ACE COACHING CLINIC

Betty and Greg Watts, local tennis stars, opened the Ace Coaching Clinic on 1 June 2015, by investing P200,000 of their cash savings in the business. Club rooms were constructed for cash at a cost of P60,000, and P8,000 was spent on tennis balls and tennis racquets. The Watts leased five hectares of land at a cost of P10,000 per month and paid the first months rent. During the first month, advertising costs totaled P7,500, of which P1,500 was unpaid as at 30 June, and P4,000 was paid to members of the local high school tennis team for retrieving tennis balls. All revenue from customers was deposited in the business bank account. On 15 June, Betty and Greg withdrew a total of P8,000 in cash for personal living expenses. A P1,000 utility bill was received on 30 June but was not paid. On 30 June, the balance in the business bank account was P151,000.

Betty and Greg thought they had a pretty good first month of operations. But their estimates of profitability ranged from a loss of P49,000 to profit of P16,500.

Instructions:

How could the Watts have concluded that the business operated at a loss of P49,000? Was this valid basis on which to determine profit?