(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
Explanation
(a) Definition of balance sheet A balance sheet is a financial statement which shows the assets, liabilities and net worth of a farm at a point time
OR
A balance sheet is a statement showing the financial Position of a farm at a point in time
(b)
(c) Ways in which balance sheet is important
-Provides useful information on the net worth of the farm
- It is used in assessing a farm's liquidity and financial flexibility that is, the ability of the farm to take appropriate actions to alter the timing and amount of cash flows in order to respond to unanticipated needs and opportunities
- It shows the structure which refers to the nature and amounts of investments in enterprise resources
(d) Farm credit worthiness: Yes the farm is credit-worthy
Reason: Because the farm's assets are greater than its liabilities