Question

John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering.In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills.John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months. After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account. He also borrowed $50,000.00 from his friend whom he pays 6 percent interest per year. Further, to start the business John used his own premises. He was receiving $12,000from rent per year. Finally, to start the business John uses $50,000 he had been given by his father to go on holiday to USA.

Answer 1

Explanation:

revenue (400000+1,90,000)= 5,90,000

Accounting Profit= 2000-55,000-75,000-50,000,-60,000-10,000-50,000×0.06=3000

                       = 2,55,000

accounting profit= 5,90,000-2,55,000=3,35,000

Economic profit= 2,55,000+80,000+12000+110,000×0.05=5,500=3,52,500

economic profit= 5,90,000-3,52,000= 2,37,500

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