NC State Extension



Chapter 5- Balance Sheet BackgroundThe Thomas family started 4 Circle Farms a year ago with several different enterprises. They have heard that you went through NC Farm School and they asked you for help in developing what their balance sheet should look like for their new farm. They have decided to do several enterprises:Market Garden- 1acreHigh Tunnel- 100X20ftAsparagus- ? acreChickens- 75 layersYou decide to sit down with them in the middle of January and help them. They mentioned to you that they had about $70,000 saved up before they bought their house and they put 20% down on the house and property. Some of the rest of the money was used to purchase equipment but the Thomas’s mention that the tractor with implements, pack house, and other equipment came with the farm. The Thomas’s have two different loans that they will need to take into consideration on this first balance sheet. You have asked them to list out the details of the loans for you:Borrowed Money For:TermPercentage RatePayment ScheduleValueDate of IssueHouse and Property15 years4.5%Annual $ 321,460.00 1/15, 5 years agoOperational Expenses12 months6.5%due in 12mo. $ 5,000.00 This weekRead the considerations on page 2 as a guide to help you understand some back ground. Use the list of items on page 3 and 4, to develop their first balance sheet but use the bold numbers only when entering in values on the balance sheet. Use the directions on page 4 to help you fill out the balance sheet correctly. Look to page 5 to find the balance sheet where you will be entering in the numbers.After you are done developing the balance sheet use the formulas on page 6 to analyze how their farm is doing financially.Considerations for 4 Circle Farms Balance SheetIn Agriculture, loans are given on terms that will fit best with your cash flows for the farm. Many times this includes making one lump sum payment each year for the loan payment when farmers receive payment for the year’s harvest. The Thomas’s loan terms are set up like this way. This is the reason why you see a category called “Current Portion” on the balance sheet. This current portion captures what they will owe the bank at the end of the year.Only part of Thomas’s property is actually producing income for the farm. Make sure you only include the portion of the mortgage that represents the value of the 3 acres used by the farm for production on the Balance Sheet. You will also need to account for the portion that they paid down on the loan when you are making your calculations because they gave you the sell price of the home on their list. The adjustment has already been made for you for this exercise.Chickens are considered inventory not long term assets even though they can be kept more than one year. The exception to this is any breading stock purchased by the farm. You will want to make sure they are listed in the inventory section of the Balance Sheet. Fencing will be an asset. In the Thomas’s case they have a deer fence protecting the garden and fencing that is integrated with the chicken houses that will be included with the value of the chicken house structures.Personal assets of the Thomas Family do not need to go into the Farm Balance sheet because they are not being used in production.For the purpose of this exercise assets will be represented as market value. It has been one year and most items were purchase used so you will keep the values the same. The items that came with the purchase of the farm will be given a fair market value.Taxes owed would also need to be considered since they have not been paid yet but the Thomas’s are certain that they will pay no income tax this year on the farm since it did not show much profit.Circle Farms Balance Sheet Information(Only use the bold numbers to enter in values for the balance sheet)Current Assets: assets or money owed to the business that are expected to be converted to cash within a yearCash on hand- money in the bankCash in Bank (operational loan) $5,000(cash rollover from last year) $15,589 ------------------------------------------------------$20,589Accounts Receivable: this is what is owed to the business for the services or products they provide or bill-CSA dues 10 members @ $500 each---------------------------$4,000Inventory: assets held to support production that will be used up in producing the crop or product-Chickens, feed, fertilizer, chemicals, packaging-----------$1,815Fixed Assets: assets for long term use not likely to be converted in the next year, all listings are purchase prices-513590720008000Cost of house and property: $321,460.00, they paid 20% downHouse with 1 acre of land not in production- $150,560Land, 3 Acres with farm in production-------------------$168,900Tractor w/ Implements- $10,540Used Farm Truck- $5,000Tools and Equipment-$3,120Laptop- $1,100Printer- $150Cell Phone- $100Vegetable Wash Station- $100Farm Machinery and Equipment---------------------------------- $20,1103 Layer Houses, perches, waterers, feeders- $6,574Deer Fence- $500Transplant Starter House, prefab- $1,560Pack House with cold room: (16X16 converted wood Garage)- $3,560High Tunnel, farmer built- $1,860Buildings (total)---------------------------------------------------------$14,054170944822354700Personal Vehicles:Car- $16,00017409761016000Truck- $20, 000Liabilities: money, debts, or obligations owed by the business-Current Liabilities: liabilities due with-in the year-Taxes: the business showed a loss in the first year so there will be no taxes owedAccounts Payable, operational loan/with interest------$5,225Current Portion, owed on land this year-------------$12,581.54Long-Term Liabilities: liabilities that will come due beyond one year-Farm Mortgage, owed on land less principal-------$99,554.16Balance Sheet DirectionsUse the bold numbers to fill out the categories in the balance sheet.Total each sub-total category on the balance sheet by summing up the numbers above each category:Total Current AssetsTotal Fixed AssetsTotal Current LiabilitiesTotal Long-Term LiabilitiesTotal the “Total Farm Assets” and “Total Liabilities” SectionsEstimate the Farm Net Worth using the formula at the bottom of the page.Use page 6 equations to analyze the balance sheet so that you can discuss in class the significance of these numbers.Farm Balance SheetDate: January 15th Current AssetsCash in Bank$____________Accounts Receivable$____________Inventory$____________2 a) Total Current Assets$____________Fixed AssetsFarm Machinery and Equipment$____________Animals/Breeding Stock$____________Buildings$____________Land$____________2 b) Total Fixed Assets$____________3) TOTAL FARM ASSETS (total current assets + total fixed assets) $____________Current LiabilitiesAccounts Payable $____________ Current Portion $____________2 c) Total Current Liabilities$____________Long-Term LiabilitiesNotes Payable$____________Farm Mortgage$____________2 d) Total Long-Term Liabilities$____________3) TOTAL LIABILITIES (total current liabilities + total long-term liabilities)$____________4) FARM NET WORTH (total assets - total liabilities)$____________Analyze the Balance SheetUtilize the Formulas Below to analyze the balance sheet. (need to be more specific for directions here probably)Total Assets ÷ Total Liabilities= Debts/Assets Ratio __________ ÷ __________= __________Current Assets – Current Liabilities =Working Capital __________ – __________= __________ Current Assets ÷ Current Liabilities= Current Ratio __________÷ __________= __________ ................
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