NQF Level: 2 US No:

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My name: . . .

Company: . . .

Commodity: . . . Date: . . .

The availability of this product is due to the financial support of the National Department of Agriculture and the AgriSETA. Terms and conditions apply.

(2)

Version: 01 Version Date: July 2006

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Dear Learner - This Learner Guide contains all the information to acquire all the

knowledge and skills leading to

the unit standard:

Title: Illustrate and understand the basic lay-out of financial statements

US No: 116083 NQF Level: 2 Credits: 2

The full unit standard will be handed to you by your facilitator. Please read the unit

standard at your own time. Whilst reading the unit standard, make a note of your

questions and aspects that you do not understand, and discuss it with your

facilitator.

This unit standard is one of the building blocks in the qualifications listed below.

Please mark the qualification you are currently doing:

Title ID Number NQF Level Credits Mark

National Certificate in Animal Production 48976 2 120

National Certificate in Mixed Farming Systems 48977 2 120

National Certificate in Plant Production 48975 2 120

This Learner Guide contains all the information, and more, as well as the activities

that you will be expected to do during the course of your study. Please keep the

activities that you have completed and include it in your

Portfolio of Evidence

.

Your PoE will be required during your final assessment.

This Learner Guide contains all the information, and more, as well as the activities

that you will be expected to do during the course of your study. Please keep the

activities that you have completed and include it in your

.

Your PoE will be required during your final assessment.

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You will be assessed during the course of your study. This is called

formative

assessment

. You will also be assessed on completion of this unit standard. This is

called

summative assessment

. Before your assessment, your assessor will discuss

the unit standard with you.

Are you enrolled in a: Y N

Learnership? Skills Program? Short Course?

Please mark the learning program you

are enrolled in:

Your facilitator should explain the above

concepts to you.

(3)

Assessment takes place at different intervals of the learning process and includes

various activities. Some activities will be done before the commencement of the

program whilst others will be done during programme delivery and other after

completion of the program.

The assessment experience should be user friendly, transparent and fair. Should

you feel that you have been treated unfairly, you have the right to appeal. Please

ask your facilitator about the appeals process and make your own notes.

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Your activities must be handed in from time to time on request of the facilitator for

the following purposes:

The activities that follow are designed to help you gain the skills, knowledge

and attitudes that you need in order to become competent in this learning

module.

It is important that you complete all the activities and worksheets, as

directed in the learner guide and at the time indicated by the facilitator.

It is important that you ask questions and participate as much as possible in

order to play an active roll in reaching competence.

When you have completed all the activities and worksheets, hand this

workbook in to the assessor who will mark it and guide you in areas where

additional learning might be required.

You should not move on to the next step in the assessment process until

this step is completed, marked and you have received feedback from the

assessor.

Sources of information to complete these activities should be identified by

your facilitator.

Please note

that all completed activities, tasks and other items on which

you were assessed must be kept in good order as it becomes part of your

for final assessment.

E

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Throughout this guide, you will come across certain re-occurring “boxes”. These

boxes each represent a certain aspect of the learning process, containing

information, which would help you with the identification and understanding of these

aspects. The following is a list of these boxes and what they represent:

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You can use this box to jot down questions you might have, words that you do not understand,

instructions given by the facilitator or explanations given by the facilitator or any other remarks that

will help you to understand the work better.

. . . .. . . . . . .. . . . . . .. . . . . . .. . . . . . . . . .. . .

What does it mean?

Each learning field is characterized by unique terms and

definitions

– it is important to know and use these terms and definitions correctly. These

terms and definitions are highlighted throughout the guide in this manner.

You will be requested to complete

activities

, which could be group activities, or individual

activities. Please remember to complete the activities, as the facilitator will assess it and

these will become part of your portfolio of evidence. Activities, whether group or individual

activities, will be described in this box.

Examples

of certain

concepts or principles to

help you contextualise

them easier, will be shown

in this box.

The following box indicates a

summary

of

concepts that we have covered, and offers

you an opportunity to ask questions to your

facilitator if you are still feeling unsure of

the concepts listed.

(5)

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What will I be able to do? ...……… 6

Learning outcomes ………

6

What do I need to know?

...…..………

6

Introduction ………

7

Session 1

Gross margin Statements...………..

8

Session 2

The income Statement...………. 16

Session 3

The balance sheet...……….. 23

Session 4

The cash flow Budget and Statement………..

31

Session 5

The Financial legal Responsibilities of an agri-business……..

40

Am I ready for my test? ...

45

Checklist for Practical assessment...

46

Paperwork to be done...

47

Bibliography... 48

Terms and conditions………

48

Acknowledgements... 49

SAQA Unit Standard

(6)

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When you have achieved this unit standard, you will be able to:

Define and illustrate the gross margin statement, income statement, balance

sheet and cash flow budget as well as the different cost aspects that one can

find in a business.

Extend their learning and practice into other areas of costing and basic financial

statements.

Strive towards professional standards and practices at higher levels.

Know if the business is making a profit or a loss, and how to generate basic but

effective managerial information from it.

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At the end of this learning module, you must be able to demonstrate a

basic knowledge and understanding of:

Gross margin analysis.

Production costs.

Income statement.

Balance sheet.

Cash flow budget and statement.

Statutory/legal requirements, rules and principles.

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It is expected of the learner attempting this unit standard to demonstrate

competence against the unit standard:

NQF 1: Identify the need for capital and understand the need for the recording

of the income and different costs in an agri-business.

(7)

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The farmer should set up a business plan or project outline of how much produce or

crop he would like to calculate. It is important to know what size of field he/she

would like to cultivate or for example how big his poultry farm would be. It is

necessary that the farmer can identify the infrastructure needed for this purpose and

what inputs are needed, financially and support services. The extent of labour

needed to do the job is important in the planning phase of the project, since the

workforce or labour is responsible for spraying, weeding, cultivating, dipping, feeding

etc.

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After completing this session, you should be able to:

SO 1: Define and understand the gross margin statement

and distinguish between direct and indirect costs, as well as

fixed and variable costs.

In this session we explore the following concepts:

Fixed costs.

Variable costs.

Indirect costs

Direct costs

In order to run a farm enterprise one has to incur costs i.e. one has to buy farming

requirements, and also pay for services rendered. Costs can be classified as direct

costs, indirect costs, fixed and variable costs.

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Fixed costs are those costs, which cannot easily be allocated to the different

enterprises or parts that make up the whole of the farm. These costs include

transport, the monthly electricity account and rental or purchase payments. These

costs are relevant to the farm as a whole. Fixed costs do not change if the size of

the farming enterprise changes.

Fixed costs

will have to be paid continuously even

if no production occurs.

These costs include:

Depreciation in the value of vehicles and machinery

Insurance premiums on fixed assets such as buildings and machinery

Licenses

Permanent labour

Monthly payments for the property if money is still owed.

Others

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Variable costs are costs, which can be allocated to each individual section of the

farming enterprise. These are costs that are needed for production, and will only be

incurred when production takes place. Variable costs will change as the size of

farming enterprise is changes.

(9)

Variable costs are costs that vary with the extent of production of outputs. When

output increases, more labour is needed, more irrigation may be required and more

fertilizer will be used. If the enterprise reduces, production costs will also reduce.

The total variable costs increases as output increases and falls as output decreases.

Variable costs include, but are not limited to the following:

Seed to plant crops

purchases such as fertilizers, chemicals

marketing costs such as packaging, materials

casual labour

transport

Irrigation costs for field crops

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Indirect costs are those costs that are essential for the daily running of a business.

They are also known as overheads or fixed costs as they remain the same

irrespective of the extent of production. Included in these costs are rent, interest

payments, electricity and water, municipal rates and taxes, communication costs and

management costs.

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Direct costs are those costs that are directly linked

with the production of a crop. They are also called

variable costs as they vary with the output. They

would include materials (fertilizer, seed) and wages

paid to temporary labour.

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Income sources refer to the various obvious markets that you supply your product

to. Income sources could also include homeowners that purchase things like

manure from a chicken farmer or spent bark mix for compost. An income source

thus is not limited to those sources that you purchase your core products from. The

money you would receive for your produce should be known to you in order to set

up a budget.

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Material costs

are costs for items that are used for production and may include

costs for fertilizer, pesticides, herbicides, etc.

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Production costs

entail

all

the costs involved in producing as well as the costs

associated with delivering the product to the market. It will therefore include the

costs associated with the field production, as well as the packaging and transport

associated with marketing.

(10)

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Foreign factor costs are costs that are totally unforeseen at the beginning of the

season, when the production budget is prepared. Such costs could include a new

levy for training that is implemented by the government.

The Gross margin

The Gross margin is defined as the amount that

can be calculated by the difference between

enterprise gross value of the product (Gross

income) and the directly allocated variable costs.

•

A financial budget for cotton can be calculated if the following is known:

•

Field size of the crop (cotton), the estimated yield and the crop value per ton or per

kg. If one assumes that you would get R3.10 per kg seed cotton, and all input costs

adds up to a total of R5.561, then the Gross income would be R9300 @ 300kg per ha,

(calculated at the above price of R3.10 per kg) and the Gross margin would be the

difference between the Gross income and the input costs.

•

In this case an amount of R3 739.00.

Please complete

Activity

1

at the

end of this

session.

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(11)

Concept (SO 1)

I understand

this concept

Questions that I still would

like to ask

The ability is demonstrated to explain

and define fixed and variable costs.

The ability is demonstrated to identify and quantify the fixed and variable costs.

The ability is demonstrated to identify and explain the various income sources.

The ability is demonstrated to list and quantify the various income sources.

Material cost, labour cost and overhead costs are defined and explained.

All possible material costs, labour, direct and indirect costs for a specific agri-business are listed.

An understanding of the gross margin concept and its application within agriculture is demonstrated.

The ability to complete a template, show and calculate the production costs and gross margin is demonstrated.

(12)

1.

Complete the template for Gross margin statement and explain what the

following terms mean? – Fixed costs, variable costs, sources of income, material

costs, labour costs, direct and indirect costs mean.

2.

Explain why Gross margin statement is so important to agriculture?

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You have been provided with two templates.

The first is an example of a gross margin statement that describes the

production of potatoes under intensive irrigation.

The second template is a blank template that you need to complete. Use figures

relating the production cycle of the crop you are involved with.

If you get stuck on a point ask the group or the facilitator to help you.

Note: Remember that this is just an exercise and you can research exact figures

when you get back to your workplace.

Before you fill in the blank template you need to have worked through the points

above. This will help that the blank template makes sense to you and is essential for

you to be able to complete the summative assessment.

After having worked through the above points you need to record the fixed and

variable costs as well as the various income sources.

Ensure that you gather all the possible material and labour costs that will occur in

the production cycle of your crop, and place them into the blank template provided.

You are required to provide the total production cost compared to the gross margin

and indicate the gross profit you could expect from your crop.

Instructions:

Group Activity

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My Name:

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My Workplace:

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My ID Number:

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(13)

Template 1

, providing the Gross margin statement, for a farmer who has 400

hectares of potatoes under irrigation.

Production of potatoes under irrigation.

Potatoes

Yield : (ton/ha)

60

Price/ton R1500

Rand per year income

Hectare

Product sales

90000

Gross production value

R90000

Direct expenses

Seed

13 800

Fertilizer

2 877

Weed control

358

Pest control

4 493

Spraying costs- aero plane

990

Harvesting costs

400

Irrigation costs

359

Fuel costs

300

Total direct costs

R23577

Variable expenses

Harvest insurance

2400

Marketing costs

8625

Packaging 5000

Casual labour

3500

Transport costs from land(10km)

500

Transport costs

6500

Total Variable expenses

R26525

Fixed expenses

Taxes 150

Fuel 497

Depreciation and repairs

1708

Operators costs

132

Interest on irrigation equipment

1245

Interest on production costs

1658

Telephone 100

Accounting and legal fees

250

Management salaries

250

Total fixed expenses

R5990

Total expenses

R56092

Split margin/ expected profit per ton

R33908

Break even (price/ton)

R1200

(14)

3.

Discuss, in your group, why a farmer needs to have an understanding of the

gross margin concept and its value in agriculture.

(15)

Now, complete Template 2 below:

Template 2. This is a

gross margin statement for a generic production cycle.

Complete this template as an example.

Yield : (ton/ha)

Price/ton

Rand per year income

Hectare

Product sales

Other sources of revenue

Gross production value

Direct expenses

Total direct costs

Variable expenses

Total Variable expenses

Fixed expenses

Total fixed expenses

Total expenses

Split margin/ expected per kg/ton?

Gross margin.

Break even (price/ton)

Break even (yield/ha)

(16)

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SO 2:

Define and understand the income statement.

Elements of an income statement.

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Refers to those items that represent the income to the farm business.

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Refers to the costs of operating a farm business. Some of the items can be

allocated to the specific production enterprise and some cannot. Allocated costs

include seeds, fertilizers, feeds, labour costs etc… Non-allocated costs (overhead

costs) include permanent labour wage, telephone, fuel, repairs, electricity etc.

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The net farm income is the income the farm generates after overheads have been

deducted. It is calculated by deducting overheads from the total farm gross margin.

Net farm income provides a measure of performance and factors of production

including management, capital and land.

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This is the income that remains after all costs have been deducted.

This is calculated by deducting external factor costs from the net farm income. The

farm profit is a measurement of the return or reward to the owner, management,

capital and land.

(17)

SCHEMATIC DIAGRAM OF INFORMATION FLOW IN A FARM INCOME STATEMENT

Over

head

costs

Including payment to management, interest on capital and lease or

rental on land; electricity, water,

Variable

costs

Fuel, oil, and lubricants

Repairs and spares for vehicle and machinery

Variable costs in respect of sundry farm income

Others

Fixed

costs

Depreciation on vehicle and machinery

Insurance on fixed improvement, vehicle and machinery

Licenses

Regular labour, Repairs for fixed improvements.

Others

Net Farm Income

External Factor cost

Farm Profit

Please complete

Activity

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at the

end of this

session.

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(18)

Concept (SO 2)

I understand

this concept

like to ask

Ability is demonstrated to understand,

distinguish between and quantify all possible fixed and variable costs such as marketing, personnel and admin costs, as well as foreign factors costs.

The ability to provide inputs to an income statement, which reflects production costs, income, foreign cost and profits or losses, is demonstrated.

The ability to generate managerial information from the income statement is demonstrated.

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(19)

After having completed activity one, you will be familiar with the terminology and as

a group complete this activity. The activity deals with income statements.

Go through the example that provides information on the production of potatoes

under dry land conditions (template 2.1).

In this example there are fixed, variable and foreign costs that have been omitted.

As a group, identify the costs to be omitted. Report back to the bigger group. It is

important that all the information is documented, as it will help you to prepare for

the completion of a generic income statement (template 2.2).

After the group session you may complete template 2.2 on any other crop or

produce than potatoes. The completed generic income statement (template 2.2)

must reflect the production cycle of the crop you are involved with. (Use any

amounts just to complete the example).

Once you have completed your income statement decide whether you have made a

profit or a loss. It is vital to record all information from the feed back sessions, as it

will help you in the summative assessment.

Instructions:

Group Activity

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My Name:

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My Workplace:

. . .

My ID Number:

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(20)

Template 2.1

Income statement for production of potatoes under dry land farming (example)

Fixed costs/ R1000

Depreciation (facilities and equipment)

800

interest 1500

Repairs and maintenance (facilities and

equipment)

600

Taxes

200

insurance 480

Office expenses

300

telephone 12

accounting 200

Travel

1000

Management salaries

600

automotive 2000

8600

Foreign costs

Training 300

Inspection by health inspector

50

Traffic fines

3

353

Variable costs

Seed 1500

Advertising 120

electricity 200

Fuel 400

Sales costs

500

Labour 1000

Fertilizer 500

herbicides 200

pesticides 100

Harvest insurance

60

packaging 100

Transport costs

200

4880

Total expenses

13833

Sources of income

Production sale- first grade

15000

Production sale- second grade

3000

Production sale- third grade

1000

Seed potatoes- for planting

2500

Sale of scrap machinery

50

Total income

21550

Total income – total expenses

21550-13833= 7717

(21)

Template 2.2

Generic Income statement

Fixed costs/

Depreciation (facilities and equipment)

interest

Repairs and maintenance (facilities and

equipment)

Taxes

insurance

Office expenses

telephone

accounting

Travel

Management salaries

automotive

Foreign costs

Variable costs

Total expenses

Sources of income

Total income

Total income – total expenses

(22)

Record all information / notes

(23)

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After completing this session, you should be able to:

SO 3: Define and understand the balance sheet.

Elements of balance sheet.

Balance sheet analysis.

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A balance sheet is a statement summarizing the assets and liabilities of a business at

a particular point in time. This time is usually at the end of the financial year. The

primary function of a balance sheet is to measure the financial solvency of a

business as it indicates the extent to which the assets match to the liability.

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A balance sheet is made up of three aspects: capital, assets and liabilities. These

three are related to one another as shown in the equation below:

Capital = assets – liability

Or

Assets = capital + liability

It is important to recognize that

assets

and

liabilities

are usually grouped

according to their lifespan as follows:

Short-term/current

Medium term

Long-term

(24)

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Balance sheets are used to establish the financial strength or weakness of the

business concern. Furthermore they are used to establish trends from historical

information contained in the balance sheet.

Financial Ratio Analysis is used to gain overall financial view of a farm business as

well as indicating financial progress.

Financial ratios are classified according to the following:

Solvency

Liquidity

Growth

Solvency

Solvency refers to the business’s ability to

meet its long-term obligations if it does not

go bankrupt.

Liquidity

Liquidity measures the business’s ability to

continuously generate sufficient cash to

meet its financial commitments. A decrease

in liquidity will render the farm business

unable to meet its short-term requirements,

continue operations and expand. A

business’s cash in the bank is referred to as

a liquid asset.

Growth

Growth of a business or farming venture is

measured by the change in value of the business

from one financial period to the next.

Assets

- are economic resources that can provide potential service in the future.

These are divided into non-concurrent assets that would include property, plant

and equipment. In addition there will be current assets, sometimes referred to as

liquid assets, which includes the debtors and other receivables payments, bank

balances and cash.

Short-term assets

-current assets that management could convert to cash

within the year (cash, receivables, stock)

Medium term assets

– intermediate assets that would take longer than a year,

but shorter than five years to convert to cash. Includes investments that have a

set time frame to them - policies or actual intellectual property (work that can be

patented but takes time).

(25)

Long-term assets

- fixed assets like machinery, land, buildings, motor vehicles,

computers, furniture and fixtures.

Liabilities

- are obligations that the owner must pay to other parties such as

creditors, employees

Short term liabilities

- current liabilities- these are amounts that must be paid

within a year. - Salaries and wages, taxes, short-term loans, money owed to

suppliers of goods and services.

Medium term liabilities

- are amounts owed on contract work carried out on

research that does not have a specified time limit, but will be paid for when the

project is complete.

Long-term liabilities

- these are debts that are due on long-term (more than

one year) loans (mortgage) from the Land Bank. These are bank bonds on

farmland and infrastructure, machinery and plants that are paid off over twenty

years.

Owners’ equity

is the amount owed to the owner after the liabilities have been

deducted. - For example, if the owner of a farm is worth R30 000 000 and owes

the bank R20 000 000, you would subtract the amount owed on the farm from

the owner’s capital worthiness. This renders the owners equity which would be

R10 000 000. If the farm is a closed-corporation, the amount owing to the

members’ share after all amounts are deducted which is owed on the farm and

other liabilities , is called the employees’ own.

Please complete

Activity

3

at the

end of this

session.

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(26)

Concept (SO 3)

I understand

this concept

like to ask

An ability is demonstrated to identify

and quantify the components of short-term assets.

Ability is demonstrated to identify and quantify the components of short-term liabilities.

Ability is demonstrated to identify and quantify the components of medium term assets.

Ability is demonstrated to identify and quantify the components of medium term liabilities.

An ability is demonstrated to identify and quantify the components of long-term assets.

An ability is demonstrated to identify and quantify the components of long-term liabilities.

An understanding of owner`s equity and what it consists of is

demonstrated.

The ability to complete a balance sheet when the template is given is

demonstrated.

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(27)

A balance sheet should be updated every month to keep track of changes within the

business. Usually at the end of a financial year a balance sheet is compiled to

summarize the non-concurrent assets and the current assets.

A typical balance sheet would look like this:

31 March 2006-10-23

Farm owner: TJ. Buthelezi

Notes: 2004/2005

2005/2006-10-23

Assets:

R R

Non-concurrent assets (Fixed

assets)

(Property, plant and equipment)

70 000

100 000

Current Assets (Running costs)

(Debtors and other receivables)

200 000

300 000

Bank balances and cash

40 000

20 000

Total Assets:

310 000

420 000

Equity and liabilities:

Capital and reserves

(Accumulated funds)

250 000

390 000

Current liabilities

(Creditors and other payables)

E.g. labour, salaries, interest

60 000

30 000

Total equity and liabilities

310 000

420 000

Note to the learner: You should now complete activity 3 in your workbook, and

compile a balance sheet for your own farm. Make use of any figures (amount) to

illustrate your point. Please look at the components of the business plan and decide

on what equipment you have and see if you can come to figures for your assets.

Calculate your cash and your costs. Complete Template 3.2 in your workbook.

Look at the example of a balance sheet for the potato farm provided (template 3.1).

Apply what you learned in session 3 in order for the sheet to make sense. Write

down anything that you do not understand and discuss it with the main group. The

facilitator will now help you to make sense of those points of misunderstanding.

Instructions:

Please complete

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My Name:

. . .

My Workplace:

. . .

My ID Number:

. . .

(28)

Template 3.1

Potato farm during year 2005/2006

Values presented is (x R1000)

Fixed assets (long term)

2004

2003

Farm land– 400 hectares

90

80

Plant and machinery

30

25

Buildings 20

16

Motor vehicles

10

8

Computerized equipment

.

100

.80

Trade mark

10

9

Non-current receivables

10

9

Deferred taxation

8

-

Deferred expenditure

6

-

Total fixed assets (long term)

184.1

147. 8

Thus;

R184 100.00

R147800.00

Medium term assets

Investments in stock

1.200

1

Total Medium term assets

1.200 1

Short term assets

cash .200

.50

receivables .300

.200

Merchandise inventory

1.200

1.100

inventories 1.000

.900

Taxation prepaid

-

Deferred expenditure

.500

.400

Total Short term assets

3.200

3.1

Total assets

188.5

150,9

Equity

Share capital and premium

56.55

52

Non distributable reserves

42.412

26

Retained earnings

14.137

13

Debentures

21.206

26

minority interests]

7.068

13

Total equity

141.375

130

]

Liabilities

Non-current liabilities

Long term borrowing

14.137

7.84

Deferred taxation

10,603

3.92

Retirement benefit obligations

7.068

1.96

Deferred revenue

3.534

1.96

(29)

Current liabilities

Trade and other payables

4.712

2.08

Bank overdraft

2.356

1.04

Current tax liabilities

1.178

.522

Wages and salaries

2.3562

1.04

Deferred revenue

1.1781

.522

Total- Current liabilities

11.781 5.22

Total liabilities

47.125

20.9

Total assets

Total equity

141.375

130

Total liability

47.125

20.9

(30)

At the end of the group session, complete the blank balance sheet provided

(Template 3.2). Use the example as a guide and ask the group and facilitator for

help if you get stuck. Complete the template for the crop you are involved with.

Keep notes of proceedings during the activities.

Template 3.2

Balance sheet your enterprise

Fixed assets-long term

2004/2005

2005/2006

Non-concurrent assets (Long-term &

Medium term assets)

Current assets (Short term assets)

Total assets

Equity

Total equity

Liabilities:

Current liabilities

Total liabilities

Total assets

Total equity

Total liability

Total Equity and liabilities

(31)

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SO 4: Define and understand the structure of a cash-flow

budget and statement.

Cash flow budget.

The need for the 12-month cash flow budget.

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Cash flow is the money needed to run your company on a day-to-day basis. This is

the money available after all the expected expenses have been covered, for

unexpected expenses.

Cash flow statements are a tool that reflects the sources from which funds are

generated during the accounting period as well as the purpose for which these were

used.

The cash flow statements must be compiled for one year or at least until positive

cash flow is achieved if not attained within the first year.

The most important feature of a cash flow budget is that only cash expenses and

cash income are indicated at the estimated time of payment or receipt.

The cash flow statement reflects the source from which funds were generated

during the accounting period. Cash flow is an important consideration when it comes

to financing a business. The bank and monthly bank balance are important

elements of a cash flow statement. A cash flow statement consists of three

components: income, expenditure and bank balance.

Income

consists of operating income, capital income and cash income.

Expenditure

is classified as operating expenditure, capital expenditure and debt

repayment.

Shortfall/surplus

is calculated by deducting total expenditure from the total

income.

(32)

The various components of a cash flow budget statement are:

Farm Income

Capital income

Opening cash balance

Non farm Income

Fertilizers

Leases or rental

Sprays

Wages

Farm Operating Expenses

Repairs

Machinery

Capital expenditure

Livestock

Income statement

Other expenditures

Living wages

Interest

Redemption

Total cash outflow

Scheduled debt payment

Closing cash balance

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In order to understand a cash flow budget it is necessary for a farmer to understand

which activities take place during the season, and the associated costs to complete

these activities successful. For example, cotton is a cash crop. In order to set up a

cash flow budget the farmer must have a cultivation programme in place as the crop

will need attention (insecticides, fertilizers, picking, ext.) at different growing stages,

and therefore, cash must be available for every event according to the programme

arranged beforehand.

(33)

A CRITICAL PATHWAY OF ACTIVITIES FOR COTTON PRODUCTION

The farmer should have a good knowledge of:

i.

Length of the crop season.

ii.

In which months every activity should take place to produce the crop.

iii.

Plant development for each crop cultivated should be clear, in order to

express good pest control, and optimum yields.

iv.

The farmer should set up an outline of the crop size he would like to

produce.

v.

He/she should be able to recognize the infrastructure available

vi.

Which inputs are needed, financially and support services.

August Sept. Oct. Nov. Dec. Febr. March April May June July Slash or graze Plough & disc Plant Weed control Top -dress N xxx xxxxxxx x xxxxxxxxxxx xxxxxxxxx xxxx xxxxx xxxxxxxx xxxx xxx xxxx Plant

First lowers & peak Vegetative phase (6w) Reproductive phase

Harvest

Boll development

Bolls open

Harvest & Sell

COTTON GROWTH PATTERN Soil analyses Maintenance Training Pest Control Pest Control Scout and spray (SS) Jan.

(34)

vii.

Have a clear comprehension of the available workforce (labour)

viii.

When a critical programme has been drawn up as above, the learner can

compile cash flow statements. These are probably the most important aspect

of the financial management of a farming business. Many farming based

businesses currently experience cash flow related problems. A 12-month

cash flow budget predicts an estimate of cash needed for a year.

EXPENDITURE/CASH

OUTFLOW Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Office lease 1 500 1 500 1 500 1 500 1 500 1 500 1 500 1 500 1 500 1 500 1 500 1 500 18 000 Traveling expenses - 5 000 - - - - - 5 000 Training Equipments - 3 500 - - - - - 3 500 Vehicle costs 30 000 - - - - - 30 000 Stationery 1 200 - - - - 1 200 - - - - - - 2 400 Admin costs 100 50 30 40 30 50 40 30 20 40 50 30 510 Telephone cost 500 450 300 250 500 250 200 250 100 250 150 100 3 300 Electricity 150 200 250 180 150 280 200 250 150 200 100 250 2 360 TOTAL EXPENDITURE 33 450 10 700 2 080 1 970 2 180 3 280 1 940 2 030 1 770 1 990 1 800 1 880 65 070 ACCUMULATED DEFICIT 33 450 10 700 2 080 1 970 2 180 3 280 1 940 2 030 1 770 1 990 1 800 1 880 65 070

A Cash flow budget is a budget that breaks the yearly cash flow into

twelve-month segments. This allows for greater control of the flow of cash.

A cash flow statement presents the source and use of the funds of the enterprise

according to operating activities, investing activities and financing activities.

Operating activities describes the cash received for the product and cash

payments made for production costs.

Investing activities describes the purchasing of new equipment or expanding the

operation.

(35)

Please complete

Activity

4

at the

end of this

session.

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Cash flow table for cotton production

Item: Aug Sept Oct. Nov. Dec. Jan. Feb. Mar. April May June July

Plough 300.00 Disc 200.00 Seed 70.00 Plant (Hand) 195.00 Roundup 65.00 65.00 Fertilizer LAN 95.00 Labour weeding 35.00 35.00 Labour spraying 35.00 35.00 35.00 35.00 Jassid control (Mospilan) 60.00 30.00 Stainer control (Fastac) 21.00 22.00

Harvest 250.00 250.00

Total: 300.00 565.00 135.00 95.00 151.00 87.00 250.00 250.00

Cumulative 300.00 865.00 1,000.00 1,095.00 1,246.00 1,332.00 1,582.00 1,832.00 Loan plus interest (13.5% comp.) 303.00 878.00 1,025.00 1,132.00 1,145.00 1,158.00 1,324.00 1,425.00 1,694.00 1,966.00 Income: 1,550.00 1,550.00

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(36)

Concept (SO 4)

I understand

this concept

like to ask

The ability to source various financial

data for the cash-flow budget and statement is demonstrated. The ability to fill in the template of a cash flow budget and/or statement is demonstrated.

An understanding of the need for a twelve-month budget is demonstrated. An understanding of the various components of a cash flow budget and statement is demonstrated.

The ability to transfer the month-end balance to the next month`s opening balance is demonstrated.

An understanding of the influence interest rates on the budget and statement is demonstrated.

The ability to interpret basic results of the budget and statement is

demonstrated.

An understanding of how the cash-flow budget/statement links up with the income statement is demonstrated. An understanding and ability to use the cash-flow budget in a cash-flow statement is demonstrated.

(37)

In this activity an example of a month-to-month budget and statement for cash flow

of an operation is provided (Template 1). The example only provides information for

two of the twelve months.

Additional Information:

Budget statements are often presented on two separate sheets. To simplify the

process we will use only one combined statement.

Brainstorm in your groups: Why it is necessary to have a twelve-month budget and

not only an annual budget? This is applicable to agricultural businesses where

income and expenses vary over the twelve months. It is also important to notice

that an agricultural operation often owes money to various entities, and the

repayment of the interest needs to be budgeted for. It could happen that in some

months a loss may be budgeted.

The gross margin statement, income statement and the balance sheet provided as

an example in the Learner Guide, contain sufficient data for you to complete the

blank copy of the cash flow statement (Template 4.2). (You can use any figures to

complete this exercise).

Before you start this exercise, you need to go through the example copy to get an

idea of what is expected of you to consummate the blank copy. An important point,

you must determine how to transfer the one-month’s end balance to the next

month’s opening balance.

Once you have completed the input of required data into the blank statement you

need to look for important results that are highlighted, such as whether the cash

flow is positive or negative. Also determine whether and how you could improve the

flow of cash.

It is advisable to ask the group and the facilitator for guidance as this section can

get confusing and complicated.

At the end of this exercise you must be able to link the cash flow budget/ statement

to the income statement.

Instructions:

Group Activity

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My Workplace:

. . .

My ID Number:

. . .

(38)

Template 4.1

Mark activities (with an X) when they are scheduled to take place (you could adapt

the months and activities to suit the crop).

Activity table for crop

production

Item:

Aug Sept Oct. Nov. Dec. Jan. Feb. Mar. April May June July

Plough

Disc

Seed

Plant (Hand)

Roundup

Fertilizer LAN

Labour weeding

Labour spraying

Early Pest control

Mid-season Pest control

Late-season

Pest

control

Harvest

(39)

Template 4.2.

Cash flow budget /statement (values in brackets are negative). Use the example in

the Learner Guide and complete the table below. Check Template 4.1 to see which

months you have already scheduled which tasks.

Cash flow table for crop

production

Item: Aug

Sept Oct. Nov. Dec. Jan. Feb. Mar. April

May

June July

Plough

Disc

Seed

Plant (Hand)

Roundup

Fertilizer LAN

Labour weeding

Labour spraying

Early Pest Control

Mid season Pest Control

Late

season

Pest

Control

Harvest

Total:

Cumulative (budget)

Budget carried over from

previous month

Loan plus interest (13.5%

comp.)

Gross Income:

Gross margin

(expenditure)

Net Profit (negative

number in brackets)

(40)

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SO 5: Demonstrate an understanding of the legal

responsibilities of an agri-business owner.

Legal responsibilities of an agri-business owner.

There are many South African agricultural laws and Acts that govern the way in

which a farmer operates on a farm. In groups of four, discuss these laws and

provide your understanding of why they are in place. These laws and Acts include:

Labour laws that refer to the following Acts;

Taxes: PAYE and income tax.

Types of crops produced: Restrictions on the production of certain products

(cannabis/dagga) or certain animals.

Environmental legislation: The control of activities that concern the environment.

Health and safety: Storage and dealing with livestock.

Export and import: Certain crops and animals are not allowed to be imported or

exported.

Labour and industrial relations: These are laws that cover the relationship

between employers and employees and the state.

Basic conditions of employment Act of 1983.

Occupational health and safety Act, 1993.

Wages Act.

Workmen’s compensation Act.

Unemployment insurance Act.

Labour relations Act of 1995.

Employment equity Act of 1998.

Skills development levies Act of 1998.

(41)

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Income tax: A tax levied by a government on the income of individuals and

business firms. Taxes on personal income and business profits are major

revenue sources for South Africa. These taxes are applied to repair roads and

infrastructure, pays for government hospitals and clinics, government services

(policy, military), training subsidies, housing etc. Discuss your personal feelings

about taxes

Value added tax - it is the law of the country that tax must be included in the

price of goods and services, commonly referred to as VAT-

Workmen’s compensation - this is an Act that forces employers to insure their

employees against disablement or death caused by accidents while they ar