THE PROBLEM: You are launching into a business (individual proprietorship) in the name and style of

your choice. It has to be a manufacturing business. It means that your business would involve, buying
materials, transforming it using plant and machinery, and selling it.

Name of the company: - Nani’s Secret

Business: - The company is in business of Pickle Manufacturing. The company uses peeler, slicer, cutter,
cooking mixer & filing machine as fixed assets each having life of 10 years.

Cooking Mixer Peeler

Slicer

Cutter

Filing Machine
Raw Material & Consumables: Vegetables, vinegar, brine, sugar, salt, spices, acids preservatives & Jars.

Process: Vegetables are cleaned fermented/boiled in brine. They are then cut/sliced and placed in glass
jars. Glass Jars are filed with pickle liquor made from vinegar & spices. Every 4 kg of consumables & 4 kg
of vegetables result in 5 kg of Pickles i.e. Finished inventory
Company purchases 400 Kg of vegetable & consumables in every year calendar year.

CONDITIONS:
1. Date of commencement of business is to be your date of birth. – date of commencement of
business is 15th Jan 1990

2. Source of Funds:-
2.2 Capital to be contributed will depend on the last three digits of your IIMK EPGP Roll Number
multiplied by 340 - Starting capital = 116*340 = Rs. 39440 (in thousand)
2.3 Long term loans equal to maximum of 1.5 times the capital is available at the rate of 10%
per annum. Long term loan has to be at least equal to capital.
in Rs. (in thousand) Loan Interest
15-Jan-90 - 31 Mar-91 39440.00 3944.00
1-Apr-91 - 31 Mar-92 59160.00 5916.00
1-Apr-92 - 31-Mar-93 59160.00 5916.00

3. Every student will have at least 30% of his total assets invested in fixed assets. Depreciation on
monthly basis is to be computed using the straight line method of depreciation. Life of asset can
vary between 5 to 15 years for different assets.
The company uses peeler, slicer, cutter, cooking mixer & filing machine as fixed assets each
having life of 10 years.
Fixed asset
Depreciation
(Cost in thousand )
Year 1 58000.00 5800.00
Year 2 80000.00 8000.00
80000.00
Year 2 8000.00
+ 70000 – purchase on yr. end

Fixed asset
(Cost in thousand ) Total Asset Share
(aft depreciation)
Year 1 164756.65 52200.00 32%
Year 2 274118.94 82400 30%
Year 2 314128.04 142600 45%

4. Credit sales can be eight times cash sales.

Cash sales are 40% of total sales, accordingly ‘Credit : Cash’ sales = 1.5 times. Debtors are
recovered within 90 days with no bad debts.
in Rs. (in thousand) Cash Credit
15-Jan-90 - 31 Mar-91 206200.00 309300.00
1-Apr-91 - 31 Mar-92 191961.00 287941.50
 1-Apr-92 - 31-Mar-93 221714.96 332572.43

5. Credit purchase can be eight times cash purchase.

Cash purchases are 20% of total sales, accordingly ‘Credit : Cash’ purchases = 4 times, Creditors
are paid with 180 days.
in Rs. (in thousand) Cash Credit
15-Jan-90 - 31 Mar-91 53592.50 214370.00
1-Apr-91 - 31 Mar-92 47268.59 189074.34
1-Apr-92 - 31-Mar-93 52113.61 208454.46

6. Wage cost could be 10% to 30% of sales.

Year Wages Remarks
15-Jan-90 - 31 Mar-91 77325.00 15% of sales in Yr 1 – rounded of to 2 decimals
1-Apr-91 - 31 Mar-92 47990.25 10% of sales in Yr 2 – rounded of to 2 decimals
1-Apr-92 - 31-Mar-93 55428.74 10% of sales in Yr 2 – rounded of to 2 decimals

7. Cash balance at the end of any year is to be maximum of 5 months and minimum of 2-month
cash expenses. Deployment of surplus cash on short term inter-corporate market at 6% per
annum is possible.
Cash balance here is assumed as cash & bank balance. All expenses are direct/indirect are paid
on 31st March via bank/cash. All the purchases & sales and Payment/repayment thereof are also
materialized within same year.
Cash requirement Cash available in
in Rs. (in thousand) Cash available
for year months requirement
15-Jan-90 - 31 Mar-91 474537.50 80402.50 2 months
1-Apr-91 - 31 Mar-92 401333.18 158971.83 4.75 months
1-Apr-92 - 31-Mar-93 545506.81 167752.40 3.69 months

8. Sales volume will increase by 10% over the previous year, sale price will increase by 5% over the
previous year and purchase price will increase by 5% every six-month-basis, all reckoned on a
calendar basis.
Purchase price Purchase price
Year
Vegetables Consumables - others
15-Jan-90 - 30-Jun-90 ₹ 120.00 ₹ 50.00
1-Jul-90 - 31-Dec-90 ₹ 126.00 ₹ 52.50
1-Jan-91 - 30-Jun-91 ₹ 132.30 ₹ 55.13
1-Jul-91 - 31-Dec-91 ₹ 138.92 ₹ 57.88
1-Jan-92 - 30-Jun-92 ₹ 145.86 ₹ 60.78
1-Jul-92 - 31-Dec-92 ₹ 153.15 ₹ 63.81
1-Jan-93 - 31-Mar-93 ₹ 160.81 ₹ 67.00

Sales Volume Sale Price

Year
In Kg (in thousand) Rs./ Kg
1-Jan-90 - 31-Dec-90 400.00 ₹ 1,000.00
1-Jan-91 - 31-Dec-91 440.00 ₹ 1,050.00
 1-Jan-92 - 31-Dec-92 484.00 ₹ 1,102.50
1-Jan-93 - 31-Dec-93 532.40 ₹ 1,157.63

With above working the costing/pricing in financial year shall appears as under:-
(assuming inventory is purchased/used evenly throughout the year)

Consumables - Purchase cost/kg of

Purchase price Vegetables
others RM/ consumable
15-Jan-90 - 30-Jun-90 ₹ 120.00 ₹ 50.00
For year 1
1-Jul-90 - 31-Dec-90 ₹ 126.00 ₹ 52.50
1-Jan-91 - 31-Mar-91 ₹ 132.30 ₹ 55.13 630.50
1-Apr-91 - 30-Jun-91 ₹ 132.30 ₹ 55.13
For year 2
1-Jul-91 - 31-Dec-91 ₹ 138.92 ₹ 57.88
1-Jan-91 - 31-Mar-91 ₹ 145.86 ₹ 60.78 695.13
1-Apr-91 - 30-Jun-91 ₹ 145.86 ₹ 60.78
For year 3
1-Jul-92 - 31-Dec-92 ₹ 153.15 ₹ 63.81
1-Jan-93 - 31-Mar-93 ₹ 160.81 ₹ 67.00 766.38

Sales Price Pickles – price Pickles – Volume

15-Jan-90 - 31-Dec-90 ₹ 1,000.00 ₹ 400.00

1-Jan-91 - 31-Mar-91 ₹ 1,050.00 ₹ 110.00
1-Apr-91 - 31-Dec-91 ₹ 1,050.00 ₹ 330.00
1-Jan-92 - 31-Mar-92 ₹ 1,102.50 ₹ 121.00
1-Apr-91 - 31-Dec-91 ₹ 1,102.50 ₹ 363.00
1-Jan-93 - 31-Mar-93 ₹ 1,157.63 ₹ 133.10

9. All other costs will remain stable over the period.

Direct cost other than wages (Costs in Thousand)
Rent of Factory: Rs. 2000 per month or part of month
Electricity: Rs. 500 per month or part of month
Water: Rs. 300 per month or part of month
Freight: Rs. 200 per Kg of vegetables purchased
Indirect cost other than wages (Costs in Thousand)
Salary: Rs. 650 per month or part of month
Selling & packaging: Rs. 135 per kg sold
General expenses like repairs, maintenance, etc.: Rs. 300 per year

Total direct & indirect cost of the company in respective financial years is as under: -
Direct cost Rent Electricity Water Freight
15-Jan-90 - 31 Mar-91 30000.00 7500.00 4500.00 3000.00
1-Apr-91 - 31 Mar-92 24000.00 6000.00 3600.00 2400.00
1-Apr-92 - 31-Mar-93 24000.00 6000.00 3600.00 2400.00
 Indirect cost Salary S&P General Expenses
15-Jan-90 - 31 Mar-91 9750.00 68850.00 4500.00
1-Apr-91 - 31 Mar-92 7800.00 60885.00 3600.00
1-Apr-92 - 31-Mar-93 7800.00 66973.50 3600.00

10. Assume no gestation period. That is, the business starts operations from day one. Irrespective of
your starting date of business – your first accounting period would end on 31st March of that
year [with a condition of business running for at least 3 years].
Year 1: 15-Jan- 1990 to 31 Mar 1991
Year 2: 1-Apr-1991 to 31 Mar 1992
Year 3: 1-Apr-1992 to 31 Mar 1993

11. You need to have at least 10 transactions per accounting period.

Year 1 – 18, Year 2 – 19,and Year 3 - 19

REQUIRED: Part 1(Compulsory and worth 30 marks)

1) You are required to prepare the accounts of the business as if owned by you as an individual
proprietorship in any name and style of your choice, with in the frame work of the conditions one
through eleven detailed above, for three yearly accounting periods.

With above working, the costing & inventory resulting from process in financial year appears as under: -
(assuming inventory is purchased/used evenly throughout the year)

Inventory details in RM Finished closing

Sold
thousand kgs purchased goods inventory
15-Jan-90 - 31 Mar-91 500.00 625.00 510.00 115
1-Apr-91 - 31 Mar-92 400.00 500.00 451.00 164
1-Apr-92 - 31-Mar-93 400.00 500.00 496.10 167.90

Business pricing/costing shall appear as under: -

Purchase Closing
Rs. in thousand Sales Direct cost
Cost inventory
15-Jan-90 - 31 Mar-91 267962.50 515500.00 114825.00 71260.90
1-Apr-91 - 31 Mar-92 236342.93 479902.50 77990.25 104282.08
1-Apr-92 - 31-Mar-93 260568.07 554287.39 85428.74 117394.61

in Rs. (in thousand) Depreciation Interest Indirect cost

15-Jan-90 - 31 Mar-91 5800.00 4000.00 63750.00
1-Apr-91 - 31 Mar-92 8000.00 5900.00 55300.00
1-Apr-92 - 31-Mar-93 8000.00 5900.00 59810.00
 2) Prepare a precise chronological statement of all transactions.

Transactio Transaction details Finished Fixed

Year 1 Cash Debtors Capital Surplus Loan Creditors
n date (all details in thousand) goods assets
Start of business with 39440.0
1 15-Jan-90 39440.00
capital Rs. 39440 0
Vegetables &
consumables worth
Rs.107185, cash
2 30-Jan-90 -21437.00 -107185.00 85748.00
purchases Rs. 21437,
credit purchase Rs.
85748
Secured loan for Rs. 40000.0
3 01-Apr-90 40000.00
40000 @ 10% interest 0
Purchased fixed asset
4 01-Apr-90 -58000.00 58000.00
worth Rs. 58000
Sale amounting to Rs.
128875, cash sales
5 01-Apr-90 51550.00 77325.00 128875.00
51550. Credit sales Rs.
77325.00
Collection of
6 30-Jun-90 receivables Rs. 77325.00 -77325.00
77325.00
Repayment of credit
7 30-Jun-90 -85748.00 -85748.00
purchases Rs. 85748.00
Cash sale of Rs.
8 01-Aug-90 30930.00 & credit sale 30930.00 46395.00 77325.00
of Rs. 46395.00
Cash purchase Rs.
9 30-Sep-90 32155.50 & credit -32155.50 -160777.50 128622.00
purchase Rs. 128622.00
Collection of receivable
10 30-Oct-90 46395.00 -46395.00
Rs. 46395.00
11 30-Dec-90 Cash sale Rs. 123720.00 123720.00 185580.0 309300.00
 & Credit sale Rs.
0
185580.00
-
Collection of receivable
12 28-Feb-91 185580.00 185580.0
Rs. 185580.00
0
Repayment of credit
-
13 31-Mar-91 purchases of Rs. -128622.00
128622.00
128622.00
Interest paid of Rs.
14 31-Mar-91 -4000.00 -4000.00
4000.00
Direct expenses paid
15 31-Mar-91 -119325.00 -119325.00
Rs. 119325.00
Indirect expenses paid
16 31-Mar-91 -65250.00 -65250.00
Rs. 65250.00
Depreciation charged
17 31-Mar-91 -5800.00 -5800.00
Rs. 5800.00
Closing finished goods
18 31-Mar-91 71260.90 71260.90
c/f Rs. 71260.90
39440.0 40000.0
80402.50 71260.90 52200.00 0.00 124423.40 0.00
TOTAL 0 0

Transactio Transaction details (all Finished Fixed

Year 2 Cash Debtors Capital Surplus Loan Creditors
n date details in thousand) goods assets
39440.0 40000.0
1 01-Apr-91 Opening balance b/f 80402.50 71260.90 52200.00 0.00 124423.40 0.00
0 0
Secured additional loan
for Rs. 19000 @ 10% 19000.0
2 01-Apr-91 19000.00
interest 0
19000.00
Purchased fixed asset
3 01-Apr-91 -40000.00 40000.00
40000.00
4 01-Apr-91 Cash purchase Rs. -18907.43 -94537.17 75629.74
18907.43
 Credit 75629.74
94537.17
opening inventory
5 01-Apr-91 charged to P&l for sales -71260.90 -71260.90
Rs. 71260.90
Cash sales Rs. 57588.30
6 01-Apr-91 Credit sales Rs. 57588.30 86382.45 143970.75
86382.45
Collection of
7 30-Jun-91 receivables Rs. 86382.45 -86382.45
86382.45
Cash sale of Rs.
57588.30
8 01-Aug-91 57588.30 86382.45 143970.75
Credit sale of Rs.
86382.45
Repayment of credit
9 30-Sep-91 -75629.74 -75629.74
purchases Rs. 75629.74
Cash purchases Rs.
28361.15
10 30-Sep-91 -28361.15 -141805.76 113444.60
Credit purchase Rs.
113444.60
Collection of
11 30-Oct-91 receivables Rs. 86382.45 -86382.45
86382.45
Cash sale Rs. 76784.40
115176.6
12 01-Dec-91 Credit sale Rs. 76784.40 191961.00
0
115176.60
-
Collection of receivable
13 28-Feb-92 115176.60 115176.6
Rs. 115176.60
0
Repayment of credit
-
14 31-Mar-92 purchases Rs. -113444.60
113444.60
113444.60
15 31-Mar-92 Interest paid Rs. -5900.00 -5900.00
 5900.00
Direct expenses paid
16 31-Mar-92 -81590.25 -81590.25
Rs. 81590.25
Indirect expenses paid
17 31-Mar-92 -56500.00 -56500.00
Rs. 56500.00
Depreciation charged
18 31-Mar-92 Rs. -9800.00 -9800.00
9800.00
Closing finished goods
19 31-Mar-92 c/f 104282.08 104282.08
104282.08
39440.0 59000.0
158971.83 104282.08 82400.00 0.00 247213.91 0.00
TOTAL 0 0

Transactio Transaction details (all Finished Fixed

Year 3 Cash Debtors Capital Surplus Loan Creditors
n date details in thousand) goods assets
39440.0 59000.0
1 01-Apr-91 Opening balance b/f 158971.83 104282.08 82400.00 0.00 247213.91 0.00
0 0
Cash purchase Rs.
20845.45
2 01-Apr-92 -20845.45 -104227.23 83381.78
Credit purchase Rs.
83381.78
opening inventory
3 01-Apr-91 charged to P&l for sales -104282.08 -104282.08
Rs. 104282.08
Cash sale Rs. 66514.49
4 01-Apr-92 66514.49 99771.73 166286.22
Credit sale Rs. 99771.73
Collection of receivable
5 30-Jun-92 99771.73 -99771.73
Rs. 99771.73
Cash sale Rs. 66514.49
6 01-Aug-92 66514.49 99771.73 166286.22
Credit sale Rs. 99771.73
Repayment of credit
7 30-Sep-92 -83381.78 -83381.78
purchases Rs. 83381.78
 Cash purchase Rs.
31268.17
8 30-Sep-92 -31268.17 -156340.84 125072.68
Credit purchase Rs.
125072.68
Collection of receivable
9 30-Oct-92 99771.73 -99771.73
Rs. 99771.73
Cash sale Rs. 88685.98
133028.9
10 01-Dec-92 Credit sale Rs. 88685.98 221714.96
7
133028.97
-
Collection of receivable
11 28-Feb-93 133028.97 133028.9
Rs. 133028.97
7
Repayment of credit
-
12 31-Mar-93 purchases Rs. -125072.68
125072.68
125072.68
Interest paid Rs.
13 31-Mar-93 -5900.00 -5900.00
5900.00
Direct expenses paid
14 31-Mar-93 -89028.74 -89028.74
Rs. 89028.74
Indirect expenses paid
15 31-Mar-93 -61010.00 -61010.00
Rs. 61010.00
Loan repaid Rs.
16 31-Mar-93 -59000 -59000
59000.00
Depreciation charged
17 31-Mar-93 -9800.00 -9800.00
Rs. 9800.00
Purchase of office
18 31-Mar-93 -70000 70000.00
space Rs. 70000.00
Closing finished goods
19 31-Mar-92 117394.61 117394.61
c/f Rs. 117394.61
142600.0 39440.0
Total 167752.40 117394.61 0.00 388307.01 0.00 0.00
0 0
3) Prepare all the three financial statement [i.e. Balance Sheet, Income Statement and Cash Flow Statement] for each accounting period. You
need to have three periods.