With banks almost across the board reporting returns to profit, one could be stunned by the apparent speed of the turnaround. Not, however, if one examines the power of modern accounting.

Of course, the following example does not have anything to do with today's accounting standards. It's just a made-up example. No resemblance is intended to any living, deceased, or soon-to-be deceased organisation.

Imagine you run a little company, the ME Plc. You have £10,000 in cash and decide to buy a shiny, new gas guzzler. It costs £50,000 so you take out a loan of £40,000. Looks great on paper because your assets (the car) are worth more than your liabilities, which means that you have a healthy little balance sheet.

But then your accountant calls to tell you that you need to account for the market value of the car. Unfortunately, the market for gas guzzlers has been a bit slow as of late. You make a few calls and can't find anyone to put a price on it. You remember an old friend who deals in almost anything and he tells you: "Listen mate, if it wasn't for us being friends, I wouldn't touch this thing. But since it's you, I am happy to take it off your hands for £25,000."

Oops. You revert the information back to your accountant who tells you that technically you're insolvent, but that there are ways around this. Since you are clearly unable to repay your loan as things stand, you can use this to your advantage. Imagine your bank could sell on the loan. They wouldn't get £40,000 for it since the value of the car has tanked. So assuming that there's a 50% chance you go bust, somebody might pay the bank £20,000 for it.

Leaving aside the unpleasant fact that it means you have bad credit, it also means that you can put a 'market value' on the money you owe, and miraculously you're back in the green.

Your car is worth £25,000 but you have marked down your liability and - like the rabbit out of the hat - you created equity of £5,000.

You decide to send your accountant a Harrod's hamper for his good work. And whilst he is munching on Blinis and Pecorino cheese he has an even better idea.

He tells you that the market for gas guzzlers is dislocated and that newest regulations mean you don't have to put a market price on your car. And as you like your car very much, you think it should be really worth at least £40,000. Voila - another £15,000 of profit right there.

What looked rather bleak not too long ago has suddenly turned into a very profitable enterprise.

You send your accountant on a golf weekend to Dubai because he is worth his weight in gold.

Of course, you still need to repay the £40,000 loan someday and you won't be able to do that if you need to sell the car at market price.

But that's just a minor detail that should not get in the way of your accountant having a right old time on the golf course, and you reporting profits like there's no tomorrow.

Here Is The Writer : Square Mylo

Square Mylo came to London with the intention of staying six months and never left. He has worked in Canary Wharf and in the Square Mile, but still maintains a clear conscience since he's never worked in Mayfair. Being a banker is his true calling. Maybe he should have listened more closely.

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