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Required: Do You Agree With Koya's Loss Calculation?

Koya bought a taxi for his business and took a loan to cover most of the costs. In the first year, he tracked his expenses which included groceries, clothes, fuel, loan payments, and other costs. When he added up the expenses, he told his wife he had lost Rs. 277,510 for the year. However, his wife was skeptical of his accounting skills and consulted her cousin who said proper financial accounting is needed to accurately determine profit or loss using international standards.

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Chintan Trivedi
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1K views1 page

Required: Do You Agree With Koya's Loss Calculation?

Koya bought a taxi for his business and took a loan to cover most of the costs. In the first year, he tracked his expenses which included groceries, clothes, fuel, loan payments, and other costs. When he added up the expenses, he told his wife he had lost Rs. 277,510 for the year. However, his wife was skeptical of his accounting skills and consulted her cousin who said proper financial accounting is needed to accurately determine profit or loss using international standards.

Uploaded by

Chintan Trivedi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Accounting

KOYA’S KABS1

Koya was driving the Pajero of Sayed Abdul Rehman Alsagoff of Arab Merchants Llc. He returned
to Kozhikkode and decided to operate cabs.

He bought a Tata Safari costing Rs 785,000 on road. This included 30,000 annual insurance, Rs
60,000 15 year road tax, and Rs 3,000 “expenses” for registration. He paid Rs 285,000 from his
savings as down payment and took a mortgage for the remainder. The mortgage was structured as
36 EMI payments of Rs 18,000 each.

His only source of income was the fare collected from the cab. During the first year he had the
following information on money spend by him, which he had noted down in his pocket diary:

Rupees
Groceries purchased 48,275
Clothes bought for his daughters 2,850
Books and fees for his daughters 850
Uniform for himself and the driver’s badge 2,785
Food and drinks while driving 18,000
Sari bought for his wife on wedding anniversary 1,250
Diesel and oil 157,500
Paid to his wife for domestic expenses 11,000
EMI paid 198,000
Paid in the Savings Bank account 7,490

At the end of the year he organized a small party for his family. His wife, Jhamela, pointed out
that he has put in all his savings in the Cab. Did you make any profit? He did some mental
arithmetic and told her: ‘as of now I made a loss of Rs 277,510!’. Ente Rubbe!!, was her response.

However, she was not very convinced about Koya’s accounting skills. So she decided to consult
her cousin Abdulla, who did an MDP program at IIMK, with her problem. He told her that the
accounts need to be prepared taking into consideration “the framework” as developed by the
International accounting Standards Board, if we are to really determine the profit or loss.

Required: Do you agree with Koya’s loss calculation?

• 1
Financial Accounting for Management, (3rd Ed) by N Ramachandran and Ram Kumar Kakani,
Tata McGraw-Hill

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