Very good analysis by the author. However, I have a query:
Regarding the adjustment of depreciation against revaluation reserve. The author states that the company inflated its profit by about Rs 23 cr in past 2 years, but I do not agree. See, when the asset is revalued the entry is adjusted by debiting assets account and crediting revaluation reserve account. Thus any increase in value of assets is accounted in revaluation reserve account only. Thus, while depreciating the asset, the depreciation amount is charged from both P&L account and revaluation account. It means basically reversing the revaluation entry and charging actual dep. in p&l account. So net net, there will be no difference in P&L account on due to revaluation of assets.
Eg. A machine worth Rs 100, dep. rate of 10% p.a. is revalued at rs Rs 150 while maintaining dep rate of 10%.
Case 1: No revaluation - Rs 10 will be charged to p&l account
Case 2: Revaluation - Rs 50 will be credited to revaluation reserve and machinery account will be debited and it will become Rs 150. Now at 10%, depreciation charge will be Rs 15. Now Rs 10 will go to P&L account and Rs 5 will be set off in revaluation reserve account.
Net Net, in both cases only Rs 10 will be charged to P&L account.
Revaluation reserve is just a tactic to increase shareholder fund, without actually earning them. May be, banks wanted the company to revalue assets on current value to show a better position as they were under CDR. Good companies must stay away from such shady stuff.
Regarding revenue recognition policy also, I have a different view. Such transactions do not inflate the sales of the company on regular basis. Now say, I have recognized Rs 100 in sales ex-factory. Next year, they are sent back, the sale will deflate by Rs 100. Since this is a continuous practice, it does not matter much. Look at a scenario where Rs 100 sale is not sent back.
Year 2014 = Sales Rs 2000 - 100 (unapproved) = Total Rs 1900
Year 2015 = Sales Rs 2000 + 100 (PY sale which got approved) - 100 (unapproved) = Rs 2000
Year 2016 = Sales Rs 2000 + 100 (PY sale which got approved) - 100 (unapproved) = Rs 2000
Year 2017 = Sales Rs 2000 + 100 (PY sale which got approved) - 100 (unapproved) = Rs 2000
and the process continues.
So, it is a management choice and I think the process of continuation makes the point of inflating sales invalid.
Regarding other two points, purchase of share warrants and fat salary are genuine and shows some profiteering from the management.