I.

INDIAN RAYON LIMITED

Indian Rayon Limited, member of the Aditya Birla group, is a

a
interests in rayon, cement, carbon black, and large diversified corporation with
textiles. Selected information from the
annual report for 1992-93 is
given below (amounts in company's
lakhs):
Nine-month period Twelve-month period
ended March 31, 1993 ended June 30, 1992
Beginning Inventory Rs Rs b
Purchases 14958.73
Ending Inventory 17009.34
3343.50 C
Cost of Goods Sold 14997.79 16644.89
II. SEARLE (INDIA) LIMITED

Searle (India) Limited is large pharmaceutical company manufacturing a wide range of products
a

including pharmaceutical preparations, bulk drugs and chemicals, pesticides and consumer products.
The following items
appeared on the company's balance sheet as on March 31, 1994 (amounts in
thousands of rupees):
Share Capital
Rs 782,46
Reserves and Surplus
Secured Loans
2796,80
Unsecured Loans 430,75
Deferred Liabilities 565,41
Fixed Assets: Gross Block 180,02
Depreiation 2417,49
Capital Work-in-progress 1267,52
Investments 109,75
Inventories 51,57
Sundry Debtors 2414,21
Cash and Bank Balances 1563,64
Loans and Advances 98,54
Current Liabilities 817,24
Provisions 1230,39.
Contingent liabilities not provided for: 219,09
Taxation matter under appeal
Bills discounted 201,18
162,93
Required
Prepare the classified balance sheet of Searle
(India) Limited as on March 31, 1994 m vertical
form.
 KARKRAFT workshops, Ravi and
automobile
number of years as a supervisor in reputed
Having worked for a 1, 19X6, they
at the urging of their customers. On January
their own garage contributed equally by them, profits
Raju decided to set up with a capital of Rs 25,000, life
Stablished Kar Kraft, a partnership costing Rs 10,000 (expected
equally.
shared bought tools and equipment
They
and losses to be be provided by the
to
customers to avoid expensive inventories,
credit.
O years) for cash. Spares
were on
purchased
spares for Rs 3,300
were
order to meet emergency requirements,
however, in cash.
Rs 2,700were purchased for
Dffice supplies costing as Kar Kraft received orders
from many
seemed successful, from the start,
The business worked very hard and
associated with Ravi and Raju for a long time. They
ustomerS who had beern were disappointed
when they found from
came up. Yet they
were always available when problems of Rs 3,000
to survive with a balance
he company's bank statement that they were barely managing
bank statement of Kar Kraft for the year:
it the end of' 19X6. Following is the summary of the

Reccipts: Rs 25,000
Share Capital 31,200
Collections from customers
56,200

ayments: Rs 10,00o
Tools and equipment
8,800
alaries of assistants
9,600
Rent advance for 24 months (paid on January 1, 19X6)
1,200
One-year insurance policy dated January 1, 19X6 2,700
Office supplies

2,900
Payments to creditors for spares
Withdrawals: 9,000
Ravi
9,000
Raju 53,200

Balance: December 31, 19X6 3,000

to himself: "II looks like I made a mistake i
On examining the above statement, Ravi thought
a Rs 20,000 salary per year in a 9 to 5 job. Aftd
plunging into this veñiure. After all, I was earning
a whole year of hard work, I have made just
Rs 9,000 from the business."
The following additional information is relevant:
Rs 29,900.
(a) Amounts receivable for services provided to customers,
800 not yet paid.
(b) Salaries of assistants for December 19X6, Rs
Rs 1,930.
(c) Inventory of office supplies on December 31, 19X6,
(d) Inventory of spares on December 31, 19X6, Rs 2,600.

Required
Do you agree with Ravi's view? Prepare a report on the performance of Kar Kraft during 19X0
Recommend a set of accounting records appropriate for the business, keeping in mind that thi
company does not intend to employ additional staff.