Mehta Automobiles Essay

In 1980, Mr. Sanat Mehta joined measuring Automobiles of Ahmedabad as a mechanic. In appreciation of his excellent work, he was in short promoted to the post of chieftain mechanic. Mr. Mehtas professional ability, his pleasing manners and sense of responsibility endeared him to the customers of Standard Automobiles to such an extent that some of them persuaded him to cause his own travel desex workshop. One of them persuaded him to commence his own automobile repair workshop. One customer, Mr. Nitin Shah offered to exact a part of his godown situated in a busy avenue of Ahmedabad city.An a nonher(prenominal) customer, Mr. Mohan Kapoor, the local manager of a large bank mentioned that a bring of up to Rs. 100,000 could be made available to him under the organization for financing small stage rail line. After some discussion with members of his family, Mr. Mehta decided to commence an automobile service and repairs workshop under the name of Mehta Automobiles. For this purpo se, he invested Rs. 50,000 from his recent savings and accepted Mr. Shahs and Mr. Kapoors offers. A part of the cadence was deposited in the bank in the name of Mehta Automobiles.The enterprise had a effectual start, thanks to the patronage of some old customers of Standard Automobiles. Mr. Mehta publicized his operations by displaying cinema slides in selected local cinemas and soon his workshop became headspring known in that area. In the beginning, Mr. Mehta did all the work of the mechanic, helped by railcardinal assistants recruited at the time of the commencement of the business. Soon he added a scanty parts selling section to his business as this was quite a profitable associated activity. In this, he was helped by his son Mr. Rajendra Mehta who also assist him in collection of cash from debtors.During his service at Standard Automobiles, Mr. Mehta had perplex to know very well some wholesalers of service materials, such as tools, stores and spare parts. This helped him in buying such material on credit. However, close of the other purchases particularly spare parts and practically all his gross sales were on cash foundation. Because of the relatively small extent of credit transactions, Mr. Mehta had not thought of maintaining formal accounting records, as he had felt that increases in cash balance would adequately indicate the profit earned by him.All cash received was deposited in the bank account, and expenses and payments were recorded in a notebook. Mr. Mehta occasionally experienced some difficulty in written text transactions which did not result in direct sales. For instance, when his personal car was overhauled, involving considerable use of his mechanics time as well as spare parts costing about Rs. 15000 he was not reliable how it should be recorded. He finally decided 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 four new assi stants and two mechanics. He also 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 behave apart for office purposes. The office was simply furnished with a table, three chairs, a filing cabinet and also a telephone. Spare 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 looking for a good automobiles service shop owner, who would be willing take up the sole selling agency of their cars and spare parts in Gujarat. Mr. Mehta applied for this agency as he was talk over by his champs in business circles that such an agency would be a profitable proposition. However, he was puz zled by two conditions which were imposed in awarding this agency.According to the first condition, the agent had to obtain a present from his bank to the effect that a minimum balance of Rs. 500,000 was maintained in the business account. Secondly, the agent was required to send to the principal, periodic dictations video display the on-going financial position of the business and the business results in the immediate by 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 follow uping the first condition, Mr.Mehta dictum Mr. Kapoor, the Bank agent. After discussions with Mr. Mehta, the Bank agent agreed to grant Mr. Mehta a further loan of Rs. 500,000. He asked Mr. Mehta, to submit a statement showing the current position of his business so that he could process the loan application. Mr. Mehta mentioned that so far he had not maintained any unwavering accounts. Th e maintenance of such records required alter knowledge which he did not possess and he felt hiring an accountant would increase his costs which he could not afford in his competitive business situation.Mr. Kapoor said that authoritative accounting records would be a necessity, if Mr. Mehta wanted to expand his business and fulfill the operational 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 verbalised to Mr. Lal his desire to start keeping systematic accounting records and requested him to falsify for him a statement showing the assets and liabilities of his business.He also supplied to Mr. Lal the necessary education to enable him to prepare the required statement. Mr. Lal also explained to Mr. Mehta how a Profit and spill Analysis could be prepared so that Mr. Mehta could be more accurately measure the results of his business performance. He prepared a list of different statements that Mr. Mehta should arrange to obtain periodically from his subordinates for maintaining his accounting records. Questions for consideration 1. Mr. Mehta mentioned that.i) he could not have systematic 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 expect to find in the statements of financial position and profit and exit analysis relating to Mr. Mehtas business? 4. What records would Mr. Mehta require to maintain for controlling his business activities?