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  • Business Economics: Case Analysis: Gopal Banerjee & Company

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    Karunesh Mathur
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    The document describes a case study about Gopal Banerjee & Company, a retail jewellery shop. [1] Sri Gopal Banerjee, the owner, was surprised when a business economist calculated that the company was actually running at a net loss of Rs. 12,800 per year, despite the profit and loss statement showing a net profit. [2] Sri Banerjee argued that he did not pay himself a salary, paid no rent as he owned the building, and paid no interest as he used his own capital rather than borrowing, so did not understand how the business could be running at a loss. [3] The economist was asked to explain how he derived the net loss calculation

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    The document describes a case study about Gopal Banerjee & Company, a retail jewellery shop. [1] Sri Gopal Banerjee, the owner, was surprised when a business economist calculated that the company was actually running at a net loss of Rs. 12,800 per year, despite the profit and loss statement showing a net profit. [2] Sri Banerjee argued that he did not pay himself a salary, paid no rent as he owned the building, and paid no interest as he used his own capital rather than borrowing, so did not understand how the business could be running at a loss. [3] The economist was asked to explain how he derived the net loss calculation

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    © All Rights Reserved
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    18 views3 pages

    Business Economics: Case Analysis: Gopal Banerjee & Company

    Uploaded by

    Karunesh Mathur
    The document describes a case study about Gopal Banerjee & Company, a retail jewellery shop. [1] Sri Gopal Banerjee, the owner, was surprised when a business economist calculated that the company was actually running at a net loss of Rs. 12,800 per year, despite the profit and loss statement showing a net profit. [2] Sri Banerjee argued that he did not pay himself a salary, paid no rent as he owned the building, and paid no interest as he used his own capital rather than borrowing, so did not understand how the business could be running at a loss. [3] The economist was asked to explain how he derived the net loss calculation

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    © All Rights Reserved
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    of 3

    Business Economics

    CaseAnalysis:GopalBanerjee&Company

    Note:ReadthecasestudyGopalBenerjee&Co.toanswerthefollowingquestions.

    Questions:

    1. Whatistheproblem?DoyouagreewithSriGopalBanerjee?
    2. Inparticular,SriBanerjeefailstounderstandtheway,thenetloss(orRs.12,800)figures
    is derived. Prepare a small table which would help him to understand this derivation.
    And,ifnecessary,explain.
    3. Discusstheconditionsunderwhichprofitsandsupernormalprofitscanbeearned.


    Source:(M.Adhikary,ManagerialEconomics)

    GopalBanerjee&Co.

    TradingandProfitandLossAccountfortheYearEndingDecember1994.

    Dr. Cr.
    Toopeningstock 50,000 Bysale 6,35,000
    Topurchase 5.50.000 Byclosingstock 60,000
    Toinwardparcelpostage 5,000
    Togrossprofit 90,000
    6,95,000
    Tosalaries&wage 25,000 Bygrossprofit 90,000
    Toadvertisement 5,000
    Toboxes&wrappings 3,000
    Toofficesupplies&postage 1,000
    Tolight&power 3,000
    Toinsurance,taxes&repairs
    ofbuilding
    7,000
    Totelephone 2,000
    Todepreciation 5,000
    Tointerestonborrowings 10,000
    Tomisc.expenses 7,000
    Tonetprofit 22,000
    Rs.90,000 Rs.90,000

    The above statement was given to a business economist for his comments. On enquiry, Sri Gopal
    Banerjeesuppliedthefollowingadditionalinformation:

    a) Upto the year 1988, he worked as a manager of another jewellery shop where he was getting a
    salaryofRs.600permonth.Sincethenhelefttheserviceandstartedhisownretainshop.

    b) Thebuildinginwhichtheretailshopishoused,isatwostoreyairconditionedbuildingownedby
    SriGopalBanerjeehimself.Thebuildingislocatedinsuchamarketplacethatitcanreadilybelet
    outanytimeforRs.800permonth.

    c) SriBanerjeehasinvestedhisowncapitaloftheorderofRs.2,00,000.Ifborrowed,itwouldhave
    beenobtainedata9percentinterestperannum.

    Thebusinesseconomistmadecertainadjustmentsandtherebyafreshcalculation,whichshowedthatSri
    GopalBanerjeewasactuallyrunningthebusinessatanetlossofRs.12,800perannum.

    Onbeingtoldso,SriBanerjeewassurprisedandargued:

    a) Impossible;Iamworkingforprofitsandnotforsalary.Idontactuallydrawanysalaryfromthe
    business.

    b) Ihavegotmyownbuilding.Idonotpayanyrent.

    c) Ihaveinvestedmyownmoney.Idonotpayanyinterest.Infact,Ihaveworkedhardtoputthis
    business in a position where there is no need for borrowing money I think, it is creditable that a
    businessmanhereisfreefromanydebttobanksandmoneylenders.

    d) If I am saving some money by way of employing my own labour, own building and own money,
    howcanIincurloss?Netloss;Unbelievable!

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