Question

Jennifer decides that she will go into the tourist industry on Lake Geneva, and buy a concession to hire out canoes on the lake. She borrows CHF40,000 (CHF is swiss currency) from her parents and puts CHF20,000 in herself. The arrangment with the Canton is that she pays CHF50,000 at the start for the concession, which runs five years, but must also pay an annual rental of CHF10,000 at the end of the season in october. She negotiates a deal with a canoe supplier who sells her 20 canoes for CHF 30,000 but agrees that she should pay CHF10,000 on delivery and the rest a year later. During the season she receives CHF 90,000 (cash) in canoe rentals.

Task: Making and specifying whatever assumptions you wish, you are asked to draw up a simple statement of profit or loss for the first year and statement of finacial postiton at the end of the year.

Answer 1

Statement of profit and loss

Particulars	Amount (in CHF)
Amount received by way of Canoe rentals	90000
Less:
Purchase of Canoes	(30000)
Amortization of the start up cost of arrangement	(10000)
Annual rent	(10000)
Net profit for the year	40000

Statement of financial position

Particulars	Amount (in CHF)
Assets
Cash in hand	80000
Deposit with Canton	40000
Total assets	120000
Liabilities	Amount
Amount due to supplier	20000
Loan	40000
Capital	20000
Net profit for the year	40000
Total	1200000

Assumptions

1. It is assumed that all the Canoes are consumed during the year.
2. It is assumed that the amount paid for start of concession will be written off in the period of five years.
3. calculation of cash balance

Particulars	Amount
Amount received from parents	40000
Amount invested himself	20000
Rental receipts	90000
Less:
Annual rental	10000
Start up payment	50000
Payment to supplier	10000
Net cash balance	80000