Case Study

Mr Singh who took a loan from Bank Rs 33,00,000 @10% per annum wanted to start
a cab operating company, Mr Singh purchased 6 cabs Rs 5, 00,000 each and kept
3,00,000 for working capital needs. Initially he managed all his business affairs
from his residence and hired sufficient number of drivers and one office assistant.
On account of his good liaison with corporate clients he could manage good amount
of business during the year. He was not very good at accounting, but a bunch of
information which he has given for his financial transactions is as follows:

I. All the six taxis were hired out to 6 corporate clients at monthly rent of Rs 4,
00,000 per annum per car.

II. Six drivers were hired with a consolidated pay package of Rs 9000 per month
/per driver.

III. During the year he paid in cash an average petrol expense of Rs 8000 per
month/ per car.

IV. At end of year Rs 2, 16000 were yet to be paid for petrol expenses.

V. Being the first year of operations cars didn’t required any maintenance.

VI. Average life span of each car was estimated as 5 years with 10 percent
salvage at the end.

VII. As per the scheme of Government he was required to pay 15 percent of the
net profit earned as taxes.

VIII. Out of the profits he used Rs 2,40,000 per annum for his domestic expenses
and rest amount he maintained a bank account to repay the loan at the end.

Mr Singh was confident enough that he will continue at same pace in the
years to come. Evaluate the financial position of Mr Singh.