A further verification of books of accounts for the situation explained in the previous example reveals that the finance director had shown a proportionate amount of expenses equal to 65% of the orders of ₹15,000 crore recognized as sales for which sales is to be executed in the next financial year. While recognizing the expenses, the finance director did not recognize non-cash expenses that equals to 22% of sales and certain other expenses equal to 3%. Show by how much profits have been inflated.

Data from previous Example

The sales revenue of the company till March 16, 2011 for the year 2010–11 was ₹80,000 crore, whereas sales of the last financial year was ₹84,000 crore. In the last AGM of the company, the board of directors had expressed a hope of 15% increase in the revenue. While correlating the facts of sales of the year till date and comparing it with the expectation of board of directors, the finance director had the reasons to employ creative accounting tactics. He/she, in association with the marketing director, managed to procure the orders worth ₹18,000 crore, out of which sales was executed for only ₹3,000 crore and rest was to be executed in the next financial year.

On April 3, 2011, the finance director presented the financial report by stating an increase of 16.67% in the sales revenue over the sales of the previous financial year. Comment on the accounting practice.