Case 1 – ACE COACHING CLINIC Betty and Greg Watts, local tennisstars, opened the Ace Coaching Clinic on 1 June 2015, by investingP200,000 of their cash savings in the business. Club rooms wereconstructed for cash at a cost of P60,000, and P8,000 was spent ontennis balls and tennis racquets. The Watts leased five hectares ofland at a cost of P10,000 per month and paid the first month’srent. During the first month, advertising costs totaled P7,500, ofwhich P1,500 was unpaid as at 30 June, and P4,000 was paid tomembers of the local high school tennis team for retrieving tennisballs. All revenue from customers was deposited in the business’bank account. On 15 June, Betty and Greg withdrew a total of P8,000in cash for personal living expenses. A P1,000 utility bill wasreceived on 30 June but was not paid. On 30 June, the balance inthe business’ bank account was P151,000. Betty and Greg thoughtthey had a pretty good first month of operations. But theirestimates of profitability ranged from a loss of P49,000 to profitof P16,500. Instructions: 2) How could the Watts have concludedthat the business operated at a profit of P16,500? (Hint: Prepare astatement of financial position as of 30 June). Was this a validbasis on which to determine profit?
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