Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed
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| 21.17 Stock management, ethics. (20 min) 1 Showing supplies purchased in 2005 as equipment increases Range-Tout’s 2005 operating profits by €2,700,000 as follows Reduced supplies expense in 2005 €3,000,000 Increased depreciation expense in 2005 (€3,000,000 ÷ 10) (300,000) Net reduction in operating expenses/increase in profit €2,700,000 Yes, as Jules Balls states, costs related to revenue should be expensed in the period in which the revenue is recognised. Generally, supplies purchased for use in the current period will not provide benefits in future periods, and should be matched against the revenue recognised in the current period. Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 2 The use of alternative accounting methods to manipulate reported earnings is unethical because it violates CIMA’s Ethical Guidelines. The competence standard is violated because of failure to comply with technical standards and lack of appropriate analysis. The integrity standard is violated because this action puts extreme management pressure on persons to carryout unethical duties, subverts the attainment of an organisation’s objectives and discredits the profession. The objectivity standard is violated because of the failure to communicate information fully and fairly. 3 Jules Balls actions were appropriate. Upon discovering the change in the method of accounting for supplies, Balls brought the matter to the attention of his immediate superior, Capus. Upon learning of the arrangement with Gènie du Bois, Balls told Capus that the action was improper and requested that the accounts be corrected and the arrangement discontinued. Balls clarified the situation with a qualified and objective peer (adviser) before disclosing Capus’s arrangement with Gènie du Bois to Range-Tout’s president, Capus’s immediate superior. It might be expected that contact with levels above the immediate superior should only be initiated with the superior’s knowledge, assuming that the superior is not involved. In this case, the superior is involved – therefore, Balls has acted appropriately by approaching Nathalie Carotte without Capus’s knowledge. Download 1.72 Mb. Share with your friends:
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