Mr. Harshawardhan Nanawati Of Mumbai Won 70 Lakh Rupees

Mr Harshawardhan Nanawati Mr H Of Mumbai Won 70 Lacs After The Pa

Mr. Harshawardhan Nanawati of Mumbai won 70 lacs after tax from a game show in June 2000. He donated 30 lacs to a charitable institution for old people and orphans, spent 15 lacs on his sister's marriage, and invested 25 lacs in his new shirt manufacturing business starting on 1.1.2001. He deposited 20 lacs in SBI, and used cash for petty expenses and wages of the van. He hired premises with a rent of Rs. 30,000 per month, utilized a delivery van purchased for Rs. 5 lacs with an estimated 10-year life and residual value of Rs. 60,000 (used 2/5th for deliveries and 3/5th for raw material collection), and bought an imported Japanese machine for Rs. 4 lacs with a 10-year life and residual value of Rs. 50,000, with Rs. 30,000 installation costs wrongly included in wages.

At the end of the year, the business's financial data includes total sales of 4,000 shirts at Rs. 400 each, with 1/4th on credit card and the rest for cash. Of the cash sales, 3/5ths are realized via cheques. Expenses include wages (Rs. 36,000), raw materials (purchase details unspecified), general expenses, advertising, electricity, insurance, payments to suppliers, petty expenses, salaries (Rs. 12,000/month), discounts to customers, bad debts, returns inward and outward, rent, and discounts from suppliers. Interest received from SBI was Rs. 150,000. The accounts show due from customers at Rs. 100,000 (including Rs. 4,000 recovered from a customer with returned goods, to be deducted from subsequent purchases) and dues from credit purchases. The closing stock is valued at Rs. 471,600, including worthless goods (cost Rs. 2,200), and goods on approval basis with a sale price of Rs. 20,000 (cost Rs. 15,000), which was wrongly included, along with stock of raw materials and finished goods.

Required actions include calculating the cash receipts from debtors assuming payments via cheques only, determining bank balances and cash in hand, and calculating drawings during the year. Additionally, necessary journal entries should be prepared, followed by ledger accounts and a trial balance. Financial statements for 2001, including the profit and loss account and balance sheet, are to be prepared, along with a cash book and ledger for sundry debtors and creditors.

Paper For Above instruction

Introduction

In the complex landscape of business finance and accounting, an accurate understanding of cash flow, ledger management, and financial statement preparation is essential. This paper explores the case of Mr. Harshawardhan Nanawati, a businessman who embarked on a new venture after a significant financial win, and examines the systematic approach to accounting through journal entries, ledger accounts, trial balance, and financial statements pertinent to his business for the accounting year 2001.

Initial Financial Transactions and Capital Introduction

Mr. H's receipt of Rs. 70 lacs post-tax from the game show marks the initial capital infusion into his business. His allocation of Rs. 30 lacs to charity, Rs. 15 lacs to his sister's marriage, and Rs. 25 lacs invested in his business are critical for tracking capital and personal expenses. The initial investments and donations are recorded as capital contributions and expenses, respectively. The banking deposit of Rs. 20 lacs represents the primary business fund, while the remaining cash, used for petty expenses and wages, requires cash account management.

Purchases and Fixed Assets

The business acquired fixed assets such as a delivery van for Rs. 5 lacs and an imported Japanese machine for Rs. 4 lacs, with installation costs wrongly categorized in wages. These assets have useful lives of 10 years, necessitating depreciation calculation. The van's depreciation method considers its estimated residual value, with usage split between delivery and raw material collection. The machine's depreciation similarly accounts for its residual value over its useful life. Proper journal entries for asset purchases, including depreciation entries, are essential for accurate financial reporting.

Operational Expenses and Revenue

The detailed expenses include wages (Rs. 36,000), rent (Rs. 30,000/month), and other running costs. Sales revenue amounts to Rs. 1.6 million (4,000 shirts at Rs. 400). The sales are partially credit-based, with one-quarter on credit card and the rest for cash, and cash sales are realized mostly by cheques. Expenses such as advertising, electricity, insurance, wages, and petty expenses are recorded for the year. Bank payments cover most expenses, while cash payments include petty expenses, wages, and some raw material purchases.

Revenue Recognition and Accounts Receivable

The accounts receivable at Rs. 100,000 includes a recovery adjustment of Rs. 4,000 from a customer with prior returns. The total due from customers and credit purchase dues are tracked, and the closing stock value of Rs. 471,600 is adjusted for obsolete and incorrectly included goods. The stock valuation method and material cost calculations are discussed, considering the inclusion of defective goods and goods on approval basis.

Financial Calculations and Journal Entries

Critical calculations include cash receipts from debtors assuming cheque payments only, determination of the bank balance, and cash in hand during the year. The journal entries encompass recording cash and credit sales, expenses, asset acquisitions, depreciation, and stock adjustments. For instance, asset purchases are debited to fixed asset accounts with respective credit entries to cash or bank, while depreciation expense is accrued annually.

Ledger Accounts, Trial Balance, and Financial Statements

Ledger accounts for debtors, creditors, fixed assets, expenses, and capital are prepared using journal entries. These ledgers assist in summarizing the transactions and preparing a trial balance, which verifies the arithmetical accuracy of books. The trial balance forms the basis for preparing the income statement and balance sheet, illustrating the company's financial position at the end of the year. The profit and loss account reflects revenues, expenses, and net profit, while the balance sheet presents assets, liabilities, and capital details.

Conclusion

The systematic accounting process demonstrated through journal entries, ledger preparation, and financial statement creation underscores the importance of accurate record-keeping for sound business decision-making. Correct treatment of assets, inventory, expenses, and revenue ensures transparent reporting and compliance, which are vital for business sustainability and growth in competitive markets.

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