Badam Gussain, Vice-President (Accounts) of Sach International Corporation, Singapore, was taken aback when he reviewed the financial performance of the company. He noticed that the sales for the year were trailing as compared to the sales figures of the previous financial year. It was less as much as about 10% as compared to the sales figures of the previous financial year. The same was the position of the profit for the year. He immediately retrieved the facts of the previous financial year as well as Chairman’s speech published in the previous annual report that depicted the following facts:

Along with this, he recalled the facts from the previous year’s address of Chairman delivered at AGM. Accordingly, the sales and EAT for the current year should have shown an increase of 30% and 12%, respectively over the last year’s performance. He immediately called his subordinates and held a meeting to review the situation. His team members updated him by providing the figures of provisional income statement for the year as on March 12, 2010, which revealed the following facts:

Meeting of Vice-Presidents As Badam Gussain was also holding the charge of CEO of the company, he coordinated a meeting with George Danny, Vice-President (Marketing) and Dean Jones, Vice-President (Production). In the meeting everyone was apprehensive about projecting a poor show as compared to the previous year’s financial result and this was surely to be taken as a negative remark on the performance of the executives. George Danny was of the opinion that his marketing team was negotiating the deal with few clients and he was hopeful that his team would be able to procure the orders for as much as ` 5,00,000 crore during the month of March 2010. This would not only help in achieving the targets but even would surpass the target. However, Dean Jones, Vice-President, was not confident in fulfilling the target of additional ₹5,00,000 crore of goods to be manufactured and dispatched to the customers. To resolve the issue concerning production, Daisy Dazzling, Vice-President (HR & Personnel) was invited. Badam Gussain moved a proposal of running the factory in three shifts and other offices in two shifts for rest of the working days of March 2010 but Daisy Dazzling had her own limitations saying thereby that it would be difficult to get additional workers and staff members at such a short notice that too for only about 18 working days. While they kept on discussing the issue like this, they finally concluded that it was the responsibility of middle level executive staff to achieve the targets on time and passed a resolution of issuing strict warning to middle level executive stating “Either achieve the targets or face the consequences of a reprimand or stern action by the chairman”. The outcome of the meeting stating this warning was circulated as office memo among the middle level executives, and everyone in the company kept his/her fingers crossed hoping for the best outcome.

S M Joseph, Senior Executive, Accounts presented the following brief note on the progress of the year ended on March 31, 2010:

“I feel pride in presenting the progress report in the honor of Chairman Sir. Sir as guided by your leadership style and under the efficient leadership of out senior management team we have successfully not only achieved the targets but surpassed the benchmarks. These results have created a specific platform for our company in the market place and our market share has increased tremendously and we rank 2nd in terms of market share in the industry as compared to 5th rank in the previous year. I request my colleague Mr. Biju Joseph to present the snapshot of the progress report.”

Biju Joseph presented the following facts before the house:

“This year net profit has shown a record breaking increase of 100% over previous years’ profit, this all happened on account of simultaneous effect of managing the top line as well as bottom line. Sales for the year ended were higher by 50% over previous years’ sales and we could cut down our expenses by about 17% as compared to last financial year.” In support of these facts, the following un-audited income statement was presented:

All the senior management team members headed by Badam Gusain were surprised at the figures presented by the middle management executives. However, they could interpret the accounting jugglery but kept mum and everyone clapped. At the end, the chairman congratulated all the employees and announced productivity bonus for the employees.

1. Analyse the case from the viewpoint of accounting fundamentals.

2. Comment on the accounting policy of the company.

3. Also evaluate how middle level executives could show a better perf the senior management team headed by Badam Gusain.

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Particulars Sales Less: Cost of Goods Sold (COGS) Gross Profit Less: Operating Expenses Administrative expenses Selling and Distribution expenses Income Statement For the year ending March 31, 2009 Details Amount (in Crore) 10,00,000 7,00,000 3,00,000 70,000