(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...
Question 1 Report
(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
Answer Details
(a) Balance sheet
A balance sheet is a financial statement that shows the assets, liabilities and capital (net worth) of a business at a particular date.
(b) Balance Sheet of Omega Dairy Farms Ltd as at 31st December, 2012
| Liabilities and Capital | Amount (N) | Assets | Amount (N) |
|---|---|---|---|
| Loans | 3,000,000.00 | Dairy cattle | 5,000,000.00 |
| Interest on loan payable | 600,000.00 | Milking machine | 1,500,000.00 |
| Taxes payable | 500,000.00 | Account receivable | 1,000,000.00 |
| Initial capital | 4,000,000.00 | Milk | 300,000.00 |
| Add: Net profit | 70,000.00 | Cash at bank | 200,000.00 |
| Animal feed | 100,000.00 | ||
| Cash in hand | 70,000.00 | ||
| Total | 8,170,000.00 | Total | 8,170,000.00 |
Total assets = N8,170,000.00. Liabilities (loan, interest, taxes) = N4,100,000.00. Net profit (balancing figure) = Total assets - liabilities - initial capital = 8,170,000 - 4,100,000 - 4,000,000 = N70,000.00.
(c) Two ways the balance sheet is important
- It shows the financial position (net worth) and solvency of the business at a given date.
- It is used to assess the creditworthiness of the farm and aids planning and decision-making.
(d) Is the farm credit-worthy?
Yes. The total assets (N8,170,000.00) far exceed the total liabilities (N4,100,000.00), so the farm is solvent, has a positive net worth and can meet its debt obligations. It also made a net profit for the period.
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