1. Start the business with a capital of 500,000 2. Buy inventory for 200,000 (50% cash 50% credit) 3.

Take a loan for 500,000. 4. Sell 50% inventory for 500,000 (50% cash and 50% credit) 5. Interest on loan of 10% paid. 6. Salary and other expenses 200,000. 7. All receivables collected 8. Building purchased for 300,000 (through cash), depreciation at 10% per annum.

Transactions Share Capital 1 2 3 4 5 6 7 8 Depn TAX paid 500000

Retained EarningsLoans

Creditors O/S Expenses Inccome

100000 500000 500000

TOTAL

500000

500000

100000

500000

Balance Sheet as on --------date Liabilities Share Capital Retained Earnings Loans Creditors O/S Expenses Assets Fixed Assets Investments Inventory Receivables Cash Prepaid expenses

500000 84000 500000 100000 0

270000 0 100000 0 814000 0

TOTAL

1184000

1184000

SOURCES EQUALS TOTAL EQUALS 0 500000 100000 500000 500000 0 0 0 0 0 0

APPLICATIONS Fixed Assets

Investments

Inventory

Receivables

200000 250000 -100000

-250000 300000 -30000

1600000

270000

100000

Income Statement for the period Income Expenses COGS Expenses Opex EBITDA Depn EBIT Int EBT Tax EAT 500000 100000 200000 300000

300000 200000 30000 170000 50000 120000 36000 Assume 30% 84000 assume all this is retained in the business

30000

Taxes always are paid on Profits ( Income - Expenses ) sales(topline) - COGS - opex = EBITDA EBITDA - DA = EBIT EBIT - Interest = EBT EBT + Other Income (Dividends, non-operating, incom EBT - Tax = NI(bottom line)

Cash 500000 -100000 500000 250000 -50000 -200000 250000 -300000 -36000

Prepaid expenses Expenses TOTAL 0 500000 100000 500000 500000 0 0 0 0 0 0

100000 50000 200000

30000 36000

814000

380000

1600000

ys are paid on Profits ( Income - Expenses ) not on Income ne) - COGS - opex = EBITDA

er Income (Dividends, non-operating, income from side businesses, non-recurring, extraordinary, netc)= EBT

Applications Sources

Assets Expenses Liabilities Income

rnd ( expense or asset depends upon the type of company and transaction: eg: one time invt of 10m is a deferred expense (co

Straight line method: Linearly the cost is divided over a period of given years Written Down Value : Principal cost of the amount keeps reducing as per the depreciation accounted for in the prev yrs. The salvage value : causes the total depn amount to reduce by an amount equal to the scrap/salvage value book value : cost of asset now in the books (ie. : after depreciation etc) market value : cost of an asset in the market at present salvage value : cost of an asset in the market at the end of the asset's life cost: cost of acquiring an asset ( from designing to - consulting- buying- setup cost- testing to commercial produc gross block : 10,00,000 ( at end of Y2) total accumulated depn : 3,60,000 Net block : 6,40,000 net worth : total assets - loans / the amount owned by the shareholders

m is a deferred expense (conservatism) accounted for under assets and divided over a period of time. 1 lakh per year (consistency) invt

ted for in the prev yrs. The principal the depn is accounted on reduces each succeeding year.

sting to commercial production..all inclusive)

1 lakh per year (consistency) invt in rnd is accounted for as an expense