James was a high school teacher earning a net salary of $4500 per month. After working for one year, he quit his job to start his own kiosk business dealing in various consumer goods. In order to learn how to run the business, James enrolled in a TAFE to acquire accounting skills. James’ course was for 6 months. James had to pay $3,000 as tuition for the 3 months. After the training, James borrowed $40,000.00 from his uncle whom he pays 8 percent interest per year. Also, James withdrew $ 50,000 from his savings account. He had been earning 5 percent interest per year for this account. Further, to start the business James used his own premises given to him by his father. His father had been receiving $11,000 from rent per year. Finally, to start the business James uses $75,000 he had been given by his father to go on holiday to USA. James’s first year of business can be summarised as follows: items amount revenue - orange section 250,000 revenue- beverages section 180,000 2 cashiers expense ( wages for per worker) (40,000) mid year revenue 100,000 truck expense (80,000) manager expense (60,000) milk sale assistant expense (30,000) equipment expense (50,000) motorbike expense to ease movement in city (30,000) Based on your calculations of accounting profit and economic profit, would you advise James to return to his teaching job or keep his kiost job? Show your work!

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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James was a high school teacher earning a net salary of $4500 per month. After
working for one year, he quit his job to start his own kiosk business dealing in various
consumer goods. In order to learn how to run the business, James enrolled in a
TAFE to acquire accounting skills. James’ course was for 6 months. James had to
pay $3,000 as tuition for the 3 months.
After the training, James borrowed $40,000.00 from his uncle whom he pays 8
percent interest per year.
Also, James withdrew $ 50,000 from his savings account. He had been earning 5
percent interest per year for this account. Further, to start the business James used
his own premises given to him by his father.
His father had been receiving $11,000 from rent per year. Finally, to start the
business James uses $75,000 he had been given by his father to go on holiday to
USA.
James’s first year of business can be summarised as follows:

items	amount
revenue - orange section	250,000
revenue- beverages section	180,000
2 cashiers expense ( wages for per worker)	(40,000)
mid year revenue	100,000
truck expense	(80,000)
manager expense	(60,000)
milk sale assistant expense	(30,000)
equipment expense	(50,000)
motorbike expense to ease movement in city	(30,000)

Based on your calculations of accounting profit and economic profit, would you
advise James to return to his teaching job or keep his kiost job? Show your work!

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