Corporate Accounting - Financial Statement Fraud Schemes - Sample

Question: Describe about the Corporate Accounting for Financial Statement Fraud Schemes. Answer: Problem 1 Simpsons Limited Statement of Profit and Loss Account For the year ended 30 June 2018 Amount $ Amount $ Sales Revenue 1,237,500.00 Cost of sales 675,000.00 Gross profit 562,500.00 Add: Revenue Interest revenue 3,750.00 Dividend received 5,250.00 Less: Expenses Administrative expenses (397,500- 43,050) 354,450.00 Interest expense 43,050.00 other expenses 15,000.00 dividend paid 30,000.00 Profit before income tax 129,000.00 Less: Income tax expense 75,600.00 Profit after tax 53,400.00 Other Comprehensive Income Profit on revaluation of assets Land 37,500.00 Building 45,000.00 Total comprehensive income for the year 135,900.00 Table 1: Profit and Loss Statement (Source: Created by author) Statement of Financial Position For the year ended 30 June 2018 Amount $ Amount $ Assets Current Assets Cash 750.00 Accounts receivable 87,000.00 Inventory 131,500.00 Prepaid insurance 10,500.00 Total current assets 229,750.00 Non- Current Assets Goodwill 157,500.00 Less: Accumulated impairment -15,000.00 142,500.00 Plant and equipment 333,750.00 Less: Accumulated depreciation -63,750.00 270,000.00 Land 330,000.00 Building 570,000.00 Deferred tax asset 14,700.00 Total non- Current Assets 1,327,200.00 Total Assets 1,556,950.00 Liabilities Current Liabilities Interest payable 4,200.00 Accounts payable 104,250.00 Dividend payable 15,000.00 Current tax liability 78,150.00 Allowance for doubtful debts 19,200.00 Bank overdraft 103,800.00 Total current liabilities 324,600.00 Non- Current Liabilities Mortgage loan 375,000.00 7% debentures 120,000.00 Revaluation surplus 127,500.00 Deferred tax liability 27,600.00 Provision for employee benefits Annual Leave 27,000.00 Long- service Leave 24,300.00 Total non- current liabilities 701,400.00 Total Liabilities 1,026,000.00 Net Assets 530,950.00 Shareholders' equity 300,000.00 General Reserve 37,500.00 Retained earnings Balance on 1.7.17 155,100.00 Add: profit earned during the year 38,350.00 193,450.00 Total equity 530,950.00 Table 2: Financial Position Statement (Source: Created by author) Statement of changes in equity For the year ended 30 June 2018 Equity shares Reserves Retained profits Balance as on 1.7.2017 150,000.00 37,500.00 155,100.00 Shares issued during the year 150,000.00 - - (@75,000* $2) Profit earned during the year - - 38,350.00 Balance as on 1.7.2018 300,000.00 37,500.00 193,450.00 Table 3: Changes in Equity Statement (Source: Created by author) Notes to accounts: Interest expenses have been deducted from the administrative expenses amounted to $43,050 that has been disclosed separately. Revaluation profit on land and building has been recorded as comprehensive income, which is measured as follows: Revaluation profit Land Building Value before revaluation 292,500.00 525,000.00 Revalued value 330,000.00 570,000.00 Profit 37,500.00 45,000.00 As the mortgage loan is repayable at the annual installments amounted to $75,000 that is due on 1st March hence, the entire balance in the trial balance has been considered as non- current liability. As the debentures are proposed to be redeemed on 31 March 2019 hence it will be considered as non- current liability for the year 2018. Problem 2 Killer Ltd Current Tax Worksheet For the year ended 30 June 2017 Amount $ Amount $ Accounting profit 263,000 Add: Annual Leave expense 45,000 Depreciation expense - plant 22,500 Doubtful debts expense 4,500 Insurance Expense 7,000 342,000 Less: Annual Leave paid 52,000 Tax Depreciation plant 90,000 Doubtful Debt Paid 2,000 Insurance Paid 6,500 Interest not yet received 1,000 Taxable profit 190,500 Current tax liability @ 30% 57,150 Table 4: Current Tax Statement (Source: Created by author) Killer Ltd Deferred tax worksheet as at 30 June 2017 Carrying Amount Tax Base Taxable Deductible Temporary Differences Temporary Differences Assets Interest Receivable 1 000 1000 Nil Nil Accounts receivable (net) 17 500 19500 2000 - Prepaid Insurance 4 500 6500 - 2000 Plant 82 500 60000 - 22000 Liabilities Provision for annual leave 10 000 52000 - 42000 Total Temporary Diffs 2000 66000 Deferred tax liability 30% 600 - Deferred tax asset 30% - 19800 Beginning balances 10800 10500 Increase/(Decrease) (10200.00) 9300 Table 5: Deferred Tax Statement (Source: Created by author) Tax Journal Entries Amount $ Amount $ Profit Loss A/c Dr 600.00 To deferred tax liability A/c 600.00 (Being tax payable on temporary difference has been recognized for the year) Deferred tax assets A/c Dr 19,800.00 To Profit Loss A/c 19,800.00 (Being tax deductible on temporary difference has been recognized for the year) Table 6: Journal Entries (Source: Created by author) Bibliography Albrecht, C., Holland, D., Malagueo, R., Dolan, S. and Tzafrir, S., 2015. 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