Case study solution

Operating Expenses Year 1 Year 2 Year 3

Technicians' Wages 3600 120000 180000
Local Management
Salaries 120000 325000 400000
Sales Staff Salaries 0 18000 18000
Water Testing & Filter
Maintenance 10200 408000 612000
Marketing Expenses 60000 75000 171400
Vehicle Expenses 2500 65000 110000
Given Facts
Narration Year 1 Year 2 Year 3
Number of vendors 50 2000 3000
Customers per
vendor 150 150 150
Water rate per litre 0.08 0.08 0.08
Number of working
days 365 365 365
Revenue 219000 8760000 13140000
Assumptions
for Revenue
Calculation
Narration Year 1 Year 2 Year 3
Local Politicians 43800 1752000 2628000
Underreporting 32850 1314000 1971000
Assumptions
for Revenue
loss under
certain
condition
Underreporting is calculated at 15% of Gross
Revenue
Informal cost to Local politicians is calculated at
20% of Gross Revenue
Capital
Investment Year 1 Year 2 Year 3
Number installed 50 1950 1000
Cost of each filter 400 250 250
Total Expenditure 20000 487500 250000
Depriciation per
filter 26.67 16.67 16.67
Depreciation 1333.33 33833.33 50500.00
Capital Cost
and
Depreciation-
Slow sand
filters
Life expectancy for Filter is 15 years
Capital
Investment Year 1 Year 2 Year 3
Number 3 97 50
Cost per
motorcycle 2500 2500 2500
Total expenditure 7500 242500 125000
Depriciation 1500 50000 75000
Capital Cost
and
Depreciation-
Motorcycles
Life expectancy for Motorcycle is 5 years
Capital Investment Year 1 Year 2 Year 3
Number 1 20 9
Cost per vehicle 12500 12500 12500
Total expenditure 12500 250000 112500
Depriciation 2500 52500 75000
Capital Cost
and
Depreciation-
Trucks
Life expectancy for Truck is 5 years
Capital Investment Year 1 Year 2 Year 3
Sand filter 1333.33 33833.33 50500.00
Motorcycle 1500 50000 75000
Truck 2500 52500 75000
Total 5333.33
136333.3
3 200500
Depreciation
Narration Year 1 Year 2 Year 3
Revenues 219000 8760000 13140000
Less: COGS 43800 1752000 2628000
Less: Loss on
underreporting 32850 1314000 1971000
GROSS PROFIT 142350 5694000 8541000
Less: Operating Costs
Technicians' Wages 3600 120000 180000
Local Management
Salaries 120000 325000 400000
Sales Staff Salaries 0 18000 18000
Water Testing & Filter
Maintenance 10200 408000 612000
Marketing Expenses 60000 75000 171400
Vehicle Expenses 2500 65000 110000
Other Costs 47800 1756000 2632000
Depreciation 5333.5 136340 200510
TOTAL OPERATING
COSTS 249433.5 2903340 4323910
OPERATING PROFIT -107084 2790660 4217090
Interest Charge 0 100000
PROFIT BEFORE
TAXES -107084 2690660 4217090
Income
Statement
Projections
Year 0 Year 1 Year 2 Year 3
Capital 200000 200000 200000 200000
Retained Earnings -107084 2583577
6800666.
5
Outside Liabilities 0
TOTAL
LIABILITIES 92916.5 2783577
7000666.
5

GROSS FIXED
ASSETS
Slow-sand Filters 20000 507500 757500
Motorcycles and
Trucks 20000 512500 750000
Total 40000 1020000 1507500
Less:
Accumulated
depreciation 5333.5 141673.5 342183.5
Net Fixed Assets 34666.5 878326.5
1165316.
5
Deferred revenue
expenditure 40000 36000 32000 28000
Cash 160000 22250 1873250 5807350
TOTAL ASSETS 200000 92916.5 2783577
7000666.
5
Balance Sheet
Year 1 Year 2 Year 3
Operating Profit -107084 2790660 4217090
Add back:
Depreciation 5333.5 136340 200510
Add
expense:Consultancy
investment turned
expense 4000 4000 4000
Cash From
Operations -97750 2931000 4421600

Debt raised 0 1000000 0
Debt repaid 1000000
Interest on debt paid 100000
Cash From Financing 100000

Investment in fixed
assets 40000 980000 487500
Investment in current
assets
Investment in Blue
future consultancy 40000 0
Cash from
Investments 80000 980000 487500

Opening balance of
cash 200000 22250 1873250
Cash flow during the
year -177750 1851000 3934100
Closing balance of
cash 22250 1873250 5807350
Cash flow
Statement
Question- 2
The template provided for Income Statement first reports gross
revenue from sales earned and then allows for underreporting
losses in computing gross profits for the three years. Keeping with
the principles of the Revenue Recognition concept on the one hand
and the Conservatism concept on the other, in your opinion, what is
the best way to report revenues for Urban Water Partners?
Answer
While reporting revenues underreporting losses need not be
accounted for since that amount of sale was never earned and is just
an assumption that a percentage of expected revenue shall be lost
in underreporting.
However in the current context it is necessary to mention it in order
to inform the investor on business model, its outflow and risk
associated with the business.
Question- 2
The template provided for Income Statement first reports gross
revenue from sales earned and then allows for underreporting
losses in computing gross profits for the three years. Keeping with
the principles of the Revenue Recognition concept on the one hand
and the Conservatism concept on the other, in your opinion, what is
the best way to report revenues for Urban Water Partners?
Answer
While reporting revenues underreporting losses need not be
accounted for since that amount of sale was never earned and is just
an assumption that a percentage of expected revenue shall be lost
in underreporting.
However in the current context it is necessary to mention it in order
to inform the investor on business model, its outflow and risk
associated with the business.
Question 3-If you were a consultant vetting the
students business plan, what assumptions would
you change? Any additions or deletions that you
would make?
Answer-
1. No monetary assumption on filter related
losses is accounted which needs to be
quantified.
2. Transaction charges occurring out of the
payment gateway through mobile networks is
not calculated and needs to be assumed.
3. Availability of uninterrupted water supply is
assumed however in real case scenario some
contingency may arise and cost of it needs to
be assumed and included.

Thank You