capture the
market share. On the other hand, distributors had more effective channel of
shipping. The shipment will be more effective and end customers will be more
satisfied.
2. What is the impact of the December 1993 shipment on Bausch and
Lomb 1993 financial statements?
If the shipment and purchase of the approximately 1.8 million pairs of
conventional lens were completed before December 25, the day when B&L closed
its books for the 1993 fiscal year, then B&L could recognize the revenue related to
these shipments, which would definitely increase its revenue of this fiscal year and
presented an excellent financial performance.
3. Does the product shipments associated with the new distribution
strategy meet the criteria for recognition of revenue under US GAAP?
Under US GAAP, there are two criterions of the recognition of revenue:
1) The firm has performed all or most of the services or it has delivered the
goods.
2) Receipt of assets from the customer. The seller has received cash or
come other assets that it can convert to cash, for example, by collecting an
accounting receivable.
In B&L case, B&L recognized revenue after inventories were send to
distributors, but these inventories had not been sold to the end customers, which
means these goods hadn’t converted to cash or its equivalents. Thus, the new
distribution strategy doesn’t meet the criteria for recognition of revenue.