(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 endin...
Question 1 Report
(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 )
Answer Details
(a) Five reasons why farm accounts are kept:
- To find out whether the farm is making a profit or a loss.
- To help the farmer plan and budget for the future.
- To serve as a basis for obtaining loans/credit from banks and other lenders.
- To help in assessing tax payable and settling disputes.
- To compare the performance of the farm from one year to another and between enterprises.
(b) Profit and Loss Account for UNITY FARM for the year ending December 2005:
Produce consumed on the farm and given out as gifts are treated as farm income (benefits in kind).
| Expenditure | Amount (D) | Income | Amount (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 to visitors | 1,000.00 |
| Cost of cassava stems | 1,200.00 | ||
| Cost of processing cassava tubers | 1,500.00 | ||
| Wages of workers | 6,000.00 | ||
| Miscellaneous expenses | 4,400.00 | ||
| Net profit c/d | 22,100.00 | ||
| Total | 42,800.00 | Total | 42,800.00 |
Working:
\[ \text{Total income} = 29{,}000 + 7{,}000 + 5{,}500 + 300 + 1{,}000 = D42{,}800.00 \]
\[ \text{Total expenditure} = 1{,}400 + 1{,}200 + 1{,}900 + 2{,}000 + 1{,}100 + 1{,}200 + 1{,}500 + 6{,}000 + 4{,}400 = D20{,}700.00 \]
\[ \text{Net profit} = 42{,}800 - 20{,}700 = D22{,}100.00 \]
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