(a) State six reasons why farm accounts should be kept by a farmer. (b) Prepare a profit and loss account for Ada Farms, for the year ending December, 1993 ...
Question 1 Report
(a) State six reasons why farm accounts should be kept by a farmer.
(b) Prepare a profit and loss account for Ada Farms, for the year ending December, 1993 using the following information.
(i) cost of maize seeds- N1,500.00
(ii) cost of fertilizer - N1,600.00
(iii) cost of insecticides - N1,000.00
(iv) tractor hiring- N1,000.00
(v) cost of herbicides- N1,200.00
(vi) cost of cassava stems N1300.00
(vii) sales of maize- N30,000.00
(viii) sales of yam tubers - N10,500.00
(ix) sales of cassava stems - N15,000.00
(x) transportation cost - N1,500.00
(xi) cost of processing cassava tubers - N 2,500.00
(xii) sales of cassava stems - N 22,00.00
(xiii) wages of workers N 8,000.00
(xiv) miscellaneous expenses - N 2,000.00
(xv) maize consumed - N 500.00
(xvi) yam consumed - N 800.00
(xvii) opening valuation - N45,000.00
(xviii) closing valuation - N15,000.00
Answer Details
(a) Six reasons why farm accounts should be kept
- To know whether the farm is making a profit or a loss.
- To serve as a guide for planning and future decision making.
- To help in securing loans and credit from banks and other lenders.
- To provide a basis for assessing tax.
- To keep records of assets, liabilities, income and expenditure of the farm.
- To measure the efficiency of the farm and compare performance from year to year.
(b) Profit and Loss Account for Ada Farms for the year ending December, 1993
Expenditure
| Item | Amount (N) |
|---|---|
| Opening valuation | 45,000.00 |
| Cost of maize seeds | 1,500.00 |
| Cost of fertilizer | 1,600.00 |
| Cost of insecticides | 1,000.00 |
| Tractor hiring | 1,000.00 |
| Cost of herbicides | 1,200.00 |
| Cost of cassava stems | 1,300.00 |
| Transportation cost | 1,500.00 |
| Cost of processing cassava tubers | 2,500.00 |
| Wages of workers | 8,000.00 |
| Miscellaneous expenses | 2,000.00 |
| Total expenditure | 66,600.00 |
Income
| Item | Amount (N) |
|---|---|
| Sales of maize | 30,000.00 |
| Sales of yam tubers | 10,500.00 |
| Sales of cassava stems | 15,000.00 |
| Sales of cassava (item xii) | 2,200.00 |
| Maize consumed | 500.00 |
| Yam consumed | 800.00 |
| Closing valuation | 15,000.00 |
| Total income | 74,000.00 |
Net profit \[ = \text{Total income} - \text{Total expenditure} = 74{,}000 - 66{,}600 = N7{,}400.00 \]
Since income exceeds expenditure, Ada Farms made a net profit of N7,400.00 for the year. (Produce consumed at home and the opening/closing valuations are included because they form part of the farm income and expenditure.)
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