THE SOLUTION

In order to get the contract, Mr Mehta must fulfil the

above two conditions so for that hehas to do the following
things.(
a
)Learn the basic things of recording of day-to-day
transactions.(
b
)Collect necessary data for the preparation of last years
financial statements.(
c
)Maintain a daily book to record all the day-today transactions of the business.(
d
)Appoint an accountant, who will prepare all
the accounts and financial statements from this daily
book.
QUESTIONS AND ITS ANSWERS1.
Mr Mehta mentioned that(
a
)He could not have systematic accounting records
because he did not possessspecialized accounting skill;
and(
b

)Keeping such records would increase in costs, which

he could not afford. Howwould you respond to these
comments?
Solution:
(
a
)Here, as Mr Mehtas business is not very vast,
recording of day-to-daytransactions does not require
any specialised knowledge so he could just
learnthe basic fundamentals of accounting and start
recording the day-to-daytransactions in a daily book.
This daily book can be recorded systematically
byappointing an accountant (Mr Lal).(
b
)In short term, recording of proper accounts will cost a bit
to Mr Mehta but it will be equalized by the long-term
benefits by maintaining proper books of accounts.In
addition, appointing an accountant (Mr Lal) for such
limited size firm wouldnot cost very much as he will
not have to be paid a very high amount for hisservices
rendered.
2.
What information would Mr Lal require for preparing the
financial statements?
Solution:
Mr Mehta would require three types of information for
preparing the financialstatements, which are as under.(
a

)Information related to Trading Account(

i
)Purchases and sales of goods(
ii
)Direct expenses(
iii
)Closing stock of goods(
b
)Information related to Profit & Loss A/c.(
i
)Daily revenue expenses of the firm(
ii
)Daily revenue incomes of the firm(
c
)Information related to Balance Sheet(
i
)Information related to liabilities of firm1.Share
capital2.Other liabilities which include:

Reserves & Surplus

Secured loan and unsecured loans

Current liability

Contingent liability(
ii
)Information related to Assets of the business:

2
1 . F i x e d a s s e t s 2 . I n v e s t m e
n t s 3.Current Assets4. Miscellaneo
us expenditure
3.
What items would you expect to find in the statements of
financial position and profitand loss analysis relating to
Mr Mehta?
Solution:
Following are the items which may appear in the profit
and loss account of Mr Mehta:
Trading Account of Mr Mehta
P a r t i c u l a r s A m o u
n t P a r t i c u l a r s A m o
u n t
T
o
O
p
e
n
i
n
g
S
t
o
c
k
x
x
x
B
y
S
a
l
e
s
x
x
x
T o
P u r c
h a s e x x x B y
C l o
s i n g
S t o c k x x x
T
o
W
a
g
e
s
x
x
x
T o
G r o s s
P r
o f i t x x x B y
G r o
s s
L o s s x x x T
o
t
a
l
x
x
x
x
x
T
o
t
a
l
x
x
x
x
x

Profit and loss a/c of Mr Mehta

P a r t i c u l a r s A m o u
n t P a r t i c u l a r s A m o
u n t
T o
S a l a r y
o f
A s s i s t a
n t s x x x B y
s a l e
o f
A s s
e t s x x x T o E l e c t r i c i t y E x
p e n s e s x x x B y D i s c o u n t R e
c e i v e d x x x T o T e l e p h o n e E x
p e n s e s x x x B y I n t e r e s t o n I n
v e s t m e n t x x x T o S u n d r y
E x
p e n s e s x x x T o
D i s c o u n
t
P a i d x x x T
o
N
e
t
P
r
o
f
i
t
x
x
x
B
y
N
e
t
L
o
s
s
x
x
x
T
o
t
a
l
x
x
x
x
x
T
o
t
a
l
x
x
x
x
x
Balance Sheet of Mr Mehta
L i a b i l i t i e s A m
o u n t A s s e t s A m o
u n t
S h a r e
C a p i t a l F
i x e d
A s s e t s
T o t a l
o w n e r s h i p
c a p i t
a l x x x L a n d
&
B u i l d i n g x
x x
Reserve & Surplus

F u r n i t u r e x x x P
r
o
f
i
t
x
x
x
E
q
u
i
p
m
e
n
t
s
x
x
x
S e c u r e d
L o a n I
n v e s t m e n t s
M o r t g a g e
L o a n
x x x I n v e s t m e n t
s x x x
U n s e c u r e d
L o a n C
u r r e n t
A s s e t s
F r i e n d s
L o a n x
x x C a s h
B a l a n c
e x x x
Current Liability
B a n k
B a l a n c e x x x B
a
n
k
O
v
e
r
d
r
a
f
t
x
x
x
D
e
b
t
o
r
s
x
x
x
C
r
e
d
i
t
o
r
s
x
x
x
S
t
o
c
k
x
x
x
T
o
t
a
l
x
x
x
x
x
T
o
t
a
l
x
x
x
x
x
4.
What records would Mr Mehta require to maintain,
for controlling his businessactivities?
Solution.

Mr Mehta would be required to maintain the following

records, for controllinghis business activities.
(1)Trading Account
(
a
)It tells us what are the net purchase and net sales of the
company.(
b
)It also specifies the direct expenditure, incurred by the
company.(
c
)Information regarding trading account is helpful
during time of calculatingthe gross profit of
the company.(
d
)Other benefits.
3

(2)Profit and Loss Account

(
a
)It specifies the various expenses made by the company.(
b
)It also specifies the various incomes earned by the
company.(
c
)This account helps us to find out the net profit of
the company.
(3)Balance Sheet

(
a
)It tells the current financial position of the company.(
b
)It tells the total assets of the company.(
c
)It also tells about the total liabilities of the company.
Note:
A detailed explanation of above statement has
been mention in Question 3.
CONCLUSION
Thus from the above case, we can conclude that the
problem mentions in the case is oneof the common
problems which every unit faces if it does not prepare
and maintainnecessary accounts.Mr Mehta is one of the
persons who are suffering from various problems, which
arementioned in this case, and there are many other
problems, which may occur due to non-maintenance of
accounts.Thus in order to keep away such problems,
every firm big or small should alwaysmaintain its
accounts in a systematic way