Here are some more journal entries that describe how Olympus moved money in their accounting fiasco.
‘Michael’ asked a great question at re: The Auditors about my guest post on the Olympus accounting fraud.
The full article with my reply can be found at How Do You Hide A Multibillion Dollar Loss? Accounting For The Olympus Fraud.
Here is his question, with slight editing:
If they actually bought the tiny companies for way more than they were worth, this would not fix their problem, they would just have the original losses plus the new losses on the companies that they overpaid for.
The only way this works is if they claimed to pay $1,000,000 for the companies but in reality only paid $100,000. Is this the case?
For example if they paid $1,000,000 for the subsidiary you would.
- Dr. investment 100,000
- Dr. goodwill 900,000
- cr. cash $1,000,000
There would be no cash in the subsidiary, just goodwill. So how could the subsidiary purchase the financial assets that were seriously underwater? The subsidiary would have to actually pay the inflated fair value for this to work?
A very good question, Michael.
I’ll go into more detail on how the money was moved and my read on what summarized entries would be. I posted my reply at re: The Auditors. Francine McKenna has allowed me to reprint my response. Here is my explanation:
How do you overpay for an acquisition but keep the announced sales price? More journal entries to describe the Olympus fiasco.Read More »