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Farm Accounts Among the assets and liabilities of J - Leaving Cert Accounting - Question 4 - 2020
Question 4
Farm Accounts Among the assets and liabilities of J. McAteer, who carries on a mixed farming business, on 01/01/2019 are: land and buildings at €460,000; vehicles a... show full transcript
Worked Solution & Example Answer:Farm Accounts Among the assets and liabilities of J - Leaving Cert Accounting - Question 4 - 2020
Step 1
Prepare McAteer’s statement of capital on 01/01/2019.
Answer
To prepare McAteer’s statement of capital on 01/01/2019, we need to list all the assets and liabilities:
Assets
- Land and buildings: €460,000
- Vehicles and machinery: €124,000
- Value of cattle: €84,000
- Value of sheep: €27,600
- Milk queue: €2,600
- Medicines prepaid: €680
- Stock of fuel: €830
- Cash at bank: €41,600
- Investments: €1,360 (2 months interest)
Total Assets:
Liabilities
- Electricity due: €440
- Bank loan: €32,000
- Loan interest due: €3,325
Total Liabilities:
Capital Calculation
Using the formula:
Thus, McAteer’s statement of capital on 01/01/2019 shows a capital of €790,985.
Step 2
Prepare an enterprise analysis account for ‘cattle and milk’ and ‘sheep’ for the year ended 31/12/2019.
Answer
Enterprise Analysis Account – Cattle and Milk
Income
- Sales from cattle and calves: €24,810 + €7,800 = €32,610
- Milk sales: €32,000
Total Income:
Expenditure
- Purchase of cattle: €16,800
- Dairy wages: €20,400
- General farm expenses: €18,600 * 75% for cattle = €13,950
- Fertiliser: €2,700 * 75% for cattle = €2,025
- Veterinary and medicine: €1,260 * 75% for cattle = €945
Total Expenditure:
Profit
Enterprise Analysis Account – Sheep
Income
- Sales from sheep and lambs: €16,800 + €30,300 = €47,100
Expenditure
- Purchase of sheep: €10,400
- General expenses: €4,650 * 25% = €1,162.50
- Fertiliser: €1,800 * 25% = €450
- Veterinary and medicines: €520 * 25% = €130
Total Expenditure:
Profit
Step 3
Prepare McAteer’s general profit and loss account for the year ended 31/12/2019.
Answer
General Profit and Loss Account for the year ended 31/12/2019
Income
- Profit from cattle and milk: €11,490
- Profit from sheep: €34,957.50
- Interest from Investments: €1,360
Total Income:
Expenditure
- Light and heat: €2,500
- Repairs: €1,840
- Loan interest: €3,325
- Depreciation of machinery: €13,000
- Depreciation of buildings: €20,092
Total Expenditure:
Net Profit
Step 4
Prepare McAteer’s drawings account.
Answer
Drawings Account
Opening Balance:
- Balance b/d: €7,403
Drawings During the Year:
- Milk: €650
- Lamb: €470
- Loan interest: €175
- Light and heat: €468
- Health insurance: €1,260
- Repairs: €460
- Depreciation – machinery: €520
- Depreciation – buildings: €520
Total Drawings:
Closing Balance:
- Balance c/d: €7,403 - €4,013 = €3,390
Step 5
Outline the implications of an incorrect closing stock valuation for McAteer.
Answer
Implications of an Incorrect Closing Stock Valuation
-
Financial Statements Impact:
- An incorrect valuation affects the profit reported in financial statements over two accounting periods: the closing stock in the current year determines the opening stock in the next.
-
Profit Figures:
- Understated stock leads to understated profits, which could affect the owner's financial planning and decisions.
-
Tax Liability:
- Incorrect stock levels can misrepresent the profit subject to taxation, leading to potential legal penalties or issues with tax authorities.
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Borrowing Capacity:
- Misstated profits might impact McAteer’s ability to show sufficient earnings for loan applications, affecting future financing opportunities.
Correct closing stock valuation is crucial for accurate financial health representation.