Page 10 - How Not To Cook The Books Article
P. 10
The administrators, Ernst and Young, acting on behalf of The Royal
Bank of Scotland found, when examining the assets of Wrekin
Construction, that the company's owner, David Unwin, had entered an
uncut ruby gemstone weighing 2 kg (4.5lb) valued at £11m, and known
as the Gem of Tanzania, into the company accounts by exchanging it for
the shares.
The exchange of the Gem of Tanzania (£11 million) was for interest
bearing preference shares. Until that point David Unwin had held a
minority share in Wrekin.
Diagram 3
Normally, it would be advisable to check that increases in assets and
liabilities are consistent with the business's growth. If the company is
reporting profits quarter after quarter, but total assets are shrinking,
something is wrong. As can be seen in the case of Wrekin Construction
and Tamar, asset growth (Diagram 3) is not consistent with the expected
growth of either business prior to the introduction of the gemstone and
share exchange. Why had this occurred?
