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Financial Accounting 1
The Ostrich Farm
Financial Accounting 2
Basic Information commercial ostrich industry began about 150
years ago in South Africa especially good for their meat eggs are edible but they are mainly used for
breeding and art purposes one pair of mature ostrich is worth about 8 ostrich
eggs one adult ostrich yields around 100 kg of meat 100 kg meat is worth about 9 eggs One adult ostrich consumes about 35 kg of feed
per day
Financial Accounting 3
Beginning-1 father divided his ostrich farm of 30 squared
kilometers that is worth ninety ostrich eggs between his two daughters
total of thirty ostriches the daughters did not own the land or the
ostriches but were responsible from running the operations
older daughter received a land of 20 squared kilometers with 20 ostriches, and the younger the remaining land with its ostriches
Financial Accounting 4
Beginning-2 In each piece of land there is one egg incubator
that is expected to last eight years with good use, and a portable shelter for the animals which can usually be used for two years.
Each egg incubator is worth two pairs of ostriches and the shelter about two eggs.
The father also gave each daughter bird feed that would be enough for the first half of the year. 1000 kg of feed is worth one egg.
Financial Accounting 5
Decision Which daughter is doing better? Criteria?
Financial Accounting 6
What do we need to answer? “performance” ownership common denominator or measurement
unit
Financial Accounting 7
Solution Common denominator – eggs or birds? Father or daughters? Wealth increase? How to measure?
Financial Accounting 8
Measurement Unit -Eggs
Ostrich Farmone pair ostrich 8 eggsone ostrich 4 eggs1km2 land 3 eggsincubator 4 ost or 16 eggsportable shelter 2 eggs1000 kg feed 1 egg100 kg meat 9 eggs
Financial Accounting 9
Beginning eggs total egsostrich 20 4 80land 20 3 60incubator 1 16 16feed 126000 /1000 126shelter 1 2 2
284
Older Sister
Capital –whose?
Financial Accounting 10
During the year- Older slaughtered 9 ostriches at midyear (assume one
year is 360 days) and exchanged the meat for another portable shelter and bird feed
The hens laid a total of 300 eggs of which 2 were broken
She gave 45 eggs to her helpers and 3 eggs to the veterinarian
the egg incubator broke down and she promised to give the fixer 2 eggs during the next season
Her father took 25 eggs
Financial Accounting 11
End of the year- Older At the end of the year, she received 25
pairs of ostriches of a different breed in exchange for 9 eggs a pair. These ostriches are expected to be ready for processing when they are 18 months old, at almost half the age of the other breed.
Financial Accounting 12
During the year: Olderfeed purchased:from meat:
9 81 eggsshelter 2purchased 79 eggs
available: 205 eggsused * 195.3 eggsending balance 9.7 eggs
*126 eggs plus 69.3 eggs
Financial Accounting 13
feed:first 6 mo second six monthsost 20 ost 11per day 35 kg per day 35days 180 days 180
126000 kg 69300eggs 126 beg bal waste 0
kg used 69300eggs 69.3
Financial Accounting 14
During the year – Older –2eggs used: eggs
25 ost.pairs 9 22545 helpers 45
3 vet 32 broken eggs 2
25 father 25300
Financial Accounting 15
End of the year Oldernumber eggs tot eggs
ostrich 11 4 4425 9 225
269feed 9.7land 60incubator 1 16 16shelter 2 2 4
358.7
Financial Accounting 16
Beginning eggs total egsostrich 10 4 40land 10 3 30incubator 1 16 16feed 126000 /1000 63shelter 1 2total 151
Younger sister
Capital –whose?
Financial Accounting 17
During the year- Younger hatched 10 eggs and exchanged the chicks for 20,000 kg
of feed and one small used incubator that is worth 5 eggs and that could be used for 5 more years at the beginning of the year
slaughtered 1ostrich mid-year and exchanged for bird feed
hens laid 277 eggs during the year. She used 45 eggs to purchase more bird feed, gave 25 eggs to the helpers, 2 eggs to the veterinarian, and 50 eggs to her father
Her portable shelter became unusable due to a very active animal. She got a new shelter, and gave one egg and promised to give one more egg next season
Financial Accounting 18
End of the year-YoungerAt the end of the year, she exchanged her
remaining eggs for 18 pairs of ostriches of the same breed as hers
Financial Accounting 19
During the year: Youngerfeed purchased:fr hathed eg 20 eggsfrom meat 9 eggsfrom eggs 45beginning 63 eggs
available: 137 eggsused * 119.7 eggsending balance 17.3 eggs
*63 eggs +56.7 eggs
Financial Accounting 20
feed:first 6 mo second six monthsost 10 ost 9per day 35 kg per day 35days 180 days 180
63000 kg 56700eggs 63 beg bal waste 0
kg used 56700eggs 56.7
Financial Accounting 21
During the year: Younger-2eggs used:
18 pairs 8 14425 helpers 25
2 vet 21 shelter payment 1
45 feed 4510 hatched 1050 father 50
277
Financial Accounting 22
End of the year- Younger
number eggs tot eggsostrich 9 4 36
18 8 144180
feed 17.3land 30incubator 21 21shelter 1 2 2
250.3
Financial Accounting 23
Comparison- Beginning of the year:
total egs Older Younger
ostrich 80 40
land 60 30
incubator 16 16
feed 126 63
shelter 2 2
284 151
Financial Accounting 24
Comparison – End of the yeartotal eggs older younger
ostrich 269 180
feed 9.7 17.3
land 60 30
Incubator 16 16
Shelter 4 2
358.7 250.3 Owes: 2 eggs 1 egg
Financial Accounting 25
Which one is doing better? What about the eggs given to the father? Which daughter is using the resources
more efficiently? Who has increased the wealth more?
Financial Accounting 26
Wealth Older Beginning 284 eggs
End 356.7 eggs (owe 2 eggs)
Younger Beginning 151 eggs End 249.3 eggs (owe 1 egg)
How much is the net worth or capital or owners’ equity?
Financial Accounting 27
Increase in wealth Difference between the beginning and the
ending capital Older: 72.7 Younger 98.3 Now let’s see what caused the capital
increase….
Financial Accounting 28
Older –Annual Performancemeat produced 81eggs 300total revenue 381 eggscostostrich 9x4 36feed 195.3
Cost 231.3gross margin 149.7
help 45vet 3broke 2fix 2 total expenses 52income 97.7gave to father 25
Increase 72.7 eggs
Financial Accounting 29
Younger-Annual Performanceshelter eggs
hatched eggs 20 5 25meat 9eggs 277total revenue 311ostrich 4feed 119.7hatched eggs 10
Cost 133.7gross margin 177.3help 25vet 2shelter unusable 2 total expenses 29income 148.3 gave to father 50
Increase 98.3
Financial Accounting 30
Moral of the Story We need a common measurement – money Period is important – a year from now older
might be better Entity is different than the owner Each financial statement answer a different
question Balance sheet: how resources are allocated Income Statement : how efficiently the resources
are used.