Q. Anil invested Rs. 40,000 of his own in a florist shop and borrowed another Rs. 20,000 from a bank for business use. At the end of first year of operations, he found Rs. 72,000 in his shop's bank account. He owed his suppliers Rs. 12,000 and had not repaid the bank loan. He had no other business assets other than cash. During the year he paid himself a salary of Rs. 24,000
i) What conclusions would you draw from his first year's operations?
ii) For what decisions could this information be used?

(June 01)

Statement of affairs of Mr. Anil

Statement showing profit or loss

(i) In the first year anil has earned a profit of Rs. 24,000
(ii) This type of information is useful in preparing financial accounts, balance sheet, calculating ratios, etc., Earnings information is useful because it helps in measuring the achievement of the business. It helps in identifying the problems currently by the firm.

Q. Regent Ltd. has a sales revenue of Rs. 10,000 and depreciation for the period is Rs 2,000. The other expenses are Rs 9,000.
(1) What would be the net loss for the period ?
(2) What is the amount of funds generated from operations during the period ?
(3) Under what circumstances can the funds from operations be zero ?

(Dec. 01)

(i)

(ii) Funds from operation = Net loss + Depreciation
= (1,000) + 2,000
= Rs. 1,000

(iii) Funds from operation can be zero when the operating expenses excluding depreciation are equal to sales revenue.