FARMERS ACCOUNT
F
armers prepare trading profit and loss account and balance sheet just as
every other business outfit. However, peculiarities in a farmers account
are mainly in the valuation of stock of arable plantation products and
livestock.
Livestock
This refers to rearing of animals like poultry, sheep, cattles, Rabbits, Grass cutter,
snails etc which are specially raised for commercial purposes. The cost of it which
include veterinary services and other ratable incidental expenses which are
usually considered to arrive at the realistic value of the inventory.
(a) Two major problems are associated with the valuation of livestocks:
i. Determining the actual number and their existence, especially, grazing animal;
and
ii. Identifying the various stages of their development.
(b) The following three approaches to valuation of stock are generally in use:
i. Cost approach: The value is based on the actual cost incurred on each category
of livestock.
ii. Net realisable value: The value is determined by professional valuers,
taking into consideration the current market value, the mortality factor and the
relative marketability of the breed or class of stock.
(C) Where livestock is raised primarily for its products rather than for
consumption, such as dairy cattle or egg-laying poultry, different considerations
arise in the valuation of such livestock. It is usual to accumulate the cost of
bringing such livestock to the point of maturity at which they begin to yield
products and to amortise such costs over their estimated productive lives.
(d) The stocks in livestock enterprise usually include feeds-stocks, drugs, small
implements and other essential materials. They are usually valued at cost after a
physical count.
Arable Products
These are farm produce such as Okro, Vegetable etc in other to arrive at the
realistic value of the stock, the cost of cultivating farm and nurturing the plant to
the point of harvesting are aggregated to estimate the profit. Below is the
prescribed valuation treatment
(a) First-time; land clearing and stumping may involve substantial costs which are
sometimes capitalised.
(b) Tillages in-ground and harvested crops are three distinct operational stages
requiring valuation. Each operational stage has its own peculiar problems of
revaluation. Cost incurred are charged to each category.
(c) The value of tillages usually includes the accumulated cost of labour and usage
of machinery for preparing the land for planting, ploughing and fertilizer
spreading.
(d) In-ground, crops are usually valued by including the costs associated with
tillages, labour, seedings, weeding, disease control and attributeable cost of
machinery used.
(e) The valuation of harvested crops involve the correct determination of actual
input costs, labour. Depreciation and storage costs at the time of harvest, to
ensure that the value of harvested crops includes all the costs incurred from
tillage to harvesting.
(f) Most farm products are perishable or deteriorate quickly, therefore, it is
appropriate to make reasonable provision for deterioration or animal spoilable
based on norm within the industry or after consultation with experts.
(g) Where there is adequate record keeping and an appropriate cost accounting
system, cost of the farms will be on the basis of valuation of arable products. In
other situations, net realisable value is used.
(h) Official prices for certain products, such as, maize, sorghum and millet, are
published by the appropriate commodity Boards, for example, National Grains
Board. Use of such official price is not, however, recommend except where they
are below cost.
Plantation Products
This consist of special crops such as Cola, Oil palm, Rubber, Tin, Coffee, Cocoa
and Tobacco cultivated on a large scale and takes more than one (1) year to
nature before harvesting. Plantation farming involves planting of tree crops.
Below is the prescribed valuation treatment
(a) The major problem with the determination of the value of a plantation product
is that, a plantation does not usually start to produce until after a long gestation
period. Thus, all costs associated with land preparation, planting, pruning and
development are accumulated until the trees come to maturity. The cost is
amortised over the estimated productive life of the plantation.
(b) It is the normal practice to have planting done in lots or batches so as to have a
continuous flow of plantation output. Where possible, cost of such lots or batches
are accumulated separately in order to match their revenue with associated
costs, when harvested and sold.
(c) Each year the cost of plantation output consists of the preparation of the cost
accumulated for the quantities harvested plus the cost of extracting and
transporting them to the point of sale.
(d) Some enterprises prefer to use average cost of production in assigning value to
the quantities harvested and those unharvested. This method is justifiable
because most plantation products are homogenous.
Main features of Farm Accounts
(a) Open departmental accounts for different activities such as dairy, crops, fruits
and livestocks rearing, and where necessary, subdivide the activities.
(b) Open ledger accounts as in commercial activities, for example, debit purchases
Account and credit creditor account, for purchases of input on credit.
(c) Rotation of crops resulting in a number of fields lying follow. Occasionally
sown with fallow crops. That is, a number of fields are not in full production.
(d) Large mechanised farms keep financial records but most small farms records
are incomplete or at best; single entries recording receipts and payments.
(e) Large expenditure incurred on seeds and fertilizer may occasionally be spread
over a period, farming equipment purchased that are of material value and
expected to be in use for a long period should be capitalised.
(f) Valuation of livestock and manorial rights are carried out by farm experts.
(g) Where destruction of animals and crops as a result of diseases and pest
respectively occur, compensation for loss is computed for possible insurance
claim.
(h) Large farms take insurance cover for loss of livestock due to infection or loss of
cattle as a result of straying.
Illustration 1
Nakoji farms has the following balances in its cattle rearing department financial
records for the year ended 31 Dec, 2014 shows.
N000
Sales of cattle (190 heads) 1,126
Cattle slaughtered/sold (160 heads) 480
Sales of hides 84
Sales of offal 72
Sales of carcasses (94 heads) 4
Opening stock of cattle (500 heads) 840
Purchases of cattle 540
Opening stock of food stuffs 16
Purchases of concentrates 24
Cost of hay transferred 54
Cost of crop & pasture transferred 104
Labour 38
Grinding of feeds 6
Repair of farm ranch 8
Depreciation of farm house and equipment 7
Insurance of farm house property (cattle ranch) 3
Apportioned general office expenses 40
Additional Information
There were 69 births of cattle during the year ended 31 December, 2014 out of
which 3 were still births.
The closing inventory of cattle was valued at N18,000.
You are required to:
Prepare the cattle Trading Account for the year ended 31 Dec, 2014.
Solution
NAKOJI FARMS
Trading Account for the Year Ended 31 December, 2014
Sales: Units N000 N000
i. Cattle 190 1,126
ii. Cattle slaughtered 160 480
iii. Hides - 84
iv. Offal - 72
v. Carcasses 4 4
354 1,766
Less cost of cattle:
Opening inventory (cattle) 500 840
Purchases 250 540
750 1,380
Closing inventory (462) (18)
Births 69
Less still births (3) 66
354
Cost of food stuff:
Opening inventory 16
Concentrates 24
Hay transferred 54
Crop and pasture transferred 104
Labour 38
Grinding of feeds 6 (1,604)
Gross profit 162
Less expenses:
Repairs 8
Insurance 3
Depreciation 7
General Expenses 40 (58)
Net Profit 104
Illustration 2
Waziri is engaged in farming business, producing crops such as beans, potatoes,
soya, melon, corn, groundnut and livestock such as cattle, milk and dairy
produce, sheep and wool, goats poultry and egg. From the information given
below, you are required to prepare Waziri farm Trading and profit and loss
Account for the year ended 31 December, 2020.
Dr Cr
N N
Sales-Crops
Yam 6,930
Beans 5,540
Cassava 5,280
Potatoes 5,750
Soya 7,300
Melon 5,140
Corn 5,020
Groundnut 5,040
Livestock:
Cattle 20,500
Milk and diary produce 5,600
Sheep and wool 5,020
Goats 5,470
Poultry and eggs 5,210
Other income-production grants 5,060
Contracting 6,100
Crop expenses:
Fertilizer 5,700
Seeds 6,600
Contract work 7,100
Casual labour 5,050
Other crop expenses 5,260
Livestock expenses-feeds 7,800
Casual labour 5,150
Veterinary and medicines 5,400
Milk and dairy expenses 5,100
Other livestock expenses 5,200
Fixed cost:
Regular labour-salaries & wages 11,100
Machinery, equipment and farm-
Vehicle repairs 5,850
Petrol, oil and lubricants 5,420
Electricity 5,600
Depreciation 5,700
Sundry Incomes:
Miscellaneous Income 5,020
Gains on sale of machinery 5,220
Private share of rent & rates of farm in house 5,200
Private share of: fuel and electricity 5,100
Private share of: telephone 5,020
General overheads:
Rent and rates 5,800
Insurance 5,100
Repair to fence and drainage 5,900
Telephone 5,120
Bank interest 5,170
Loan interest 6,200
Other general overheads 5,300
Solution
WAZIRI FARM
Trading and Profit and Loss Account for the Year Ending 31st Dec 2020
Crop Livestock
Total/Combine
N N N N
N N
Revenue Income (Wk 1) 46,000 41,800
87,800
Less: expenses (wk4 & wk 5) 29,710 28,650
(58,360)
Gross profit 16,290 13,150
29,440
Other Income (Wk 3)
11,160
Sundry Income
5,020
Gains on sale of mach 5,220
Private share Income (wk6) 15,320
66,160
106, 760
Less:
Fixed cost: salaries & wages 11,100
Mach, equip.& farm veh. Repairs 5,850
Petrol, Oil & lubricant 5,420
Depreciation 5,700
Electricity 5,600
Rent & Rates 5,800
Insurance 5,100
Repair to fence& Drainages 5,900
Telephone 5,120
Bank interest 5,170
Loan interest 6,200
Other general overheads 5,300
(72,260)
Net Loss
6,100
Workings:
Crop income: N Crop expenses: N
Yam 6,930 Fertilizers 5,700
Beans 5,540 Seeds 6,600
Cassava 5,280 Contract works 7,100
Potatoes 5,750 casual labour 5,050
Soya 7,300 other crop expenses 5,260
Melon 5,140 29,710
Groundnut 5,040
Corn 5,020
46,000
Livestock Income N Live stock Expenses N
Cattle 20,500 Feeds
7,800
Milk & dairy 5,600 Casual labour 5,150
Sheep & wool 5,020 Veterinary & Medicines 5,400
Goats 5,470 Milk & dairy expense 5,100
Poultry & eggs 5,210 Other livestock expenses
5,200
41,800
28,650
Other Income N Private share of Income: N
Grays 5,060 Rent & Trade of farm house 5,200
Contracting 6,100 Fuel & Electricity 5,100
11,160 Telephone
5,020
15,320
