Koya was driving the Pajero Sports Vehicle of Sayed Abdul Rehman Alsagoff of Arab Merchant Llc. He returned to Kozhikode and decided to operate cabs.

He bought a Tata Safari costing ₹7,85,000 on road. This included ₹30,000 annual insurance, ₹60,000 on 15-years road tax, and ₹3,000 on “expenses” for registration. He paid ₹2,85,000 from his savings as down payment and took a mortgage for the remainder. The mortgage was structured as 36 EMI payments of ₹18,000 each.

His only source of income was the fare collected from the cab. During the first year he had the following information on money spend by him, which he had noted down in his pocket diary:At the end of the year, he organized a small party for his family. His wife, Jhamela, pointed out that Koya has put in all his savings in the cab. Did you make any profit? He did some mental arithmetic and told her: ‘As of now I made a loss of ₹2,77,510!’. Ente Rubbe!!, was her response.

However, she was not very convinced about Koya’s accounting skills. So she decided to consult her cousin Abdulla, an IIM alumus. He told her that the accounts need to be prepared taking into consideration “the framework” as developed by the International accounting Standards Board, if we are to really determine the profit or loss.

(a) Do you agree with Koya’s loss calculation?

(b) Discuss the framework and issues to be considered in order to prepare the accounts of Koya’s Kab, as suggested by Abdulla.

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Item Groceries purchased Clothes bought for his daughters Books and fees for his daughters Uniform for himself and the driver's badge Food and drinks while driving Sari bought for his wife on wedding anniversary Diesel and oil Paid to his wife for domestic expenses EMI paid Paid in the Savings Bank account Amount (in.) 48,275 2,850 850 2,785 18,000 1,250 157,500 11,000 198,000 7,490