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ATC-47 Ethical Dilemma - Terry Bailey - Case Study Example
Yes, Terry’s scheme does affect balance sheet of Fairwell Furniture. Under the Current Assets head, the Bank Account Balance would have reduced and on the Liabilities side of the Balance Sheet, the Profit and Loss Account balance would have reduced…
The income of the company would increase by the total amount of line cost charges less the amount of depreciation claimed for that year. Since the line cost charges was being expensed as and when incurred until the previous year, the income of this year compared to the previous years would be higher.
In the company’s balance sheet, the capitalized cost would be shown on the asset side as a Fixed Asset so that it could be depreciated over the next few years. The Profit and Loss account balance would naturally be higher than it should have been.