Case Structure:

Mr . Mehta at first was working as a mechanic with

standard automobiles in Ahmedabad. But with the
advantage of practical knowledge in automobiles, he
decided to start his own garage which he eventually, over
time, converted into an automobile firm basically doing
repair work along with sales of spare parts.
MA was initially operating at a very local level in
Ahmedabad but as Mr. Mehta wanted to expand his
business from a local to a much broader level seeing a
future tie up with a Bombay based automobile company,
he required to show a systematic accounting records of
different transactions related to the business which he
was not maintaining and because of this his loan
application for the capital needed for tie up couldn’t be
approved.
Sol 1>
According to Mr. Mehta, he was not able to maintain
systematic accounting records because of his lack of
specialized accounting skills and the lack of knowledge in
this area. This can be shown by his inability to separate
and record different transactions in the book of accounts,
for example, failure in recording the cost incurred in
overhauling work of his personal car as a drawing. This
problem could have been solved by hiring an accountant
for maintaining books.
But, for Mr. Mehta, cost constraint was also a factor.
When we compare the cost for maintaining books to the
benefits arising out of proper maintenance of records, the
latter surely has an upper hand. If Mr. Mehta would have
maintained the records for the transactions then his loan
would have been sanctioned without much effort. Also,
maintenance of books would have given a true picture of
the business and the profit arising out of it. Maintenance
of records related to expenditure would have shown
where the business is incurring expenditure and whether
it’s according to the business need or not. Also, there
would have been clear picture regarding allocation of
cash and funds in business.

Sol 2> Mr. Mehta knowing about the benefits of

maintaining records decided to maintain records of the
transactions and so consulted his friend Mr. Lal, a Chief
Accountant in a local textile mill.
Information that Mr. Lal would require for preparing
financial statement:

• Cash vouchers related to purchase of spare parts

from vendors.

• Credit notes through which business made purchases

of different items.

• Records of drawings from business.

• Record of debtors and cash sales.

• Record of salaries paid to employees and different

expenses incurred in business.
 • Records of assets and liabilities.

• Maintenance of transactions involving bank.

Sol 3 > In the financial statements of financial position

and the profit and loss analysis relating to Mr. Mehta’s
business is expected to have items like : Assets – Fixed
and current, Liabilities – Debts and current, Debtors,
Expenses relating to wages, rent, advertisement, salary
to employees and part-time salesman and office
expenditures, Bank loans and deposits, Capital, Creditors,
Debtors, Purchases and sales on cash.
Sol 4 > For controlling the business activities, Mr. Mehta
needs to maintain records like :
Journal entries, Ledger book for the journals recorded,
Profit & Loss Account, Balance sheet, Cash Flow
Statement and Fund Flow Statement.