Thesis 1.0.001

AN EXTENSIVE ANALYSIS OF

IMPLEMENTED INVENTORY SYSTEMS OF THE

PHILIPPINE FARMING INDUSTRY IN SAN MIGUEL,

BULACAN

Polytechnic University of the Philippines College of Accountancy and Finance

Apaya Kris Angela Arazo John Patrick Arboleda Abby Joy Maraceas

Formaran John Patrick Mañalac Katherine R. Llorca Vincent Joel C.

Tero John Kenneth R. B.S. Accountancy

AN EXTENSIVE ANALYSIS OF

IMPLEMENTED INVENTORY SYSTEMS OF THE

PHILIPPINE FARMING INDUSTRY IN SAN MIGUEL,

BULACAN

An Undergraduate Thesis

Presented to the College of Accountancy and Finance Polytechnic University of the Philippines

Sta. Mesa, Manila

In Partial Fulfillment of the Requirements for the Degree

Bachelor of Science in Accountancy

by

Apaya Kris Angela Arazo John Patrick

Arboleda Abby Joy Maraceas V. Formaran John Patrick

Mañalac Katherine R. Llorca Vincent Joel Tero John Kenneth R.

B.S. Accountancy

Chapter 1

THE PROBLEM AND ITS BACKGROUND

INTRODUCTION

An inventory system is an integrated system of processes designed to track inventory as product flows through a warehouse environment (ASAP Systems, n.d.). It is an integral part of both the production and costing processes, aimed at tracing record counts and quotation of prices. As a general standard, these systems are intended to follow the accrual basis of accounting.

IAS 41 Agriculture sets out the accounting guidelines for agricultural activity (Deloitte Global Services Limited, n.d.). Agricultural produce at the point of harvest, however is ruled by IAS 16 Property, Plant, and Equipment. These two standards allow uniformity in the presentation and reporting of financial statements in the agricultural industry.

Sub-divided into 4 different sectors, the Philippine agricultural sector employs 27.0 percent of the total Philippine workforce, responsible for 10.27 percent of

the country’s Gross Domestic Product in 2015 (Philippine Statistics Authority, 2016). The country’s agriculture sector is made up of 4 sub-sectors: farming, fisheries, livestock, and forestry (Nations Encyclopedia, n.d.)

BACKGROUND OF THE STUDY

The rapid and hasty efforts of the government to shift the Philippine economy towards an industrialized economy has instigated a major backlog of unrepressed and undealt issues in the agricultural industry. This dilemma is reflected further with the continuously dropping interest regarding agricultural opportunities in the country. Stigma of poverty relation with this industry does not help in inviting people, either. In effect, altogether these issues have led to a shortage of agri-business researches and studies.

With the aforementioned, the researchers, hereafter are dedicated to providing a research to provide a detail and insight on the methodologies and policies currently being implemented in the region, specifically in the management of inventories.

The researchers perceive the handling and management of inventory as a highly crucial element in the agricultural industry. It encompasses the production, storage, and delivery stages. As a whole, the inventory system technically reflects the whole agricultural industry in numbers. Still, the accounting standards still have a general rule over the use and implementation of these inventory systems.

IAS 41 Agriculture provides general guidelines for agricultural related activities, however there are exceptions and clarifications with the classification of certain items. In the Philippines, this matter is no different. PAS 41 Agriculture sets the general measurement of biological assets and agricultural produce, with exceptions which should be ruled instead by PAS 16 Property, Plant and Equipment. This matter has been settled with amendments to PAS 16 and PAS 41 in 2014. The amendment is primarily focused on the classification between bearer plants and agricultural produce, which upon amendment, was split into two units of account. Bearer plants will be presented as non-current assets, while agricultural produce will usually be a current asset,

unless it takes more than a year to mature (Calundan, 2014).

The researchers aim to discover the effects and changes of this amendment in the industry after three years of its implementation. Moreover, the researchers are interested with the overall effect of this amendment with the inventory management.

THEORETICAL FRAMEWORK

Handling Agricultural Inventories has been since modified and changed from the traditional agricultural financial reporting towards the updated statements, which follow the Generally Accepted Accounting Principles.

The application of GAAP to production agricultural relies heavily on the similarities in the features of the manufacturing-sector for guidance. This primarily classifies inventories into three classifications: Direct Materials, Work in Process, Finished Goods. Still, the differences which are unaccounted for has led to farming operations to deviate from reporting true WIP, instead rely on “quick and dirty” surrogates (Dixon, 2012).

…Inventory Management Practices and Organizational Productivity

…Lean Theory

…Activity Based Costing Practices

…Just-In-Time Management Practices

…Economic Order Quantity Practices

…Materials and Requirements Planning Practices

…Vendor Managed Inventory

CONCEPTUAL FRAMEWORK

…Identified Variables

STATEMENT OF THE PROBLEM

With the limited supply and fluctuating demands for agricultural products, an effective inventory system is highly necessary for the seamless delivery of products to the consumers. The fact that these goods are perishable only adds to the necessity of an operative and working management system. This study therefore seeks to answer the following research questions: what inventory management practices are being used in agricultural farming industries in San Miguel, Bulacan? Is there any relationship between inventory management practices and

Indepdendent: Inventory Management

Practices

Activity Based Costing Just-in-time EOQ MRP VMI DRP Dependent: Firm's Productivity

Number of Stock Outs Rate of Stock Turn

Inventory Costs Return on Investment

productivity of agricultural farming industries in San Miguel, Bulacan?

SCOPE AND LIMITATIONS

 …this study is limited only to agricultural services related to farming of crops and rice grains, which does not involve fruit bearing plants or livestock.

 …the study would focus more on the inventory system, which includes inventory classification rather than costing methods of the inventory stocks

 …the researchers are also limiting the study with medium to small size farms

 …the study relates the importance of inventory but does not necessarily relate of the farm’s storage procedures

SIGNIFICANCE OF THE STUDY

The researchers aim to introduce inventory systems of agricultural products more extensively to the accounting literature. The unique economic features provided by agricultural products such as limited and unpredictable supply calls for a better understanding and approach.

This study will enable policy makers obtain knowledge of agricultural industry dynamics and the most appropriate inventory management practices to be implemented.

Stockholders: …

Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

LOCAL STUDIES

 Inventory Procedures for Smallholder and Community Woodlots in the Philippines: Methods, Initial Findings and Insights.

https://www.researchgate.net. 2014.

 Adoption and Uptake Pathways of GM/Biotech Crops by Small-Scale, Resource-Poor Filipino Farmers.

http://www.isaaa.org. 2013.

 Reliability of the Barangay-based Smallholder Tree Farm Inventory: Research and Policy Implications. https://espace.library.uq.edu.au.

 Economic Status of Farmers on Disaster Prone Community: A Case Study.

https://www.gsb.stanford.edu. 2015.

 Traditional Rice in Central Cordillera, Philippines: Dynamics of On-Farm Management of Varietal Diversity. https://www.jstage.jst.go.jp. 2007.

 Food Loss in the Food Value Chain: The Philippine Agriculture Scenario.

https://www.jstage.jst.go.jp. 2016.

 Agricultural Biodiversity Conservation Toward Sustainable Rice-based Farming Systems.

https://www.jstage.jst.go.jp. 2007.

 Organic Farming: The Future of Philippine Agriculture.

http://www.fareasternagriculture.com. 2012.

 Rice Farmers’ Concept and Awareness of Organic agriculture: Implications for Sustainability of Philippine Organic Agriculture Program.

http://www.issaas.org. 2014.

 Institutional Perspective in Supply Chain Management: The Cases of Abaca, Vegetable and Bamboo Supply Chains in the Philippines.

 Rice and Vegetable Value Chains Affecting Small-Scale Farmers in the Philippines.

https://www.vsu.edu.ph. 2016.

 NSO Takes Nationwide Census of Farms and Fisheries. https://psa.gov.ph. 2003.

 A Review of the Agriculture Sector in Central Luzon. https://psa.gov.ph. 2004.

 2002 SCENARIO of the AGRICULTURE SECTOR IN THE PHILIPPINES.

https://psa.gov.ph. 2005.

 Philippines – Agriculture.

http://www.nationsencyclopedia.com.

FOREIGN STUDIES

 Applicable Inventory Control Models for Agricultural Business Managers: Issues and Concerns.

http://scialert.net. 2014.

 What Difference Does Inventory Control Make In Typical Small – Scale Farms’ Profitability?

http://www.ijmsbr.com. 2014.

 Managing Inventories for Agricultural Products: The Optimal Selling Policies.

https://papers.ssrn.com. 2014.

 Supply Chain Analysis of Contract Farming. http://www.utdallas.edu.

 An Android-Arduino System to Assist Farmers in Agricultural Operations.

http://www.digitalxplore.org. 2015.

 Supply Chain Management of Rice in India: A Rice Processing Company’s Perspective.

http://www.airccse.org. 2013.

 Cost Accounting Applied to Farming in Southwest Michigan.

http://scholarworks.wmich.edu. 2012.

 An Overview to Accounting Applications on Agricultural Activities in Turkey Within Historical Progress.

http://www.academicjournals.org. 2009.

 Inventory Management and Supply Chain Performance of Non- Governmental Organizations in the Agricultural Sector, Kenya.

http://chss.uonbi.ac.ke. 2013.

 The Impact of Uncertain Environment on Rice Supply Chain Performance in Northeast Thailand.

http://ro.uow.edu.au. 2008.

FOREIGN LITERATURE

 Inventory Control for Farm Supply Cooperatives. http://articles.extension.org. 2015.

 Inventory and Analysis of Exchange Schemes for Young Farmers.

https://ec.europa.eu. 2015.

 Historical Development of Agricultural Accounting and Difficulties Encountered in the Implementation of Agricultural Accounting.

http://ageconsearch.umn.edu. 2013.

 The Importance of Farm Records and Accounting In Agricultural Production.

http://kamjournal.org. 2014.

 A Review of Agricultural Accounting Education and Literature in Turkey.

http://journal-archieves25.webs.com. 2012.

 Traceability in Agriculture and Food Supply Chain: A Review of Basic Concepts, Technological Implications, and Future Prospects.

 https://www.researchgate.net. 2003.

 Accounting Methods Available to Farmers. https://farmers.uslegal.com.

 Farm Business and Financial Planning. https://www.gov.uk. 2012.

 Farmers.

https://farmers.uslegal.com.

 Agriproduct Supply-Chain Management in Developing Countries.

Chapter 3

RESEARCH METHODOLOGY

METHOD OF RESEARCH

The research will adopt a descriptive survey research design, as it will allow an extensive investigation of the problem under study (Yount, 2006). Descriptive studies provide simple summaries about the sample and the observations that have been made (Prem, 1995).

POPULATION, SAMPLE SIZE & TECHNIQUE

Population: Medium to small agricultural farms in San Miguel, Bulacan Sample Size:

DESCRIPTION OF RESPONDENTS

Nixin & Jary Farm | 0917-8065122 V.C. Meneses Farm | 0927-7974834

DATA-GATHERING PROCEDURE