Are Accounting Numbers Deceptive?

Abstract

The financial numbers may be deceptive. This case study by taking two contrasting examples attempts to bring out the point that one has to look deeper into the accounting policies and its consistency to get the best out of the financial statements. When Bajaj Corp came out with its financial results in the ensuing year after listing in 2011, all eyes were on the profit they would report in the books. But despite a revenue growth of 25% in 2011, the Earnings Per Share of the company had decreased by 10% compared to the previous corresponding year.  The management had chosen to write off the IPO expenses in 2011, against the common practice of spreading it over few years.  Quite contrast to this practice is the case of Indosolar, a Delhi based company which went public during September 2010. The company had an accumulated loss to the tune of INR 137 crores for the year ended 31st march 2011. It chose to change its accounting policy of writing off the issue expenses hitherto practiced and transferred to share premium account. Had it not changed its policy the loss would have been more than INR 140 crores.