Mr. Ashfaq who has been doing business as a motor vehicle mechanic for last 10 years, has recently been struggling in business for covid 19 pandemic. His workshop had been closed for last three months due to government order. Although he has recently re-opened his workshop, still he is struggling with lower income as very few customers are coming to his workshop for repairing their vehicles. Therefore, he is planning to dissolve his business to avoid some fixed expenses that he must pay every month. In this circumstance, he wants some advice from you whether he should dissolve the business.

He provided you with the following information that he knew to his best knowledge at the beginning of the month of March 2020:

Advance rent for two months	40,000
Loose tools and equipment	50,000
Motor parts	100,000
Salary payables for the month of February	20,000
Amounts receivable from customers	30,000
Furnitures	10,000
Cash and bank	50,000

He also provided you with the following information which he collected on 30 June 2020.

Rent accrued for the month of June	20,000
Loose tools and equipment (market value)	30,000
Motor parts (market value)	70,000
Salary payables for the month of May and June	40,000
Amounts receivable from customers	20,000
Furniture's	6,000
Cash and bank	-60,000

Other information:

1. During the 4 months he received 40,000 from his customers including the debt owed by customers at 1 March. He recovered only 20000 out of total amount owed by customers at 1 March.
2. He withdrew 30000 from bank for his personal expenditures during the last four months.
3. He also made some expenditures for his workshop which was unaccounted.

Required:

1. From the above information you are required to find out profit or loss that Mr. Ashfaq
   made during the four months ended 30 June 2020.
2. Suggest Mr. Ashfaq whether he should close his business based on the accounting information that you have found in 1.
3. Is there any other advice other than closing his business that you can give to Mr. Ashfaq? Explain your alternative suggestions with reasons.

Answer rating: 100% (QA)

1 Profit or Loss Calculation Starting Equity March 1 2020 Starting AssetsStarting Liabilities180000 Changes during the four months Received from customers 40000 Recovered from customers owed at March ... View the full answer