K&P Constructions

Kishori Lal was a civil engineer working with the most reputed construction firm in India. As he neared
15 years in the field, he was closing in on his dream to start his own company. On Dec 31st 2009 he
decided to quit his job and pursue his dream. He named his company K&P Constructions.

Between Jan 1st 2010 and March 31st 2010, he made a series of transactions to set up his business. He first
sold a suburban plot he owned in the city and raised Rs 40,00,000 which he invested fully in the business.
Later he liquidated some of the stock options he had saved and was able to raise additional Rs 10,00,000
which he deposited for the business. He decided to purchase a used office building and a small plot
adjacent to it in the outskirts of the city. The building cost him Rs 8,00,000 and had a useful life of 10
years while the land cost him Rs 10,00,000. He felt he would need a mini truck, a concreting mixer machine
and 5 needle vibrators each of which costed Rs 12,00,000 (useful life 10 years), Rs 2,00,000(useful life 5
years) and Rs 60,000( useful life of 5 years) per vibrator respectively. He also purchased furniture worth
Rs 50,000 which had a useful life of 10 years. After getting advised by a friend, he purchased an Insurance
cover lasting 10 years at a premium of Rs 4,00,000. In order to meet some of these commitments, he got
a loan of Rs 10,00,000 from his nearby bank at an interest rate of 10%.; the interest to be paid monthly
and one tenth of the principal to be paid every year. Mr Lal also decided to keep in stock some of the
materials essential for his business. He stocked 1000 cement bags costing 300 per bag ,sand worth Rs
100000 and 10 truck loads of stone worth Rs 50000 per load. (for convenience, assume all these
transactions took place on 31st March 2010)

Kishori Lal started operations for K &P Constructions on 1st April 2010. Over the course of one year, he
received Rs 67,00,000 worth of orders for different construction projects. Up till 31st March 2011, K&P
received Rs 52,00,000 from the clients while rest of the amount remains outstanding. Whenever there
was no demand in site, he let his mini truck to be used as a goods taxi. He got Rs 5 (including the expenses)
per kilometer for such trips. The mini truck managed to run 5000 kilometers in the year. On June 1st, he
also received loan by a special governmental credit guarantee scheme through which he obtained Rs
4,00,000 at 2% interest rate, the interest and principle to be paid within 10 years. He has to make the
interest and principal payments on 1st of June every year.

During the one year he purchased, sand of Rs 5,00,0000 and his closing stock of sand amounted to Rs
75,0000. He also purchased 16 additional truck loads of stones at the same price( Rs 50,0000 per load
)and he had 8 truckloads of stones left. The activities consumed 200 bags of cement every month. The
purchase schedule of cement is provided in Table 1. He is yet to pay his suppliers Rs 1,00,000 for the
purchases made throughout the year.

Salary expenses for the 15 laborers he employed amounted to 210,000 per month which was paid on the
first week of the next month. During the start of the year, he had purchased Personal protective
equipments (PPE) including helmets, reflectors and gloves for his workmen which costed Rs 2,00,000. He
knew this would last only for a year and he would have to purchase fresh ones after the end of the year.
He also incurred miscellaneous expenses including the purchase of shovel, trowel, tape etc which costed
Rs 1,25,000.
While having night works, power cuts became a constant problem and he had to get a diesel generator
on lease. He managed to get one from a close acquaintance at Rs 2,50,000 per year under an operating
lease. The generator consumed diesel worth Rs 2,25,000 in the year.

After constant complaints from his workers that the mixer machine is faulting regularly, on Oct 1st he
decided to sell the existing one and purchase a new one from the same trader. The new machine costed
Rs 3,00,000(useful life of 5 years) and he had to pay Rs 1,40,000 in this transaction.

The property taxes for the year was Rs 1,20,000 of which Rs 60,0000 is still unpaid. The electricity bill for
every month is Rs 30,000 which is paid only on the 15th of the next month. The interest obligations for the
bank loan was duly met.

As the year ended, Mr Kishori Lal wanted to know how well his business performed. Prepare the following
items for Mr Kishori Lal.

a) Opening balance sheet

b) Closing balance sheet
c) P&L account
d) Cash account
e) Cash flow statement

Note

1. Use FIFO method for inventory valuation

2. Use straight line depreciation for all items

Table 1

Purchase date No of bags Price per bag(Rs) Total (Rs)

Beginning stock 1000 300 300000
05/07/2010 300 330 99000
14/10/2010 200 320 64000
29/12/2010 400 340 136000
03/02/2011 300 330 99000
17/03/2011 400 350 140000