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Agriculture for Secondary Schools


            If total liabilities exceed the assets, the difference between total liabilities and assets
            is entered as net loss on the assets’ side, in the row below total assets in Figure 15.2.
            In such a state, the business is said to be insolvent, means that, it cannot be able to
            pay all its debts. If the value of assets exceeds the value of liabilities as the one in
            Figure 15.2, the business is said to be solvent. This means that the business is able

            to pay all its debts and still have a balance, that is, net worth. The net worth is also
            called net capital or owner’s equity.

            Note:  The opening and closing net worth statements for consecutive accounting
                   periods of a particular business have to be compared so as to find out whether
                   the owner’s equity is growing. It is also worth to note that the details for
                   items in each asset/liability (particularly in accounts receivable, inventory,
                   accounts payable, taxes payable and loans outstanding) in the sample net

                   worth statement in Figure 15.2 have been omitted for simplicity purpose, but
                   it should be shown when working with actual enterprise.

            Application of financial record analysis in farming business

            Generally,  based  on  farm  financial  record  analysis  at  present  and  to  the  next
            accounting period, you can obtain several basic information to work with so as to
            manage your farm enterprise(s). This information is summarised in Table 15.2.

            Table 15.2: Basic information from farm financial records analyses

              S/N    At present accounting period        During next accounting period
              1.   How much do you sell?             If your profit is increasing

              2.   How much do you spend?            If your expenses are increasing
              3.   Where do you spend it on?         If your asset values are increasing
              4.   How much profit do you make?      Where  you are spending more money
                                                     on

              5.   How much are your assets worth? Where you are spending less money on
              6.   How  much do you owe other  If your debt is increasing
                   people or businesses?
              7.   How much do other businesses or  If your business is improving in terms
                   people owe your business?         of increasing sales, profits and net worth

            Generally,  when  information  in  financial  analysis  tools  is  properly  developed,
            maintained and categorised, it will enable you as commercial farmer as well as other
            interested parties to achieve the following:


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