Toyota Motor Corporation is one of the world’s largest automakers. The company reported pretax profit of ¥291,468 million in fiscal 2010 and pretax profit of ¥563,290 million in fiscal 2011. Assume that there are no income taxes so that these amounts are also after-tax amounts.
Consider the following two independent scenarios.
1. Suppose Toyota built a new factory that began production at the beginning of fiscal 2010. Cost of the factory was ¥600,000 million, and its life was estimated to be 20 years. If Toyota neglected to take depreciation on the factory in fiscal 2010 but correctly charged one year’s depreciation in fiscal 2011, what misstatements would exist on Toyota’s 2010 financial statements? On its 2011 financial statements?
2. Suppose in fiscal 2010 Toyota incorrectly recorded ¥100,000 million of sales for orders of automobiles that were not delivered, and thus the revenue was not earned, until fiscal 2011. What errors would there be in the fiscal 2010 financial statements? In the fiscal 2011 financial statements? Assume that cost of goods sold averages 75% of sales.