COMPREHENSIVE PROJECTCHETAN ENTERPRISE In February 014, Mr Chetan 6 Mumbai won a Dottery prige of Rs. 10,00,000 after the pay ment of tax. Out oP this amount, he donated Rs (00,006 ~ t0 a chatitable hospital and started the businose of manufacturin plastie oods, frorn the vornaining amount on I Apal AD. He hived a premises on a monthly vent oF Rs. 18000, He used the uppey stony for his residential purpose and factory and shop oecupled the @yound floor . One. ifth of all expenditure on went and dlectricity voas attributed to vesidontial portion and balance for business r 4 purpose ye: He deposited Re. 880000 in Citi Bank in his firm's pnorne and veal amount was ‘etained as cash in hand, | i)Wages, advertisement ; wunning expenses oF van and petty expenses axe to be paid in cash while all other payments and expenses aro paid through cheque. He purchased a@ dlelivery van on ist April aout fo Re- 810000. Ihe estimated useful life oP the van is IO years after which its vwesidual value is estimated at Rs. 40000- ‘the monthly wnning expenses of the van is Rs. 2.000. This van was used to the extend of Yard for delivering goods to the customers and /ard for bringing vow materials fiom suppliers My Chetan uses a telephone both for business as well as private calls, but has paid the total bill from business bank account. I is estimated that private calls account for lath of the total charge. cthetotal charge amounted tp Re. 36000. At the start he spend Rs. 30,000 for furnishing the office and purchased a machinery for Rs. 250,000 with estimated useful life of 10 yoars with a residual value of Rs. 20,000. Installation charges amounted to Ps. 10,000 on his mochinery which wore wrongly included In wages 7 Followin Figures are extracted trom his books on 3st March, dois: [otal sales during ‘the period amounted +o ny 12,00,000. th of tho total assets a for cash and the balance on vaneetien Out of the cash sales 15% of the Yeceipts ore avalised by cheque .Expenses incurred during the eres ended 31S Mareh IS were: Rava materials purchased (15,000 For Cash (through bank) Wages (inclusive of installation) 36,000 (chayges of machinevy ) fdvertigemont a 16 00O Etectricity Charges Fetty expenses Amount paid to suppliersBad debts Discount allowed +o customers Other transactions were: ie Return inwards out of Credit Sales Return putwards out of credit Is400 uychases Discount received from supplied] 18200 | Interest vectived fiom bank Follovsing balances existed on 3iS® Mareh 015° () Closing Stock 150,000 (ii) Amount due fyom Customers 37,000 it) Amount due t creditors 110,000lying with customers on price = 15,000) included (iv) Cost of goods approval basis (sale is 212000 which is wrongly in credit sales Vou ave required aoa (1) Agcertain : Cash veceived from debtors during tthe year assuming that they pay only through cheque - Credit purchases of yaw materials. Cash in hand on. 3st march 201s. Bank balance on di’ March dois. Drawings made during the year (i Prepare a tial balance and financial statements of the business of Myr Chetan for the year ending 3IS* Mareh ols(i) Cateulate ‘he vdevant vatiog 10 whether the business has been well managed m kevms: of peability and shoxt tem solvency: Civ) Comment upon he profitability and hous eFFiciently the fixed assets working capital vec, hove been utilized on the basis of the following novms' @) GP ratio 45% te) MP ryatio al’ (c) Return on Capital employed ash td) Curvent vaio 2:1 @) Quick yatio U1 f\ Debtors +tuin over yvatio 7-5 times 9) \Woskin capital turnover ratio 2.6 Hindle th) Fixed assets tummover yatio 3 tmes ig ;LEDGEIx ACCOUNTSCASH Book. RECEIPTS Hee PAYMENTS bis de j 4 nly QO -Working notes: —$=, i) Debtors Aecount ’ xe PARTICULARS PARTICULARS Py discount Ate ®y return inward Pa eae ef ta) "4 ei clo3,60,000 By purchase (b seca lo bank Ate Jo discount Yeceived Ate (8,200 Jo seturn out Tobalance cld ($400 (10 000 503,600 if eae (0,000 $,03,600 = Cash + Credit purchases = (15000 + 03,600 tt) Total pa rchases = 618,600 (tv) Depreciation on delivery van = 3'0 000 —40 000 lo = an OO2) per ae Balance delivery van on 3 Merch, aos after Chaar depreciation = 310,000 - 27002 = 2€ 3009 pe(v) Depreciation on machinery = Cost+ installation exponse ~ Residual value 10 = 250,000 +10,000 -20000 “ao. yon em 2 QApoo per seme Balance machinery on 3i5* March Qois gyftey chasging depreciation =25S0000+10,000 - 24,000 2 236000 Gi) Drawings made My Chetan Rent (8000 x|2 = a at | QIGOOCO = 43290 + Electricity Lt 7 A0,000 = S000 * Telephone chasge ae 36000 = . Sea otal drawi PIECE vit) Delivery van any Upenses 2000x 12 and depreciation OCOD ey Lpense Q000%|2 2 2AD0O Deprecation 2 27000 eo S\coo leesJ2 of Stoo. will be charged to eas file as Suslage inwards + 34900 5 6 SlOom will be charged +b Peet Ate as ue outwards = 11005TRIAL BALANCEARIAL BALANCE as at 3t5* March Qos Interert from bank Akiva van Return pul Discount vecewved Crediton ae Machi nea Debtors Purchases WagesPetty expenses 22,000 Salar 84,000 Surning expense evan QA,000 Bad debts 3,500 Discount atlowed | 6.000 Returns invoard 8,500 ec 2a,55, 600 ——— =TRADING AND PROFIT AND LOSS A/CIg. [° pitnad C100 fo w0.g A Je lo Tunning tp ¢ Depreciation of van ° GlP transfered drorn bank dis count Yeceiveol0 petty expense lo salary lo bal debts fo discount allowed © depreciation on machiner lo net progit bans ferred 4 Capitok AleBALANCE SHEET alBalance Sheet as at 3lS* March xols faNetprokt 24.9770] 1089900 Cash in hand Cash at baok Deblox 371009 Saleson tspe0 approval —— Closi cede Furniture Delivery vao Machinery 236,000PROFITABILITY RATIOSFollowing ratios will be calculated 4o ae the proPitabili ty of the business : (1) Orss Profit Ratio. Gross Rofit «too Net sales * 615300 xiao. 53:97 (116500 Ki) Alot Profit Ratto > Net Prohit x too Alet Sales » 0445100 ZA Oae * &AFI0O xl00 = Al. dad (0 1116600 it) Return on Capital Eenployeed » Net imi x loo Capitol employed » AA ATP x09 > 22.42‘lo loga500 Corornentt op peottiabiliy position + (boss Profit Ratto ’ Gross Profit ratio 5 Xr Chetan’ business is higher than the norm fixed for this typ business. I(toY mea be olue +o hiah ae prices, tous prices yaw” materi ef Picieney of the labour GO Net Profit Ratio: This vatio is pear +o the norm set for this pe of business. [t indicates that My Chetan is successful in attaining the desired level g profte io the very first fear Gi) Return on Capital Emplo ed. his ratio Myr Chetang business is lower than the norm set or this type 5] business. This Shows ‘that the capital eroplayed has not beon used efficiently, A part of the funole m have been lyin idle. There is urgent ‘need 5] Utilizin “the capital in more icizrt manner: aseHence, the st ear yesults of My Chetan's business are not very satisfactory. Following vatios will be caleulated to assess the short term solvency of the business. (i) Current Ratio = Current Asses Current ~Liabilitia Curvent Assets » Cash +Bank+ Debtor + os Ftock Curvenk Ratlo . 65500 = Salil (10002 Comroeats he current vatio is much a then the norm. ‘his position benopicial > the creditors but ls shows that My Chetan has not been ern plow! his capited in an efficent manner. (this is evident fom thefact that there is @ huge amount of Cath balance $3 \&0,500 andl bank balance F2ASZ005 which aw jest oo ae idk. he fuods should a been U ig properly so as to locrease ai profitability. WIQuick Ratios Quick Asset Curvent liabilities. i, 27A88SOO . 4 AA TI * ASSSRes (locas Conomeots : ‘ The quick ratio Is aleo much higher than the norm. Although this posi iOn (Save comfortable “for the creditors it is nok dood from Mr Chetan’ point view since it indicates the existence idle -fundls We can conclude ‘that short term Mr Chetan's businessFollowing turnover -vatios will be | caleulattd to access the efReieney of the lousiness’ i) Debtors Turnover Ratio + Not credit sales Debtow. Not credit sales: Credit Sales -Sales return - Sales on approval » 200000 - 8500 - 1SPQD 2 (16500 Debtors » 31000 - 15900 for sala on ‘ approval basis 2 22000 ——= Debtor: turnover Ratio > 176500 AX, COD 2802 time. ee > Comments! his yvato is more thah the hom Set for it. lé indicates that amount froro debtow is cohlected moro quickly.eae Capital Tumover Ratio Net Sales Weal Capi tol Negi ag capital = Current assets - Current liabilities = €,50900 -|(0,000 = 540,500 ae Capitol dumover ratio -\|.76S500 = 2.1g times 540,500 Comments * Anis vatio is lower than the norm. lt indicates undler Utiligation oP upoakin capitol wn other words the vodakin capital is in excess of the naguirements of lbusiness.Asset “Turnovey Ratio 2 Net sales Fixed assets 2 ((716S00 > al4_times Siire Coroments : This vatio is aleo much lower then the nerm which means That tke firm hos nok heen able to utilice the fixed » assets es: