Financial Statements

a) Explain the circumstances under which an entity should recognise a biological asset or agricultural produce in the context of International Accounting Standard (IAS) 41, Agriculture. b) The following balances were extracted from the books of Shamba Ltd. as at 31 March 2012: Sh.'000' Mortgage from Rural Development Bank Retained profits as at 1 April 2011 Ordinary share capital Farm workers' wages Manager's salary Cash in hand Receivables Farm tools Repairs to farm machinery Staff welfare Farmhouse expenses Purchase of: Seeds Livestock Fertilizer Livestock feeds Wages: Livestock Expenses: Crops Livestock Administration expenses Interest on mortgage Inventories as at 1 April 2011: Growing crops, seeds and fertilizers Livestock Livestock feeds General insurance premium Payables Bank balance Sale of: Crops Cattle Carcasses Farm machinery Land and building 36,000 6,000 163,200 3,000 3,600 15.600 18,000 1,500 300 600 720 2,400 6,000 1,500 420 9,600 6,000 7,380 2,400 2,700 12,000 15,000 3,600 2,880 9,000 1,800 (credit) 21,000 36,000 9,000 46,800 120,000 Additional information: 1. Inventories as at 31 March 2012 were valued as follows: Sh. ‘000’ Growing crops, seeds and fertilizers Livestock 6,000 24,000 REVISION PARTNER 38 CPA Section 3 Financial Reporting Livestock feeds 600 2. Manager's salary is charged to livestock and crop revenue accounts in the ratio of 1:3 respectively. 3. Valuation of farm tools as at 31 March 2012 was Sh.1, 200,000. Depreciation on farm machinery is to be provided at 20% per annum on book value. Depreciation and repairs on farm machinery are to be charged to the general income statement. 4. Insurance prepaid amounted to Sh.240, 000 and is to be charged to the general income statement. 5. Manure worth Sh. 180,000 was used in the farm while farm crops used to feed the livestock were valued at Sh.390, 000. 6. Bad debts of Sh.300, 000 are to be' written off and an allowance for doubtful debts of 4% is to be provided. 7. Crops consumed by the farm workers were valued at Sh.600,000. This amount was recovered from their wages. 8. The shareholders provided farm labour valued at Sh. 1,200,000 while crops valued at Sh. 1,920,000 were donated to charity during the year. 9. Income tax expense of Sh. 1,800,000 is to be provided. Required: i) Crop and livestock revenue accounts, in columnar format, for the year ended 31 March 2012. ii) General income statement for the year ended 31 March 2012. iii) Statement of financial position as at 31 March 2012.

The following trial balance was extracted from the books of Mkulima Halisi, a farmer, as at December 2006: Sh. ‘000’ Sh. ‘000’ Stock as at January 2006: Seeds 30 Growing crops 100 Poultry feed 20 Poultry 190 Cattle feed 150 Mature crops 210 Cattle 480 Fertilizers 102 Purchases Cattle 1,850 Poultry 620 Cattle feed 780 Poultry feed 270 Fertilizers 410 Seeds 340 Sales Cattle 3,450 Eggs 680 Crops 3,240 Poultry 1,160 Milk 1,180 REVISION PARTNER 39 CPA Section 3 Financial Reporting Wages Cattle 730 Poultry 390 Crops 930 Capital 4,000 Creditors 510 Accrued expenses 80 Land 350 Farm house 2,250 Farm machinery 880 Office furniture 240 Depreciation 380 Office salaries and wages 113 Office expenses 230 Crop expenses 320 Cattle expenses 468 Poultry expenses 285 Debtors 462 Bank and cash balance 120 Drawings 360 Insurance 240 14,300 14,300 Additional information: 1. As at December 2006, stocks were valued as follows: 2. Depreciation expense for the year is apportioned as follows: Sh. ‘000’ Crop activity 180 Livestock activity 90 Poultry activity 50 General office 60 380 3. During the year ended 31 December 2006, the workers were paid in kind as shown below; Sh. ‘000’ Poultry 40 Milk 85 Crops 120 4. During the year ended 31 December 2006, Mkulima Halisi took the following items for his domestic use: Sh. ‘000’ Poultry 24 Sh. ‘000’ Seeds 40 Growing crops 110 Poultry feed 25 Poultry 145 Cattle feed 160 Mature crops 240 Cattle 360 Fertilizers 90 REVISION PARTNER 40 CPA Section 3 Financial Reporting Milk 48 Crops 68 5. During harvesting of crops, Mkulima Halisi provided labor services valued at Sh. 210,000 which were not accounted for in the books. 6. It was estimated that Sh. 12,000 of the debtors balance were bad debts and required writing off. Provision for doubtful debts at the rate of4% of the remaining debtors was required. 7. Previously, no provision for doubtful debts was maintained. Insurance premium was paid in January 2006 and was to cover two years up to 31 December 2007. The insurance contract was to cover loss of livestock. Required: a) Crop account for the year ended 31 December 2006. b) Livestock account for the year ended 31 December 2006. c) Poultry account for the year ended 31 December 2006. d) General profit and loss account for the year ended 31 December 2006. e) Balance sheet as at 31 December 2006.

The following information was extracted from the books of Moses Kiprono, a farmer, for the year ended 31 March2003. Trial balance as at 31 March 2003 Sh Sh Purchases Poultry 420,000 dairy cattle 1,380,000 Dairy cattle feed 580,000 Poultry feed 150,000 Fertilizers 220,000 Seeds 100,000 Sales Crops 2,740,000 Dairy cattle 2,500,000 Eggs 720,000 Poultry 1,640,000 Milk 1,210,000 Opening stock Mature crops 350,000 Growing crops 120,000 Seeds 80,000 Poultry feed 50,000 Fertilizers 110,000 Poultry 230,000 Dairy cattle feed 180,000 Dairy cattle 520,000 Wages Poultry 600,000 Dairy cattle 960,000 Crops 720,000 Repairs of farm machinery 250,000 Farm house expenses 180,000 Office expenses 825,000 REVISION PARTNER 41 CPA Section 3 Financial Reporting Crops expenses 280,000 Dairy cattle expenses 240,000 Poultry expenses 450,000 Farm machinery Net book value 2,500,000 Office furniture Net book value 1,500,000 Drawings in cash 600,000 Capital account 4,800,000 Debtors 675,000 Creditors 780,000 Cash in hand and bank balances 350,000 Accruals 230,000 14,620,000 14,620,000 1. During the year ended 31 March 2003 Proprietor Workers Sh Sh Poultry 50,000 120,000 Milk 80,000 170,000 crops 20,000 60,000 2. Farm machinery is depreciated at the rate of 10% per annum on the reducing balance basis while furniture which initially cost Sh 3,000,000 is depreciated at 10% per annual, on cost 3. On 31 March 2003, the closing stocks were as follows Required: a) Crop account, poultry account and dairy account for the year ended 31 March 203. b) General profit and loss account for the year ended 31st March 2003. c) Balance sheet as at 31 March 2003. NSURANCE FIRMS