i | i i | a i } : KHAN AND SONS Mr Javéed Khan, the sole proprietor of Khan and Sons, has been in the business of manufacturing and supplying of cow chain, goat chain, sheep chain, long chain, well chain and allied products for the last 20 years. The works office is located at Hauz Qazi, Delhi, where MrKhan runs the business himself, with the help of eight permanent employees. As and when the demand for the products go up, he em- ploys additional persons on daily-wage basis to meet the production requirements. As a result of this, his overheads are not large. ‘The business has been profitable and the company did not ever face any financial problems in the past. Whenever Mr Khan required funds, he borrowed them from one of his close friends, who is an important cloth merchant in the city. As and when he borrowed the funds, the financial requirements were not very significant. Most of the time the borrowing has been for a short period of time. He has been keeping a trading margin of around 15 to.20 per cent consistently and that made him profitable, During the year 1998 Khgn and Sons achieved an annual sales volume of Rs 26 lakh and a net profit of about Rs 3 lakh. Despite such a profitable operation, Mr Khan had to contribute Rs 3 lakh of his own money but was still short of funds. He was obliged, therefore, to borrow Rs 2 lakh from his friend to meet the business need. Mr Khan is at a loss, as to where his money has gone. He has asked his accountant to provide him with an analysis of this position. The accountant collected the following information! from the books of ac- counts: 1. Balance Sheet of M/s Khan and Sons as on December 31, 1997 (see Exhibit I). 2. Summary of transactions recorded in the books during the year Ist January 1998 to 31st December 1998 (see Exhibit II).10 Cases in Financial Management Exhibit 1 KHAN AND SONS Balance Sheet as on December 31, 1997 (Rupees in thousand) ASSETS Current Assets Cash 85 Sundry debtors 115 Inventory ~ . 150 ‘ Total current assets 350 Fixed Assets Equipment Cost 835 Less: Accumulated depreciation 465 670 Total assets re LIABILITIES ‘Sundry creditors Long-term borrowing Capital Reserves and surplus Total liabilities pati eae is evar ac ae ee oe -Khan and Sons n a Exhibit tf List of Transactions The following transactions were recorded in the books during the year 1998 {all items are in thousands of rupees): Purchased inventory for Rs 2,200 on credit. ‘Sold goods on account for Rs 2,000; cost of goods sold was Rs 1,500. Sold chains of cash Rs 600; cost of goods sold was Rs 450. Bought new equipment for Rs 600. Cash paid Rs 150 and the balance is to be paid after 2 years. Collected Rs 1,700 of the amount owed by customers. Paid accounts payable Rs 2,100. Borrowed short-term loan of Rs 200 from his friend. Contributed additional capital worth Rs 300: Sold on equipment for Rs 200. Its original cost was Rs 180 and so far Rs 45 has been provided as depreciation on this equipment. 10. Paid interest Rs 50. 11. Paid Paghri (goodwill) Rs 300 for the use of new works office, out of which Rs 60 had been written off during the year. 12. Interest accrued but not paid on loans was Rs 30. Rena © @rNon 13. Salaries and other administrative expenses during the year were Rs 260. 14. Depreciation provided on equipment was Rs 120. 15, Withdrawals by Mr Khan were Rs 55 [Seeds mre tin a omen |1 12. Cases in Financial Management ASSIGNMENT SHEET FOR KHAN AND SONS. 1. Indicate the impact of each of the transactions given in Exhibit Il on current assets (CA), non-current assets (NCA), current liabilities (CL), non current liabilities (NCL), cash (CASH), working capital (WC) and capital (CAPITAL). ‘You may use the format given on the transaction analysis sheet indicating increases by “+”, decreases by “” followed by the amounts, and 0 for no change. 2. After completing the transaction analysis sheet, prepare the following state- ment: a. Profit and Loss Account +b, Balance Sheet c. Funds Flow Statement by using the following definitions: (i) Working capital; and Gi) Cash r