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Planet X Store

Prepared by

Neeta Nagar

A group of 2nd

year students of a renowned institution X decided to open a small retail store called

Planet X Store in the hostel that could cater to the daily requirements of the students. On 30th

June, 2011 the group deposited Rs. 10,000 in a bank account in the name of Planet X Store. Rs.

10,000 consisted of Rs. 2,000 loan from SAC committee members and Rs. 8,000 from all members of

the group (@ Rs. 1000 each from 8 members). They bought the goods worth Rs. 10,000 prior to

starting the store.

The store became operational on 1st

July 2011. Subsequently, 2 members of the group had the

responsibility to purchase supplies every Saturday evening from the city. They had made an

arrangement with the private taxi person for Rs. 500 per trip. For first 2 months, they bought the

goods in cash. Later they made an arrangement with a person who could deliver inventory every

Saturday (based on the order placed a day before). He was paid partly in cash on the inventory and

the rest was dealt on credit. He was paid for the rest of the amount in his next trip and the cycle

would follow.

The store opened for 3 hours in the evening (11 am to 11 am). The group hired 1 person on a salary

of Rs. 3,000 per month to sit at the counter. He was paid the salary on 2nd

of next month. The sales

were made mostly in cash. However, under some circumstances, students had account in their

names. They could log in their purchases and the group would send a monthly bill to each of the

students on the last day of the month to be payable by 10th

of next month.

After operating for 6 months, the group decided to handover the business to the 1st

year batch as 2nd

year was approaching the end of their tenure. They wanted to take away their initial capital and

share of their earnings. However, with all the partying around, none of the group members were

keeping the accounts properly. There had been instances when group members would use the cash

available from sale for their own personal expenses. However, they had been keeping a rough log for

each transaction. The 1st

year students were not ready to take over the business without proper

accounts. 1st

year students decided to prepare balance sheet and income statement for the business

so far, on their own based on the log of the transactions.

After doing some rough calculations, Plant X Store group could log in following details as on 31st

December 2011:

1. Inventory worth Rs. 75,000 was purchased between July to December2. The dues to the vendor (supplier) were Rs. 12,6003. Dues from the students was Rs. 8,5004. Balanced inventory left was Rs. 9,240. However, later they found out that some of the

eatable inventory was too old and was not recommended for sale. The value was estimated

to be Rs. 500.

5. The group had paid Rs. 1,250 to the SAC against the loan.6. The owners had taken out Rs. 3500 of cash for their personal expenses and have not filled it

back.

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7. Actual Collections were as follows:a. July 2011 14,000b. Aug 2011 13,500c. Sep 2011 15,400d. Oct 2011 - 11,600e. Nov 2011 14,500f. Dec 2011 16,500

8. The group had used some stuff from the store for their own consumption without anypayment. Since each of the transaction was noted, it was found that consumption was worth

Rs. 1850.

9. There was an apprehension that few students might not pay the dues before going. Thegroup had requested the hostel administration office not to clear no-dues of those students.

However, the admin office refused to get involved in this matter. The total amount due was

Rs. 2,250

10.With lack of discipline on the deposit and withdrawal, no one was sure about the cashbalance.

Questions

1. Draw Balance Sheet for 30th June 2011 and 31st December, 2011.2. Draw an income statement for the period of 1st July 31st December 2011.3. There was a heated discussion after looking at the statements of Planet X Store. One set of

the students argued that the business can be taken over because there is an increase in

assets. They argued that once the group recovers the money from students, it will turn

profitable. However, another group of students argued that income statement gave a

different picture. The matters got worse when they saw the cash position of the business.

What will be your take on this?

4. What will be your specific recommendations to turn this business profitable in future?

Note: This case is just for educational purpose and it does not represent any specific situation or

entity.