ACE COACHING CLINIC
Betty and Greg Watts, local tennis stars, opened the AceCoaching Clinic on 1 June 2015, by investing P200,000 of their cashsavings in the business. Club rooms were constructed for cash at acost of P60,000, and P8,000 was spent on tennis balls and tennisracquets. The Watts leased five hectares of land at a cost ofP10,000 per month and paid the first month’s rent. During the firstmonth, advertising costs totaled P7,500, of which P1,500 was unpaidas at 30 June, and P4,000 was paid to members of the local highschool tennis team for retrieving tennis balls. All revenue fromcustomers was deposited in the business’ bank account. On 15 June,Betty and Greg withdrew a total of P8,000 in cash for personalliving expenses. A P1,000 utility bill was received on 30 June butwas not paid. On 30 June, the balance in the business’ bank accountwas P151,000.
Betty and Greg thought they had a pretty good first month ofoperations. But their estimates of profitability ranged from a lossof P49,000 to profit of P16,500.
Instructions:
How could the Watts have concluded that the business operated ata loss of P49,000? Was this valid basis on which to determineprofit?
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