Theory question 110
Farm Management and Records(a) State six reasons why farm accounts should be kept by a farmer.
(b) Prepare a profit and loss account for Ada Farms, for the year ending December, 1993 using the following information. (i) cost of maize seeds N1,500.00 (ii) cost of fertilizer N1,600.00 (iii) cost of insecticides N1,000.00 (iv) tractor hiring N1,000.00 (v) cost of herbicides N1,200.00 (vi) sales of cassava stems N1,300.00 (vii) sales of maize N30,000.00 (viii) sales of yam tubers N10,500.00 (ix) sales of cassava tubers N15,000.00 (x) transportation cost N1,500.00 (xi) cost of processing cassava tubers N2,500.00 (xii) sales of cassava stems N2,200.00 (xiii) wages of workers N8,000.00 (xiv) miscellaneous expenses N2,000.00 (xv) maize consumed N500.00 (xvi) yam consumed N800.00 (xvii) opening valuation N45,000.00 (xviii) closing valuation N15,000.00. What is the net profit or loss of the farm?
Show the model answer
(a) Any six: know profit or loss; plan and budget; obtain loans; tax assessment; know the value/net worth of the farm; compare enterprises; prevent fraud and settle disputes; track performance over years
(b) Debit side: opening valuation 45,000; maize seeds 1,500; fertilizer 1,600; insecticides 1,000; tractor hiring 1,000; herbicides 1,200; transport 1,500; processing cassava 2,500; wages 8,000; miscellaneous 2,000 – total N65,300
Credit side: sales of cassava stems 1,300 + 2,200; sales of maize 30,000; yam tubers 10,500; cassava tubers 15,000; maize consumed 500; yam consumed 800 (produce used by the household counted as income); closing valuation 15,000 – total N75,300
Net profit = 75,300 − 65,300 = N10,000.00
Put costs and opening valuation on the debit side, sales, farm produce consumed and closing valuation on the credit side.