Rama and Raghav were twin brothers. Ram was interested in computers and would find time to always work on computers either at college or at his friend's place. His keen interest in the subject made him take up computer software for his degree course. He pleaded with his father Mr. Rangan and purchased a computer for his use at home. Raghav was always interested in sitting at his fathers' shop at the nearby market place selling electrical appliances. He would often go and help his father at the shop after college hours.Mr. Rangan was happy that Raghav showed keen interest in his business but was worried about Ram who would always spend time with computers. He felt that if the interest of the two sons be put together they could start a flourishing business of their own, The boom in the IT industry made him find ways to satisfy his sons' dreams.
After college the twins were drifting apart due to varied interests. Rangan decided that this is the time for him to intervene and make decisions for his sons. He decided to start a computer business for his sons. He asked Raghav, a commerce graduate
to draw up a proposal for the same.
Raghav came out with the following ideas:-
The area they lived on and run shop consisted of middle income group families and many of them did not possess computers at
home
Their shop could provide the following services:-
Computer classes for various age groups
Computer using facilities on payment per hourly basis and printing of documents from computers Internet access facility at the prevailing market rates by entering into contract with VSNL.
Computer games corner for children.
Ram jumped at the idea and they made up a common proposal. Ram wanted that they purchase 10 computers and start with
first two areas of operation and expand when things go well.
The shop they had at the market place was a single storey building. Their father offered to build the first floor and give it to them for their business. He spent. Rs. 1,00,000 on construction of the facility and gave them Rs. 2,50,000 for the business. The sons went to a bank and put up their proposal and managed to gel a loan to the extent of 75 percent of the cost of computers Rs.4,00,000 with printers. As the bank manager was aware of the credit worthiness of Mr. Rangan, he advanced the loan of
Rs.3,00,000. Total amount to be repaid will be Rs. 3,60,000 including interest in three annual installments as follows:- End of the first year - Rs. 1,30,000 (Rs. 1,00,000 + 30,000 interest)
End of the 2nd year = Rs. 1,20,000 (Rs. 1,00,000+ 20,00 interest) End of the 3rd year = Rs. 1,10.000 (Rs. 1,00,000+ 10,000 interest)
They stalled business on 1st April 1999. Raghav decided to deposit Rs. 2.40,000 in the bank. He gave Rs.1,00.000 to computer company as 25% of the value of computers purchased and Rs. 3,00,000 out of bank loan availed. He deposited Rs.1,000 for the electrical connection with the Electricity Board. He paid a deposit of Rs. 1,00,000 with VSNL for the Internet connection. He used the telephone connection at the shop, as there were two connections at the shop. The brothers got the computer cafe furnished by paying Rs. 25,000. Raghav got pamphlets printed and distributed at the cost of Rs. 4500 in the surrounding colonies.
All payments were to be made by cheques. All the receipts were in cash to be deposited in the bank on the same day. The students on the average paid a monthly fee of Rs. 500.00 for the three months computer evening classes. There were a number of internet subscribers and receipts on account of internet facility was Rs. 10,000 a month in the first quarter on an average. They decided to buy and sell computer stationery also like floppy discs, CDs etc.
At the end of the year, their results showed the following:
Total revenue including sale of computer stationery
4,98,000
Purchases of computer stationery Electricity charges yet to he paid
55,000
1,24,000
34,000
Telephone charges Petty expenses
12,000
Entertainment expenses Maintenance expenses
10,000 10,000
There was helper at their father's shop who agreed to clean up the computer cafe and fetched water to visitors. For the additional services, he was paid Rs. 500 per month. They withdrew Rs.3000 by cheque each month for their personal expenses. They paid the bank loan regularly. Father was pleased at their sons' efficiency. He wanted to expand business.
(i) Journalize the above transactions. Post them into the ledgers and prepare trial balance. (ii) Charge depreciation at the rate of 25% on computers, 10% on furniture and 5% on buildings.
After college the twins were drifting apart due to varied interests. Rangan decided that this is the time for him to intervene and make decisions for his sons. He decided to start a computer business for his sons. He asked Raghav, a commerce graduate
to draw up a proposal for the same.
Raghav came out with the following ideas:-
The area they lived on and run shop consisted of middle income group families and many of them did not possess computers at
home
Their shop could provide the following services:-
Computer classes for various age groups
Computer using facilities on payment per hourly basis and printing of documents from computers Internet access facility at the prevailing market rates by entering into contract with VSNL.
Computer games corner for children.
Ram jumped at the idea and they made up a common proposal. Ram wanted that they purchase 10 computers and start with
first two areas of operation and expand when things go well.
The shop they had at the market place was a single storey building. Their father offered to build the first floor and give it to them for their business. He spent. Rs. 1,00,000 on construction of the facility and gave them Rs. 2,50,000 for the business. The sons went to a bank and put up their proposal and managed to gel a loan to the extent of 75 percent of the cost of computers Rs.4,00,000 with printers. As the bank manager was aware of the credit worthiness of Mr. Rangan, he advanced the loan of
Rs.3,00,000. Total amount to be repaid will be Rs. 3,60,000 including interest in three annual installments as follows:- End of the first year - Rs. 1,30,000 (Rs. 1,00,000 + 30,000 interest)
End of the 2nd year = Rs. 1,20,000 (Rs. 1,00,000+ 20,00 interest) End of the 3rd year = Rs. 1,10.000 (Rs. 1,00,000+ 10,000 interest)
They stalled business on 1st April 1999. Raghav decided to deposit Rs. 2.40,000 in the bank. He gave Rs.1,00.000 to computer company as 25% of the value of computers purchased and Rs. 3,00,000 out of bank loan availed. He deposited Rs.1,000 for the electrical connection with the Electricity Board. He paid a deposit of Rs. 1,00,000 with VSNL for the Internet connection. He used the telephone connection at the shop, as there were two connections at the shop. The brothers got the computer cafe furnished by paying Rs. 25,000. Raghav got pamphlets printed and distributed at the cost of Rs. 4500 in the surrounding colonies.
All payments were to be made by cheques. All the receipts were in cash to be deposited in the bank on the same day. The students on the average paid a monthly fee of Rs. 500.00 for the three months computer evening classes. There were a number of internet subscribers and receipts on account of internet facility was Rs. 10,000 a month in the first quarter on an average. They decided to buy and sell computer stationery also like floppy discs, CDs etc.
At the end of the year, their results showed the following:
Total revenue including sale of computer stationery
4,98,000
Purchases of computer stationery Electricity charges yet to he paid
55,000
1,24,000
34,000
Telephone charges Petty expenses
12,000
Entertainment expenses Maintenance expenses
10,000 10,000
There was helper at their father's shop who agreed to clean up the computer cafe and fetched water to visitors. For the additional services, he was paid Rs. 500 per month. They withdrew Rs.3000 by cheque each month for their personal expenses. They paid the bank loan regularly. Father was pleased at their sons' efficiency. He wanted to expand business.
(i) Journalize the above transactions. Post them into the ledgers and prepare trial balance. (ii) Charge depreciation at the rate of 25% on computers, 10% on furniture and 5% on buildings.
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