Page 25 - Countertrade
P. 25
Cons
Most firms will prefer to be paid in hard currency. However, countertrade
arrangements may result in the exchange of unusable or poor-quality
goods that the firm cannot dispose of easily or profitably.
Firms entering countertrade arrangements have to devote resources to
manage the trade which is both expensive and time consuming. In
addition, countertrade transactions, present numerous accounting
problems. One of the most serious of these problems is recognition of
revenue. Unlike ordinary sales transactions, countertrade is a two-part
agreement consisting of both a sale and a purchase which gives rise to
the problem of determining when profit is to be recognized especially if
the goods being exchanged have significant price volatility.
In summary countertrade has the disadvantages of:
1 • inefficiency
2 • Slow and complex negotiations
• transactions may alter fundamental
3
operations of the free market
4 • Increasing costs.
5 • Brokerage costs.
6 • Creates uncertainty
