Theory question 109
Farm Management and Records(a) Define the term balance sheet.
(b) The financial data of Omega Dairy Farms Ltd. as at December 31st, 2012 are shown below:
Cash at bank ₦200,000.00; Cash in hand ₦70,000.00; Dairy cattle ₦5,000,000.00; Milk ₦300,000.00; Loans ₦3,000,000.00; Initial capital ₦4,000,000.00; Interest on loan payable ₦600,000.00; Account receivable ₦1,000,000.00; Taxes payable ₦500,000.00; Milking machine ₦1,500,000.00; Animal feed ₦100,000.00.
Use the data to prepare a balance sheet for Omega Dairy Farms Ltd. as at December 31st, 2012.
(c) State two ways in which the balance sheet is important.
(d) Is the farm credit-worthy? Give a reason for your answer.
Show the model answer
(a) A balance sheet is a statement showing the assets and liabilities (and net worth) of a business at a particular date.
(b) Title: Balance sheet of Omega Dairy Farms Ltd. as at 31st December 2012.
Assets: cash at bank 200,000; cash in hand 70,000; dairy cattle 5,000,000; milk 300,000; accounts receivable 1,000,000; milking machine 1,500,000; animal feed 100,000. Total assets = ₦8,170,000.
Liabilities: loans 3,000,000; interest on loan payable 600,000; taxes payable 500,000. Total liabilities = ₦4,100,000. Initial capital (owner's equity) 4,000,000.
Net worth = total assets − total liabilities = 8,170,000 − 4,100,000 = ₦4,070,000.
(c) Any two: shows the financial position/net worth of the farm; shows whether the farm is solvent; helps in getting loans; helps planning and decision making; used for tax assessment.
(d) Yes: total assets (₦8,170,000) are about twice total liabilities (₦4,100,000), so the farm has a positive net worth and can repay its debts.
List assets and liabilities in separate columns with totals.