Question

Tyler corporation started its operations in March during the first year of operation a significant amount of money was spent on attorney's fees and promotional expenses connected with organizing the corporation the money of the amount of Revenue Tyler Corporation earn for that year was much higher than expected because of this the the accountant decided to charge the attorney's fees and promotional expenses to advertising expense in the current year if the accountant simply was not aware of the proper treatment of these expenses were any ethical principles violated why or why not and how would you have treated these expenditures

Answer 1

YES THE ETHICAL PRINCIPLES HAVE BEEN VIOLATED HERE BECAUSE THE MOTIVE OF ACCOUNTANT HERE IS TO AVOID PAYING TAXES BY CHARGING SUCH EXPENDITURES AGAINST THE REVENUE.THE PROMOTIONAL AND ATTORNEY EXPENDITURES ARE IN THE FORM OF CAPITAL EXPENDITURES AS THEY HAVE BEEN INCURRED WITH RESPECT TO FORMATION OF THE ORGANISATION.THESE EXPENDITURES CANNOT BE TREATED AS THE REVENUE EXPENDITURES BECAUSE SUCH EXPENDITURES HAVE NOT BEEN INCURRED IN ORDER TO EARN REVENUE.

IF CHARGED TO REVENUE THEN THE CORRECT FIGURE OF COMPANY'S PROFIT AND LOSS WILL NOT BE SHOWN AND IT WILL BE MISLEADING TO IT'S USERS.HENCE THE CORRECT TREATMENT SHOULD BE TO CAPITALISE SUCH EXPENDITURES AND NOT CHARGE THEM AGAINST THE REVENUE.