A friend of yours, Don Juan de la Cruz, is quite excited over the opportunity he has to purchase the land, building, equipment and several miscellaneous assets of the Sampung Gulong Bowling Lanes for Php 125,000.00. Don Juan tells you that the owner (who is moving because of poor health) reports that the business earned a profit of Php 25,000.00 in 2007 (last year). Don Juan believes that an annual profit of Php 25,000.00 on an investment of Php 125,000.00 is a really good deal. But, before completing the deal, he asks you to look it over. You agree and discover the following:

a. The owner has computed his annual profit for 2007 as the sum of his cash withdrawals plus the increase in the Cash account, that is withdrawals of Php 15,000+ increase in cash account of Php 10,000.00 = Php 25,000.00

b. As a buyer the business Don Juan will take over responsibility for repayment of a Php 100,000.00 Ioan (plus interest) on the land, building and equipment. These three assets were acquired seven years ago at a cost of Php 10,000.00, Php 240,000.00 and Php 96,000.00 respectively. The building has a useful life of 40 years, while the equipment has an estimated useful life of 8 years.

c. An analysis of the Cash Account shows the following data for 2007:

Rental revenues received P 140,000.00

Cash paid out in 2007 for Wages paid to employees in 2007 P 80,000.00

Utilities paid for 2007 6,000.00

Advertising expense paid 5,000.00

Supplies purchase and use in 2007 8,000.00

Interest paid on loan 6,000.00

Loan principal paid Owners withdrawals 15,000.00 130,000.00

Increase in Cash in Balance for the year 10000

d. You also found out that the December utility bill of Php 1,000.00 and advertising bill of Php 1,500 have not been paid. Increase in Cash Balance for the year

Required:

1. Prepare a written report for Don Juan giving your appraisal of the offer to sell the Sampung Gulong Bowling Lanes. Comment on the owner's method of computing the annual "profit" of the business

2. Include in your report the approximate earning statement and balance for 2007

A friend of yours, Don Juan de la Cruz, is quite excited over the opportunity he has to purchase the land, building, equipment and several miscellaneous assets of the Sampung Gulong Bowling Lanes for Php 125,000.00. Don Juan tells you that the owner (who is moving because of poor health) reports that the business earned a profit of Php 25,000.00 in 2007 (last year). Don Juan believes that an annual profit of Php 25,000.00 on an investment of Php 125,000.00 is a really good deal. But, before completing the deal, he asks you to look it over. You agree and discover the following: a. The owner has computed his annual profit for 2007 as the sum of his cash withdrawals plus the increase in the Cash account, that is withdrawals of Php 15,000 + increase in cash account of Php 10,000.00 = Php 25,000.00 b. As a buyer the business Don Juan will take over responsibility for repayment of a Php 100,000.00 loan (plus interest) on the land, building and equipment. These three assets were acquired seven years ago at a cost of Php 10,000.00, Php 240,000.00 and Php 96,000.00 respectively. The building has a useful life of 40 years, while the equipment has an estimated useful life of 8 years. C. An analysis of the Cash Account shows the following dat 2007: P 140,000.00 Rental revenues received Cash paid out in 2007 for: Wages paid to employees in 2007 Utilities paid for 2007 Advertising expense paid Supplies purchase and use in 2007 Interest paid on loan Loan principal paid Owners withdrawals Increase in Cash Balance for the year P 80,000.00 6,000.00 5,000.00 8,000.00 6,000.00 10,000.00 15,000.00 130,000.00 P 10,000.00 d. You also found out that the December utility bill of Php 1,000.00 and advertising bill of Php 1,500 have not been paid. Required: 1. Prepare a written report for Don Juan giving your appraisal of the offer to sell the Sampung Gulong Bowling Lanes. Comment on the owner's method of computing the annual "profit" of the business 2. Include in your report the approximate earning statement and balance for 2007