CASE STUDY
Q. Rama and Raghav were twin brothers. Ram was interested
in computers. His keen interest in the subject made him take up
computer software for his degree course. He pleaded with his
father Mr. Rangan and purchased a computer for his use at
home. Raghav was always interested in sitting at his father’s
shop at the nearby market place selling electrical appliances.
Mr. Rangan as happy that raghav showed keen interest in
his business but was worried about Ram who would always
spend time with computers.
He felt that if the interest of the two sons be put together
they could start a flourishing business of their own. The boom in
the IT industry made him find ways to satisfy his son’s dreams.
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After college, the twins were drifting apart due to varied
interests. Rangan decided that this is the time for him to
intervene and make decisions for his sons.
He asked Raghav, a commerce graduate to draw up a
proposal for the same.
Raghav came out with the following ideas:
The area they lived on and run shop consisted of middle
income group families and many of them did not possess
computers at home.
Their shop could provide the following services:
- Computers classes for various age groups.
- Computers using facilities on payment per hourly basis
and printing of documents from computers.
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- Internet access facility at the prevailing market rates by entering into
contract with VSNL.
- Computer games corner for children.
Ram jumped at the idea and they made up a common
proposal. Ram wanted that they purchase 10 computers and start
with first two areas of operation and expand when things go well.
The shop they had at the market place was a single storey
building. Their fact her offered to build the first floor and give it to
them for their business. He Spent Rs.100000 on construction of the
facility and gave them Rs 250000 for the business. The sons went
to a bank and put up their proposal and managed to get a loan to
the extent of 75 percent of the cost of computers Rs. 400000 with
printers.
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As the bank manager was aware of the credit worthiness
of Mr. Rangan, he advanced the loan of Rs. 300000.
Total amount to be repaid will be Rs. 360000 including
interest in three annual installments as follows:
- End of the first year = Rs. 130000(Rs. 100000 + 30000 interest)
- End of the 2nd year = Rs. 120000(Rs. 100000 + 20000 interest)
- End of the 3rd year = Rs. 110000(Rs. 100000 + 10000 interest)
They started business on 1st April 1999. Raghav decided
to deposit Rs. 240000 in the bank. He gave Rs. 100000
to computer company as 25% of the value of computers
purchased and Rs. 300000 out of bank loan availed.
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He deposited 1000 for the electrical connection with the
Electricity Board. He paid a deposit of Rs. 100000 with
VSNL for the Internet connection. He used the telephone
connection at the shop, as there were two connections at
the shop. The brothers got the computer café furnished
by paying Rs. 25,000. Raghav got pamphlets printed and
distributed at the cost of Rs. 4,500 in the surrounding
colonies.
All payments were to be made by cheques. All he
receipts were in cash to be deposited in the bank on the
same day.
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The students on the average paid a monthly fee of
Rs. 500 for the three months computer evening classes.
There were a number of Internet subscribers and
receipts on account of Internet facility was Rs. 10,000 a
month in the first quarter on an average. The decided to
buy and sell computer stationery also like floppy discs,
CDs etc.
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At the end of the year, their results showed the following:
Total revenue including sale of computer stationery 4,98,000
Purchases of computer stationery 55,000
Electricity charges yet to he paid 1,24,000
Telephone charges 34,000
Petty Expenses 12,000
Entertainment expenses 10,000
Maintenance expenses 10,000
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There was helper at their father’s shop who agreed
to clean up the computer café and fetched water to
visitors. For the additional services, he was paid Rs.
500 as month. They withdrew Rs. 3,000 by cheque
each for their personal expenses. They paid the bank
loan regularly. Father was pleased at their sons’
efficiency.
He wanted to expand business.
1.Journalise the above transactions. Post them into
them ledgers and prepare Trail Balance.
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2. Prepare Profit and Loss A/c Balance
sheet.
3. Charge depreciation at the rate of
25% on computers, 10% on furniture and
5% on buildings.
