CASE STUDY ON “THE LONE PINE CAFE”
GUIDED BY DR. ASHISH MEHTA
Prepared by:
Neel Adroja
Dhruvesh Modi
Anuj Patel
Parth Rohit
Heerak Choubisa
INTRODUCTION
The partnership was formed by Mr. and Mrs. Henry Antoine and Mrs.
Sandra Landers, who had become acquainted while working in a
Portland, Oregon, restaurant. On November 1, 2009, each of the three
partners contributed $16,000 cash to the partnership and agreed to
share in the profits proportionally to their contributed capital (i.e., one-
third each). The Antoine's’ contribution represented practically all of
their saving. Mrs. Landers’ payment was the proceeds of her late
husband’s insurance policy.
On that day also the partnership signed a one-year lease to the Lone
Pine Café, located in a nearby recreational area. The monthly rent on
the café was $1,500. This facility attracted the partners in part because
there were living accommodations on the floor above the restaurant.
One room was occupied by the Antoine's and another by Mrs. Landers.
The partners borrowed $21,000 from a local bank and used this plus $35,000 of
partnership funds to buy out the previous operator of the café. Of this amount,
$53,200 was for equipment and $2,800 was for the food and beverages then on
hand. The partnership paid $1,428 for local operating licenses, good for one
year beginning November 1, and paid $1,400 for a new cash register. The
remainder of the $69,000 was deposited in a checking account.
The restaurant operated throughout the winter season of 2009-2010. It was not
very successful. On the morning of March 31, 2010, Mrs. Antoine discovered
that Mr. Antoine and Mrs. Landers had disappeared. Mrs. Landers had taken all
her possessions, but Mr. Antoine had left behind most of his clothing,
presumably because he could not remove it without warning Mrs. Antoine. The
new cash register and its contents were also missing. No other partnership assets
were missing. Mrs. Antoine concluded that the partnership was dissolved. (The
court subsequently affirmed that the partnership was dissolved as of March 30.)
.
In response to Mr. Simpson’s questions, Mrs. Antoine said that the
cash register had contained $311 and that the checking account
balance was $1,030. Ski instructors who were permitted to charge
their meals had run up accounts totaling $870. (These accounts
subsequently were paid in full.) The Lone Pine Café owed
suppliers amounts totaling $1,583. Mr. Simpson estimated that
depreciation on the assets amounted to $2,445. Food and
beverages on hand were estimated to be worth $2,430. During the
period of its operation, the partners drew salaries at agreed-upon
amounts, and these payments were up to date. The clothing that
Mr. Antoine left behind was estimated to be worth $750. The
partnership had also repaid $2,100 of the bank loan.
Mr. Simpson explained that in order to account for the partners’
equity, he would prepare a balance sheet. He would list the items
that the partnership owned as of March 30, subtract the amounts
that it owned as of March 30, subtract the amounts that it owed to
out-side parties, and the balance would be the equity of the three
partners. Each partner would be entitled to one-third of this
amount.
Mrs. Antoine decided to continue operating the Lone Pine Café.
She realized that an accounting would have to be made as of
March 30 and called in Donald Simpson, an acquaintance who
was knowledgeable about accounting
LONE PINE CAFÉ
The
Partners:
Mr. Mrs. Mrs.
Antoine Antoine Landers
CHARACTER INTRODUCTION
Mr. & Mrs. Antoine was working at restaurant in Portland along with
Mrs. Landers
Mr. & Mrs. Antoine collaborated with Mrs. Landers for setting up café
named “LONE PINE CAFÉ”
Mr. & Mrs. Antoine contributed all of their saving in café
Mrs. Landers invested the money got from her Late husband’s insurance
policy
Each of them work distributed as below:
Mr. Antoine => Cook
Mrs. Antoine => Waitress, Purchase of Supplies, Cash Register
Mrs. Landers => Waitress
Mr. Simpsons => An acquaintance who was knowledgeable about
accounting.
ACCOUNTING AND NON- ACCOUNTING INFORMATION
Accounting information: Accounting information is data about a
business entity's transactions. Accounting is a method of identifying
and recording this data and using it to generate useful reports for a
variety of users. These users are generally classified into two groups
internal users and external users.
Non-accounting information: A bank also has non-accounting
information before giving a decision to prospective debtors in lending
loans. The discussion in this study focuses on accounting
information on whether it can be used to predict a credit decision
taken by the bank. Non-accounting information is a control variable in
this study.
WHAT IS BALANCE SHEET?
Balance sheet is a statement of the assets, liabilities and capital of
business or other organization at a particular point in time,
detailing the balance of income and expenditure preceding period.
WHEN BALANCE SHEET IS
PREPARED?
Balance sheet is usually prepared at the end of accounting period
which are,
Month end
Quarter end
Year end
BALANCE SHEET FORMAT
ASSETS $ LIABILITIES & OWNER’S $
EQUITY
Current Assets ---- Current Liabilities &
Provisions
Inventory • Current Liabilities ----
Account Receivable • Provisions ----
Short term investment ----
Cash and cash equivalent ---- Non Current Liabilities
• Secured Loan ----
Non-Current Assets • Unsecured Loan ----
• Tangible Assets
• Intangible Assets Owners’ Equity
• Capital ----
Non Current Investment • Reserves & Surplus ----
Total ---- Total ----
Money
Measurement
Dual
Entity
Aspect
Concep
t Used
Going
Cost Concer
n
Dual aspect:
The dual aspect concept states that every business transaction requires
recordation in two different accounts. This concept is the basis of double
entry accounting, which is required by all accounting frameworks in order
to produce reliable financial statements.
Assets = Liabilities + Owners Equity
Money measurement concept:
The transactions and events that are capable of
being measured in monetary terms are recognized in the financial
statements.
Matching concept:
The matching concept is an accounting practice whereby
firms recognize revenues and their related expenses in the same
accounting period. The purpose of the matching concept is to
avoid misstating earnings for a period.
Entity:-
Accounts are kept for entities as distinguished from the persons
associated with those entities.
Going Concern:-
Accounting assumes that an entity will continue to exit indefinitely and
that it is not about to be liquidated.
Cost:-
Non-monetary and monetary assets are ordinarily entered in the accounts at
the amount paid to acquire them. This cost, rather than current fair value, is
the basis for subsequent accounting for non-monetary assets. Most
monetary assets are accounted for at fair value following their acquisition.
BALANCE SHEET OF THE LONE PINE CAFÉ AS ON NOV. 2ND , 2009
ASSETS $ LIABILITIES & OWNER’S $
EQUITY
Current Assets: Current Liabilities:
Cash Register 1,400
Food and Beverages 2,800 Non-Current Liabilities:
Operating License 1,428 Loan taken from bank 21,000
Checking Account 10,172 15,800
Owner’s Equity:
Non-Current Assets: Mr. Antoine’s Capital 16,000
Equipment 53,200 Mrs. Antoine’s Capital 16,000
Mrs. Landers’s 16,000 48,000
Capital
Total 69,000 Total 69,000
CHECKING ACCOUNT
Particulars $ Particulars $
To Bal. b/d 0 Cash Register 1,400
Partenrs Capital 48000 Food and Beverages 2,800
Bank Loan 21000 Operating License 1,428
Equipment 53200
Balance C/d 10172
Total 69000 Total 69000
TWIST
During winter season 2009-10, the café did not doing well.
Mrs. Antoine discovered that 2 other partners were missing.
Mrs. Antoine had taken all her possessions, but Mr. Antoine
had left behind most of his clothing. The clothing was
estimated to be worth $750.
New cash register and its content were also missing while
other assets were as it is.
Mrs. Antoine concluded that Partnership was dissolved as of
March 30, 2010.
Mrs. Antoine decided to continue café, she have to accounting
as of end of winter season 2010.
ACCOUNTING INFORMATION
Mrs. Antoine called Mr. Simpsons, knowledgeable accounting
person to help her.
The partnership also repaid bank loan of $2,100.
Cash register had contained $311..
Checking account had $1,030.
Café owed suppliers amounts totalling $1,583.
The depreciation on the assets amounted to $2,445.
Food & Beverages were estimated to be worth $2,430.
$870 was Receivable from Ski Instructors.
The clothing that Mr. Antoine left behind was estimated to be
worth $750.
CONCEPTS FOR INCOME STATEMENT
Accrual concept:
Accrual concept is the most fundamental principle of accounting which
requires recording revenues when they are earned and not when they are
received in cash, and recording expenses when they are incurred and not when
they are paid.
eg. Interest receivable, prepaid insurance
Rent Payable
Consistency Principle:
This is the concept that, once you adopt an accounting principle or method, you
should continue to use it until a better principle or method comes along.
Eg. Method of valuation of Inventory
Matching Principle:
This is the concept that, when you record revenue, you should record all related
expenses at the same time.
Accounting Period :
This period defines the time range over which business transactions are
accumulated into financial statements, and is needed by investors so that they can
compare the results of successive time periods.
Eg. Monthly, Quarterly, Yearly
Conservatism Concept :
Conservatism Principle of Accounting provides guidance for the accounting,
according to which in case there exists any uncertainty then all the expenses and the
liabilities should be recognized whereas all the revenues and gains should not be
recorded, and such revenues and gains should be recognized only when there is
reasonable certainty of its actual receipt.
Eg. Provision for Bad Debts
Materiality Concept :
The materiality principle states that an accounting standard can be
ignored if the net impact of doing so has such a small impact on
the financial statements that a reader of the financial statements
would not be misled.
Eg. Purchase of Pencil and Purchase of Machine
INCOME STATEMENT OF LONE PINE CAFÉ FOR THE YEAR ENDED 30ST MARCH, 2010
FOR FIVE MONTHS
Particulars $ $
Income
Revenue 43480
Expenditure
Monthly Payment to Partners 23150
Wages to part time employee 5480
Interest 540
Food and Beverages Suppliers 10016
Telephone and electricity 3270
Miscellaneous 255
Rent payment 7500
Licenses 595 50806
Net loss 7326
PARTNERS’ CAPITAL ACCOUNT
Particulars Mr. Mrs. Mrs. Particulars Mr. Mrs. Mrs.
Antoin Antoin Lander Antoin Antoin Lander
e e s e e s
Loss during 2442 2442 2442 By Bal. b/d 16000 16000 16000
Year
Loss of Part. 1176 1176 1176
Bal. c/d 12382 12382 12382
Total 16000 16000 16000 Total 16000 16000 16000
BALANCE SHEET OF THE LONE PINE CAFÉ AS ON MARCH 30TH , 2010
ASSETS $ LIABILITIES & OWNER’S $
EQUITY
Current Assets: Current Liabilities:
Cash Register 1400 Account Payable 1583
Cash in hand 311
Food and Beverages 2,430 Secured Loan :
Operating License 833 Loan taken from bank 18900
Checking Account 1,030
Account Receivable 870 6,874 Partners Capital :
Mr. Antoine’s Capital 12,382
Non-Current Assets: Mrs. Antoine’s Capital 12,382
Equipment 53,200 Mrs. Landers’s Capital 12,382 37146
Less: Depreciation (2,445) 50,755
Total 57,629 Total 57,629
The firm was dissolved on March 30th, 2010.
Equipment and Food and Beverages realised
amount to $50,000 and $2,211 respectively.
Bank loan and Account Payable amount were
paid in full.
All amount of Account Receivable was received.
Operating License was not refunded.
Cash Register was missing.
REALISATION STATEMENT
Equipment 50000
Food and Beverages 2211
Account Receivable 870
Cash 311
Checking account 1030 54422
Less Payment
Bank loan 18900
Account receivable 1583 20483
Amount Available to Partners 33939
Q: WHAT DOES INCOME STATEMENT TELL MRS. ANTOINE
As we have seen that income statement is showing loss because
the business starts just before five months and this was off season.
Mrs. Antoine should continue to run business because now she has
some equipment to run the business and pick season is about to
come.
Thank You
