(a) State five reasons why farm accounts are kept. (b) Using the following information, prepare a profit and loss account for UNITY FARM, for the year ending December, 2005.
(i) Cost of maize seeds – -D1,400.00
(ii) Cost of fertilizers – D1,200.00
(iii) Cost of insecticides – D1,900.00
(iv) Tractor hiring – D2,000.00
(v) Cost of herbicides – D1,100.00
(vi) Cost of cassava stems – D1,200.00
(vii) Sales of maize – D29,000.00
(viii) Sales of yam – D7,000.00
(ix) Sales of cassava tubers – D5,500.00
(x) Cost of processing cassava tubers – D1,500.00
(xi) Wages of workers – D6,000.00
(xii) Miscellaneous expenses – D4,400.00
(xiii) Maize consumed – D300.00
(xiv) Potato gift to visitors – D1,000.00 )
Explanation
(a) Reasons why farm accounts are kept by farmers: It enables the farmer to know whether he is running the farm at a profit or loss. It enables the farmer to make sound management decisions. It shows the financial weakness/strength of the farm. It enables the farmer to obtain loans from the bank. It makes accurate determination of his annual tax possible. It enables the farmer to determine the actual worth of his farm for any given purpose. For transferring a business from one person to another. Facilitates farm auditing. Provides data for planning and budgeting. It enables the farmer to detect fraudulent practices e.g. theft. For comparing management efficiency over a period of time. Assists farmers to monitor changes in prices of commodities.
Alternative 1: Double Entry Method
(b) Profit and Loss Account for Unity Farm For the Year ending December, 2005
|
Expenditure (Debit) |
D |
Income (Credit) |
D |
|
Cost of maize seeds |
1,400.00 | Sales of Maize |
29,000.00 |
|
Cost of fertilizers |
1,200.00 | Sales of yam |
7,000.00 |
|
Cost of insecticides |
1,900.00 | Sales of Cassava tubers |
5,500.00 |
|
Tractor hiring |
2,000.00 | Maize Consumed |
300.00 |
|
Cost of herbicides |
1,100.00 | Potato gift |
1,000.00 |
|
Cost of processing cassava tubers |
1,500.00 | Total income |
42,800.00 |
|
Wages of workers |
6,000.00 | ||
|
Miscellaneous expenses |
4,400.00 | ||
|
Total Expenditure |
D20,700.00 | ||
|
Net Profit |
D22,100.00 | ||
| Grand Total | D12,800.00 | Total |
D42,800.00 |
Alternative 2: Single method
Profit and Loss Account for Unity Farm for the Year ending December, 2005
|
Sales/Income |
D |
| Sales of Maize | 29,000.00 |
| Sales of yam | 7,000.00 |
| Sales of Cassava tubers | 5,500..00 |
| Maize Consumed | 300.00 |
| Potato gift | 1000.00 |
| Total income | D42,800.00 |
| Less Expenses | |
|
Cost of Maize |
1,400.00 |
|
Cost of fertlizers |
1,200.00 |
|
Cost of insecticides |
1,900.00 |
|
Tractor hiring |
2,000.00 |
|
Cost of herbicides |
1,100.00 |
|
Cost of processing cassava tubers Cost of processing Cassava tubers |
1,200.00 1,500.00 |
|
Wages of workers |
6,000.00 |
|
Miscellaneous expenses |
4,400.00 |
|
Total Expenditure |
20,700.00 |
|
Net Profit |
22,100.00 |
| Grand Total | D42,800.00 |