Question

In response to Covid-19, what changes to the income statement would you expect to see for a small retail shoe business that has been forced to temporarily close?

Answer 1

The coronavirus crisis (Covid-19) can be defined as dramatic public health emergency in living memory – with extraordinary measures which is not only impacting the individual being but also impacting shoppers, retailers and businesses around the world.

Long - term trends that will affect the working of the organization have been accelerated. The changes that were anticipated over the next few years have occurred in the time of mere weeks. The impact is profound and the retailers are reshaping their working in real -time, to permanent effect. The customers have become habitual of undergoing purchases through e-commerce mode thereby remaining about visiting public places, despite phase reopening.

The implication on retailers for the crises is:

• The consumer you thought you knew is no longer.
• Retailers need to plan for a new era where people must feel comfortable with visiting the stores.
• Lack of consumer confidence and safety measures the stores need to inbuilt.

Highlighting the changes in the income statement of a small retail shoe business which was forced to temporary closure:

• The closing inventory value would be much higher than the previous year’s closing inventory. This occurs due to low demand in the economy arising due to lockdown.
• Sale plus purchases of the business would be minimal or zero as the business is forced to temporarily shut-down.
• The inventory left unattended for a long will lead to damages and thereby turning into scrap, thus providing no value to the retailor.
• There might or might not be saving in labour cost. The two scenario are:

1. Saving: If the retailor has handful of workers in the store and if some of them left the job due to no pay of the monthly wages there would be saving of those workers pays.
2. No Savings: If the retailor do not have handful of workers working in the store and these are trustworthy people, the owner need to pay them their monthly wages along with some incentive leading to wash-out of savings.

• The miscellaneous expenses would increase as the store need to inbuilt adequate safety measures to attract public.
• If the store comes under the framework of the Income Tax Refund for the financial year 2018-19 or the previous year, then it will get the same as per the government announcement dated April 17, 2020. This will lead to increase in the credit side of the income statement.
• The GST Refund if applicable will be handed over to the store as per the statement made by The Central Board of Indirect Taxes and Customs on the same date as mentioned above. Increasing the credit side of income statement.
• Reduction on GST, Taxes and Loans due to temporary closure of store and relief for the same has been demanded from the government whereby, the Government and Financial Institutions have to come together & provide a meaningful package for the Industry to survive the impact of COVID-19.
• If the retailor gets the order online then the cost of sale would increase as some remuneration need to be paid to the delivery person.
• Reduction in Electricity & other utilities. Reduction in debit side of the statement.
• Rent waiver if applicable. Reduction in debit side of the statement.
• Increase usage of amount in research and development due to eloping of new era.
• The profit for the retailor would be minimal or zero etc.