Question

Describe in detail how a company can leverage the following Accounting topics as a strategy tool...

Describe in detail how a company can leverage the following Accounting topics as a strategy tool to manipulate their Income Statement:

  1. Loss Contingencies
  2. Warranties
  3. Inventory Valuation
  4. Depreciation
Business   Accounting   
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Answer #1

a: :Loss Contingencies: Manipulation could be done by overestimating/ underestimating expected loss from contingencies. These are dependent very much on management assesment or management experts correct assesment of future contingencies.

b: Warranties : Management could overestimating/ underestimating provision required for warranties. Manipulation could also be done by booking other claims of customer in claims for warranties.

c: Inventory Valuation: Manipulation can be done by not recognising downfall of net realisable value of inventory, or changin method of valuation inventory i.e. FIFO-LIFO or any other.

d: Depreication: by manipulating life of assets , by debiting revenue nature expenses to fised assets thus resulting high depreciation.

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