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Question 9
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- Define the term balance sheet. [2 marks ]
- 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 [11 marks ]
- State two ways in which the balance sheet is important. [2 marks ]
- Is the farm credit-worthy? Give a reason for your answer. [1 mark ]
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This question was rarely attempted by the candidates. In 9(a-d), most of the candidates were unable to define the term balance sheet, use the data provided to prepare a balance sheet, state the ways in which the balance sheet is important, give a reason to indicate whether a farm is credit-worthy or not.
The expected answers include:
9(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 in time
OR
A balance sheet is a statement showing the financial position of a farm at a point in time
(b) Balance sheet for Omega Dairy Farms Ltd as at December 31st, 2012
Liabilities |
₦ |
Assets |
₦ |
Interest on payable loan
Taxes payable
Initial capital
Loan |
600,000
500,000
4,000,000
3,000,000 |
Cash at bank
Cash on hand
Milk
Account receivable
Animal feed
Dairy cattle
Milking machine |
200,000
70,000
300,000
1,000,000
100,000
5,000,000
1,500,000 |
Sub total |
8,100,000 |
Net worth/net capital/owner equity |
70,000 |
Total |
8,170,000 |
Total |
8,170,000 |
(c) Ways in which a 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 |
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