Question 5.

A farm family grows crops in the Kabwe district with a rotation shown in the following table:

Calculate the total income per hectare for the various crops.

Calculate the total variable costs for the various crops.

Overhead or fixed cost were estimated as follows:

Owner operators labour and management K 1,800,000

Administrative costs K 1,000,000

Depreciation of assets K 150,000

Interest paid to the bank loan was estimated at K 225,000

The amount of tax was estimated at 30% of the estimated Net Profit. Calculate the estimated operating profit, net profit and increase in owners equity for the farm business over the year.

Prepare a balance sheet at the start of the year based on the following information: Assets at the beginning of the year include value of the land being K 9,500,000, depreciable assets of K 1,500,000 and cash of K 2,000,000. Liabilities at the start of the year are a bank loan of K 2,250,000.

Calculate equity as a percentage of total assets at the beginning of the year.

Next, calculate expected cash on hand at the end of the year. In doing that calculation, there is repayment of the bank loan that is at 10% of the value of the loan at the beginning of the year. The result is the estimated net cash flow during the year.

Prepare an expected balance sheet for the farm at the end of the year. Note that the value of land is the same as at the beginning of the year.

Note that the depreciable assets have been reduced by 10% during the year.

Calculate the estimated increase in equity over the year.

At the end of the year, calculate the expected value of equity as a percentage of total assets.

Calculate the percentage efficiency of the farm over the year.

Calculate the gearing ratio of the farm at the end of the year.

Write a description about the expected health of the farm business for the year.

(Total of 20 Marks).