A farmer wants to apply [for a loan with a commercial bank. He wants to increase
ID: 2581301 • Letter: A
Question
A farmer wants to apply [for a loan with a commercial bank. He wants to increase his herd of cattle.The bank employee asks the famer to produce a very recent balance sheet, preferably per 1 November 2013.
The farmer consults with a friend, YOU, and together they dig up the following:
- value farm building M34,000
- value farm equipment M16,000
- cattle (milking cows, heifers and female calves) M23000
- cattle (male calve, to be sold before christmas) M1,000
- the farmer owes his supplier of seeds and fertilizer M600
- stocks of feed, seeds and fertilizer M4,000
- the corporative owes the farmer M3,000 for milk money
- cash at the farm, cash M100 and cash at the bank M1,500
- the farmer has a mortgage still M27,000 big, at 8%. On December 2013, interest for one year plus a repayment of M3,000 is due.
Unfortunately the farmer is called away to assist a cow giving birth and he asks you to draw up the BALANCE SHEET as per 1st November 2013, so that he can return quickly to the bank employee. He is especially interested in how much equity he has invested in the farm.
Prepare the balance sheet as per 1st November 2013
Explanation / Answer
Balance Sheet As on November 1, 2017 Assets Amount Liabilities Amount Current Assets Current Liabilities Inventory: Sundry Creditors (supplier of seeds and fertilizer) 600 Cattle (male calve, to be sold before christmas) 1000 Interest outstanding on loan (27000 x 8% x 11/12) 1980 Stocks of feed, seeds and fertilizer 4000 Sundry Debtors (amount outstanding from Cooperative) 3000 Long Term Liabilities Cash at Farm 100 Mortgage 27000 Cash at Bank 1500 (includes CPLTD of 3000 x 11/12 i.e 2750) Long Term Assets Shareholders Equity (Balancing figure) Farm Building 34000 Total assets - Current Liabilities - Long Term Liabilities 53020 Farm Equipment 16000 Livestock: Cattle (milking cows, heifers and female calves) 23000 Total Assets 82600 Total Liabilities 82600
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