Henry plc is a company which has established a reputation as a company which generates growth in sales from year to year and those growth prospects have been incorporated into share prices. However, the current year has been more difficult and the managing director does not want to disappoint the market. He has approached a friend with an idea he got from one of the auditors for pulling a rabbit out of the hat. The friend spends €3,000 to establish a company Dreams Come True Pty Ltd and contributes a further 2 million euros as the new company's paid-up capital. Henry plc then enters into a contract to lend 3 million euros to Dreams Come True Pty Ltd. Next, Henry plc sells a building to Dreams Come True Pty Ltd for 3 million euros for cash. A week after the end of the financial year Henry plc enters into a contract to repurchase the building from Dreams Come True for 3.5 million euros with an effective date six months into the new financial year. The managing director wants the accountant to record the building as sales revenue.
Required:
(a) Discuss the technical issues of the proposals.
(b) Discuss the ethical issues of the proposals.