Possible Nature of Phantom and Fictitious Accounting Entries in SATYAM

Disgraced and jailed Promoter Chairman,Ramalinga Raju, of Satyam,confessed on January 7, 2009 that there is a huge cash hole of Rs 5040 crs in the Balance Sheet of Satyam as on September 30, 2008 and that for years he has been resorting to Inflating Revenues

So what could be the Nature, Form, Impact and Effect of the Phantom and Fictitious Accounting Entries that Ramalinga Raju and his accomplices must have passed in the Real Books of Satyam ?…. or did they keep a seperate Phantom Set of Accounting Books, possibly off the physical premises of Satyam Offices, which they presented to the auditors, Price Waterhouse

Especially for those not conversant with Finance and Accounts I have tried to present the nature of Phantom and Fictitious Accounting Entries that must have been created by Ramalinga Raju and his accomplices to create such a Huge and Increasing Cash Hole over the Years

 

Nature of Phantom & Fictitious Accounting Entries in the Books of Satyam 

Objective

Accounting Entry

Reflected in

Effect

 

I

 

Inflated Sales

of Rs 100

Dr

Rs 100

Client Debtors

Balance Sheet under Debtors in Current Assets

Inflates Assets and therefore Networth and Book Value 

Cr

 Rs 100

Sales

 Profit & Loss Account

under Sales

 Inflates Revenues and therefore Profits that get transferred to Reserves at Year end,thus inflating Networth 

 

II

 Against Sales in I above,showing Cost of Sales through Cost Entry for Salaries

at an assumed amount of Rs 75, less than Sales as passed above

 Dr

 Rs 75

Personnel Expenses

 Profit & Loss A/c

 under Expenditure

 as Personnel Expenses

Increases Expenditure and therefore Cost of Sales and reduces Profit…also creates ‘Benami’ Employees that don’t exist 

Cr

Rs 75

Bank

Reduces the Bank Balance in the Balance Sheet under Bank in Current Assets

Reduces Bank Balance in the Books

 III

  

Showing Fictitious Receipt of Rs 100 from   Client Debtors for the Fictitious Sales in I above

 Dr

 Rs 100

Bank

 Increases Bank Balance by Rs 100 in the Balance Sheet under Bank in Current Assets

 

 

Cr

Rs 100

Debtors

Cancels out Dr in Client Debtors by Rs 100 being Amount earlier shown in the Balance Sheet by the Inflated  Sales as in I

 

At Year end the above gets reflected as below in Accounts

 In the     Profit and Loss A/c

 

Sales of  Rs 100 Less Expenditure of Personnel Expenses Rs 75 = Profit of Rs 25

 

In the     Balance Sheet

 

Liabilities : Rs 25 in Reserves being Profit Transferred at Year end from P & L A/c

 

Assets : Rs 25 in  ‘Bank’ in Current Assets being the Profit reflected as received

 

So this is How Sales ,Profits and Bank Balance is fictitiously Inflated in the Books of Account

 

The Problem occurs when Liabilities and  Assets in the Balance Sheet are rolled over to the next year

 

Thus Bank Balance keeps getting inflated with Increasing Quantum of Fictitious Inflated Sales and Personnel Expenses Entries ,with the cycle being completed by showing Fictitious Receipts from the Debtors

 

Ramalinga Raju, do you realise that although, if one has to believe you, that your intentions were to prop up Revenue and Profit and margins growths over the years to attract more Business,your Diabolical and Disastrous Creative Accounting created a Frankistien which went out of control and fed on itself

Was it your conscience,Ramalinga Raju,as you say,that led to your courageous confession or was it that you were facing a Hobson’s Choice and were cornered so bad that you had no real option but to make this Confession?… I really don’t know !… But you are a ‘Guru’ ! Man !… How did you have the B____  to do all this…for years…on such a huge scale… and not get caught ! ?…how did you manage to hoodwink your auditors, Price Waterhouse, bankers and tax authorities ! for years?

One thought on “Possible Nature of Phantom and Fictitious Accounting Entries in SATYAM

  1. If Rajus had taken some lessons from Ambanis, they would not be in this mess. They would have played the game of merging and demerging group companies over and over again, and siphoned off cash and still maintained majority control of all their companies. No one would have dared to question them. If you had questioned them, either your behind would be kicked hard (hello Wadia, please tell us more) or your reputation tarnished through media planted stories or bought off.

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