Case & Solution Mohazy

Case Mohazy

Mr. Mohazy decides to create a service company at the beginning of year N. He

personally injects €60,000 in company "Mohazy enterprise" The latter borrows €30,000
and acquires a property for €80,000. During the year, it rents out the building to
customer GSC Services for €34 000 and pays various charges for €28 000.

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Case Mohazy

Mr. Mohazy decides to create a service company at the beginning of year N. He

personally injects €60,000 in company "Mohazy enterprise" The latter borrows €30,000
and acquires a property for €80,000. During the year, it rents out the building to
customer GSC Services for €34 000 and pays various charges for €28 000.

To do:
A - Prepare a list of the operations requiring an accounting treatment.
B - Analyse the operations using the concept of the balance sheet equation.
C - Prepare the journal, the ledger and the trial balance for year N.
D - Prepare a balance sheet, an income statement and a cash-flow statement for
Mohazy for year N.
E – What do you think about the financial position and the economic performance of
Mohazy?

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A – List of operations requiring accounting treatment

There is a total of 5 operations that can be identified in the information given about
Mohazy:

1 – Injection of capital of 60 by Mohazy

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A – List of operations requiring accounting treatment

There is a total of 5 operations that can be identified in the information given about
Mohazy:

1 – Injection of capital of 60 by Mohazy

2 – Reception of 30 from the bank in form of a loan

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A – List of operations requiring accounting treatment

There is a total of 5 operations that can be identified in the information given about
Mohazy:

1 – Injection of capital of 60 by Mohazy

2 – Reception of 30 from the bank in form of a loan
3 – Acquisition of the property for 80

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A – List of operations requiring accounting treatment

There is a total of 5 operations that can be identified in the information given about
Mohazy:

1 – Injection of capital of 60 by Mohazy

2 – Reception of 30 from the bank in form of a loan
3 – Acquisition of the property for 80
4 – Collection of the rent revenue of 34 from GSC Services

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A – List of operations requiring accounting treatment

There is a total of 5 operations that can be identified in the information given about
Mohazy:

1 – Injection of capital of 60 by Mohazy

2 – Reception of 30 from the bank in form of a loan
3 – Acquisition of the property for 80
4 – Collection of the rent revenue of 34 from GSC Services
5 – Payment of various charges of 28

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A – List of operations requiring accounting treatment

There is a total of 5 operations that can be identified in the information given about
Mohazy:

1 – Injection of capital of 60 by Mohazy

2 – Reception of 30 from the bank in form of a loan
3 – Acquisition of the property for 80
4 – Collection of the rent revenue of 34 from GSC Services
5 – Payment of various charges of 28

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80 80 =

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80 80 =
4 ‐ Rent revenue 34

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80 80 =
4 ‐ Rent revenue 34 = 34

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80 80 =
4 ‐ Rent revenue 34 = 34
5 ‐ Various charges ‐28

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80 80 =
4 ‐ Rent revenue 34 = 34
5 ‐ Various charges ‐28 = ‐28

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 = 60
2 ‐ Loan is received 30 = 30
3 ‐ Acquisition of property ‐80 80 =
4 ‐ Rent revenue 34 = 34
5 ‐ Various charges ‐28 = ‐28
Closing 16 80 = 30 60 6

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 B - Nature of each transaction using the Balance sheet equation

In thousands €

Operation Asset = Liabilities + Equity

Net 
Bank Property Loan Capital income
Opening 0 0 0 0 0
1 ‐ Mohazy brings capital 60 60
2 ‐ Loan is received 30 30
3 ‐ Acquisition of property ‐80 80
4 ‐ Rent revenue 34 34
5 ‐ Various charges ‐28 ‐28
Closing 16 80 30 60 6
96 = 30 + 66

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C - Journal N – Mohazy – Acronyms used on the following page

Account Debit Credit BS = Impact in Balance Sheet IS = Impact in  CFS = Impact in Cash‐

Income Statement flow Statement

NCA = Non‐current assets Op = Operating Op = Operating

CA = Current assets Fin = Financial Inv = Investing
Eq = Equity Fin = Financial
NCL = Non‐current liabilities
CL = Current liabilities

+ = Increase exp = expense I = Inflow

‐ = Decrease rev = revenue O = Outflow

Examples: Example: Examples:

NCA + = Increase of Non‐ Op exp = Operating  Op O = Operating Cash 

current Assets expense outflow
EQ ‐ = Decrease of Equity Fin I = Financial Cash 
Inflow

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA +

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA +

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+
Bank 80 CA‐ Inv O

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+
Bank 80 CA‐ Inv O
Operation 4
Bank 34 CA+

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+
Bank 80 CA‐ Inv O
Operation 4
Bank 34 CA+ Op I
Rent revenue 34 EQ + Op inc.

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+
Bank 80 CA‐ Inv O
Operation 4
Bank 34 CA+ Op I
Rent revenue 34 EQ + Op inc.
Operation 5
Various charges 28 EQ– Op exp.

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+
Bank 80 CA‐ Inv O
Operation 4
Bank 34 CA+ Op I
Rent revenue 34 EQ + Op inc.
Operation 5
Various charges 28 EQ– Op exp.
Bank 28 CA– Op O

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C - Journal N - Mohazy

Account Debit Credit BS IS CFS

Operation 1
Bank 60 CA + Fin I
Capital 60 EQ +
Operation 2
Bank 30 CA + Fin I
Loan 30 NCL+
Operation 3
Property 80 NCA+
Bank 80 CA‐ Inv O
Operation 4
Bank 34 CA+ Op I
Rent revenue 34 EQ + Op inc.
Operation 5
Various charges 28 EQ– Op exp
Bank 28 CA– Op O
Total 232 232

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C - Ledger (T-accounts) - Mohazy

Balance sheet Income statement

Property Capital Rent revenues

Bank Loan Various charges

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 C - Ledger (T-accounts) – Mohazy – Operation 1

Balance sheet Income statement

Property Capital Rent revenues

(1)         60

Bank Loan Various charges

(1) 60

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 C - Ledger (T-accounts) – Mohazy – Operations 2 and 3

Balance sheet Income statement

Property Capital Rent revenues

(3) 80 (1)         60

Bank Loan Various charges

(1) 60 (3) 80 (2) 30
(2) 30

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 C - Ledger (T-accounts) – Mohazy – Operation 4

Balance sheet Income statement

Property Capital Rent revenues

(3) 80 (1)         60 (4) 34

Bank Loan Various charges

(1) 60 (3) 80 (2) 30
(2) 30
(4) 34

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 C - Ledger (T-accounts) – Mohazy – Operation 5

Balance sheet Income statement

Property Capital Rent revenues

(3) 80 (1)         60 (4) 34

Bank Loan Various charges

(1) 60 (3) 80 (2) 30 (5) 28
(2) 30 (5) 28
(4) 34

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 C - Ledger (T-accounts) – Mohazy – Closing the accounts

Balance sheet Income statement

Property Capital Rent revenues

(3) 80 (1)         60 (4) 34
FB 80 FB 60 FB 34

Bank Loan Various charges

(1) 60 (3) 80 (2) 30 (5) 28
(2) 30 (5) 28 FB 30 FB 28
(4) 34
124 108
FB 16

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 C - Trial balance - Mohazy

Account Movements Balance

Debit Credit Debit Credit
Capital 0 60 60

To Balance To Income
sheet
Loan 0 30 30
Property 80 0 80
Bank 124 108 16
Various charges 28 0 28

statement
Sales 0 34 34
Total 232 232 124 124

Balance sheet and Income statement will be balanced by Net Income,

see below.
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 C - Trial balance - Mohazy

Account Movements Balance

Debit Credit Debit Credit
Capital 0 60 60

To Balance To Income
sheet
Loan 0 30 30
Property 80 0 80
Bank 124 108 16
Various charges 28 0 28

statement
Sales 0 34 34
Total 232 232 124 124

Balance sheet and Income statement will be balanced by Net Income,

see below.
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D - Income statement N - Mohazy

Expenses Revenues
Various charges 28 Rent revenue 34
Total expenses 28 Total revenues 34
Net income (profit) 6
Total 34 Total 34

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D - Balance sheet at the end of N - Mohazy

Assets Financing
Non current assets Equity
Property 80 Capital 60
Total non‐current assets 80 Net income 6
Total Equity 66
Current assets Non‐current liabilities
Bank 16 Loan 30
Total current assets 16 Total non‐current liabilities 30
Total Assets 96 Total Financing 96

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D - Cash flow statement N - Mohazy

Operating inflows 34
Operating outflows -28
Operating cash-flow 6

Acquisition of non-current assets (property) -80

Investing cash-flow -80

Increase of capital 60
Reception of loan 30
Financial cash-flow 90

Cash-flow (+ 6 – 80 + 90) 16

Cash at opening 0
Cash at closing 16

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E – Opinion about the financial position and the economic performance

Economic performance:
The income statement shows that the business is profitable. A net income of 6 for
revenues of 34 is a very good performance.
Various charges probably include interest for the loan. They could be reduced and
performance increased if the loan will be repaid at least partially in the future.
Financial position:
The balance sheet shows that the long term financing exceeds the long term use
(property), which is good. Also, from the beginning on, equity represents at least the
double of the long term liabilities, which is also an element of a solid financial structure.
There are no current liabilities, and therefore no liquidity risk so far.
The cash-flow statement shows that the operating activity is generating cash. This
allows Mohazy to pay a dividend and/or to pay back partially the loan in a near future.
The total amount of cash-flow of 16 is misleading as it comes mostly from an exceeding
initial funding of the company.

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