Mehta Automobiles Essay

In 1980, Mr. Sanat Mehta joined Standard Automobiles of Ahmedabad as a mechanic. In appreciation of his smooth work, he was soon promoted to the post of tribal chief mechanic. Mr. Mehtas professional ability, his pleasing dexterity and sense of responsibility endeared him to the customers of Standard Automobiles to much(prenominal) an extent that both(prenominal) of them persuaded him to lead astray his have automobile repair work spy. superstar of them persuaded him to commence his own automobile repair workshop. One customer, Mr. Nitin Shah offered to rent a part of his godown hardened in a busy passageway of Ahmedabad city.An other(a) customer, Mr. Mohan Kapoor, the local manager of a large bank mentioned that a lend of up to Rs. 100,000 could be made accessible to him under the scheme for financing atomic employment. After some discussion with members of his family, Mr. Mehta dogged to commence an automobile dish up and repairs workshop under the name of Mehta Aut omobiles. For this purpose, he invested Rs. 50,000 from his by savings and accepted Mr. Shahs and Mr. Kapoors offers. A part of the amount was deposited in the bank in the name of Mehta Automobiles.The green light had a good start, thanks to the scorn of some old customers of Standard Automobiles. Mr. Mehta publicize his operations by displaying cinema slides in selected local cinemas and soon his workshop became s good up have intercoursen in that area. In the beginning, Mr. Mehta did all(a) the work of the mechanic, helped by two assistants recruited at the time of the commencement of the telephone circuit. Soon he added a patent part sell theatrical role to his business as this was instead a profitable associated activity. In this, he was helped by his son Mr. Rajendra Mehta who too assist him in collection of cash from debtors.During his armed service at Standard Automobiles, Mr. Mehta had come to know very well some wholesalers of service materials, such as tools , stores and forgo parts. This helped him in buying such material on credit. However, most of the other purchases particularly spare parts and practically all his gross revenue were on cash innovation. Beca practice of the relatively abject extent of credit proceedings, Mr. Mehta had non ideal of maintaining formal accounting records, as he had felt that increases in cash balance wheel would adequately indicate the profit earn by him.All cash certain was deposited in the bank account, and expenses and defrayals were recorded in a notebook. Mr. Mehta occasionally experienced some difficulty in recording transactions which did not result in charge sales. For instance, when his personal car was overhauled, involving considerable use of his mechanics time as well as spare parts be about Rs. 15000 he was not veritable how it should be recorded. He finally persistent that since the garage was owned by him no adjustments need be made for this transaction. rapid expansion of his business compelled Mr.Mehta to hire foursome new assistants and two mechanics. He alike recruited a part-time salesman for spare parts selling. Mr. Mehta continued to attend personally to purchases, collections and other administrative aspects of business. A small section of the workshop premises was set apart(predicate) for office purposes. The office was simply equipped with a table, three chairs, a register cabinet and also a telephone. chuck up the sponge parts, stores, tools etc. , and other supplies which were formerly stored in a small room at his residence, were now stored in steel racks in a section of the workshop.Mr. Mehta soon came across and advertisement that appeared in the local newspaper. A well-known automobile company of Bombay was look for a good automobiles service shop owner, who would be willing take up the touch on selling room of their cars and spare parts in Gujarat. Mr. Mehta applied for this dominance as he was advised by his friends in bus iness circles that such an agency would be a profitable pro bearing. However, he was puzzled by two conditions which were obligate in awarding this agency.According to the archetypical condition, the agent had to obtain a enfranchisement from his bank to the effect that a token(prenominal) balance of Rs. 500,000 was maintained in the business account. Secondly, the agent was required to send to the asterisk, day-to-day educational activitys showing the current financial bewilder of the business and the business results in the straightaway past period. Mr. Mehta was duly assigned the sole selling agency for the Gujarat on the basis of excellent reports received by the principal from local businessmen. For fulfilling the first condition, Mr.Mehta saw Mr. Kapoor, the cashbox agent. After discussions with Mr. Mehta, the Bank agent hold to grant Mr. Mehta a further bring of Rs. 500,000. He asked Mr. Mehta, to submit a statement showing the current position of his business so t hat he could process the contribute application. Mr. Mehta mentioned that so far he had not maintained any regular accounts. The concern of such records required specialized friendship which he did not let and he felt hiring an accountant would increase his cost which he could not afford in his competitive business situation.Mr. Kapoor said that taxonomical accounting records would be a necessity, if Mr. Mehta valued to expand his business and fulfill the running(a) requirements like bank borrowing, credit purchases as well as legal requirements to payment of tax. The same evening Mr. Mehta saw Mr. Ashok Lal, a friend who was the Chief Accountant of a local textile mill. He denotative to Mr. Lal his desire to start retentivity self-opinionated accounting records and requested him to pass water for him a statement showing the assets and liabilities of his business.He also supplied to Mr. Lal the necessary data to enable him to prepare the required statement. Mr. Lal also explained to Mr. Mehta how a advantage and Loss Analysis could be wide-awake so that Mr. Mehta could be more accurately measure the results of his business performance. He fain a list of various statements that Mr. Mehta should localize to obtain periodically from his subordinates for maintaining his accounting records. Questions for circumstance 1. Mr. Mehta mentioned that.i) he could not have magisterial accounting records because he did not possess specialized accounting skill and ii) keeping such records would mean increase in costs, which he could not afford. How would you respond to these comments? 2. What information would Mr. Lal require for preparing the financial statement? 3. What items would you carry to find in the statements of financial position and profit and loss analysis relating to Mr. Mehtas business? 4. What records would Mr. Mehta require to maintain for absolute his business activities?