N580 - FINANCIAL MANAGEMENT - FARMING N4 QP NOV 2019 EDIT.pdf

NATIONAL CERTIFICATE FINANCIAL MANAGEMENT: FARMING N4 (4090484) 15 November 2019 (X-Paper) 09:00–12:00 Nonprogrammable calculators may be used....

NATIONAL CERTIFICATE FINANCIAL MANAGEMENT: FARMING N4 (4090484) 15 November 2019 (X-Paper) 09:00–12:00 Nonprogrammable calculators may be used. This question paper consists of 9 pages. Copyright reserved Please turn over (4090484) -2- DEPARTMENT OF HIGHER EDUCATION AND TRAINING REPUBLIC OF SOUTH AFRICA NATIONAL CERTIFICATE FINANCIAL MANAGEMENT: FARMING N4 TIME: 3 HOURS MARKS: 200 INSTRUCTIONS AND INFORMATION 1. Answer ALL the questions. 2. Read ALL the questions carefully. 3. Number the answers according to the numbering system used in this question paper. 4. Use only black or blue pens 5. Balance sheets and income statements should be done on TWO sheets facing one another where necessary. 6. Indicate units where applicable. 7. Write neatly and legibly. Copyright reserved Please turn over (4090484) -3- QUESTION 1: THE FARM MANAGEMENT INFORMATION SYSTEM 1.1 You are starting a farm management information system for the farm that you have inherited as there is currently no proper information system. Provide the guidelines that you would use to place a value on the following assets for the inventory. 1.1.1 Commercial livestock 1.1.2 Harvested grains 1.1.3 Fruits in the orchard 1.1.4 Land  1.1.5 Insured tree plantations 1.1.6 Unused seeds (6 × 2) (12) 1.2 Give the TWO basic aims of calculating depreciation and depreciating assets. (2 × 2) (4) 1.3 Discuss THREE things a farmer needs to know about his/her farming enterprise before deciding which aspects of farming management information system he ought to consider. (3 × 2) (6) 1.4 Answer the following questions based on the establishment of an inventory: 1.4.1 Name TWO assets that must be excluded from an inventory. 1.4.2 Give TWO important aspects to consider when drawing up the inventory.  (2 × 2) (4) 1.5 The following information regarding a tractor to be purchased on the farm is made available: DESCRIPTION UNIT  Purchase price of the tractor R250 000  Expected useful life 10 years  Expected salvage value R20 000 INSTRUCTIONS: Use the diminishing balance method to calculate the following, showing the formulae and calculations, where applicable: 1.5.1 The rate of depreciation that will be applied. (3) 1.5.2 The capital recovery and depreciation of the tractor for the first two years.  (6) 1.5.3 The book value (initial value) of the tractor at the start of the third year. (4) Copyright reserved Please turn over (4090484) -4- 1.6 Give TWO disadvantages of using the straight-line method of depreciation. (2 × 2) (4) 1.7 Indicate the ways in which the initial value can be determined referring to the following situations:  1.7.1 If the original cost price of the particular asset is known. 1.7.2 If the original cost price of the particular asset is not known. (2 × 2) (4) 1.8 List THREE matters relating to personnel of which human resource records must keep track of. (3) QUESTION 2: PRODUCTION ECONOMIC PRINCIPLES 2.1 Briefly explain what is meant by the following terms: 2.1.1 A production function 2.1.2 Marginality  2.1.3 State the law of diminishing marginal returns. (3 × 2) (6) 2.2 An example of a typical production function is when the production of a product such as potatoes varies as one of such inputs such as nitrogen fertiliser varies while the remainder of the inputs stays constant. The following graphs show an example of this type of production function:  Copyright reserved Please turn over (4090484) -5-  Study the graphs on production functions and discuss the following THREE phases, in each phase indicate whether the phase is 'Rational' or 'Irrational'. Give a reason for your answer. 2.2.1 Phase I (8) 2.2.2 Phase II (6) 2.2.3 Phase III (5) 2.3 Indicate whether the following statements are TRUE or FALSE. Choose the answer and write only 'True' or 'False' next to the question number (2.3.1–2.3.10) in the ANSWER BOOK. 2.3.1 Marginal cost can be determined by dividing the change in total cost by the change in production.  2.3.2 Marginal product is determined by dividing the change in total product by the change in input. 2.3.3 The maximum profit per hectare is only achieved when the production is at maximum potential. 2.3.4 The rate of physical substitution is the ratio of additional input (X1) required to generate different production with a reduction of another input. 2.3.5 A decreasing rate of substitution implies that as the quantity of X1, increases more and more units of X2 are required to replace one unit of input X1.  2.3.6 Total cost is the sum of the total variable cost and total fixed cost. 2.3.7 Total variable cost is the product of input and input price. Copyright reserved Please turn over (4090484) -6- 2.3.8 Supplementary products are obtained where a change in the production of one product has no effect on the production of another.  2.3.9 The optimum point occurs where the additional income from an additional unit of an output is not equal to the cost involved in its production. 2.3.10 Least cost combination of inputs is the point where the physical rate of substitution of the two inputs is equal to the inverted price of the inputs. (10 × 1) (10) 2.4 The table below is a part of production function of canola yield to phosphate application with ALL other factors remaining the same: Input level Total canola yield Phosphate application (kg/ha) (kg/ha) X Y 20 400 40 910 60 1 350 80 1 710 100 1 960  2.4.1 The average product at an input level of 60 kg phosphate per hectare (5) 2.4.2 The marginal yield if the input level of phosphate is increased from 40 kg/ha to 60 kg/ha (6) 2.4.3 Which other information is necessary (besides the production function) to determine what most profitable input level will be. (2 × 2) (4)  QUESTION 3: THE FARMING BALANCE SHEET 3.1 The farm balance sheet is a systematic exposition/layout of the assets or possessions and liabilities or interest in the farming enterprise with their respective values. Supply the correct term/word for each of the following description that are related to the balance sheet. 3.1.1 The amount of money that the farmer would retain if he/she were to sell all the farm assets.  3.1.2. Where the debts in the farming enterprise exceed the value of assets. Copyright reserved Please turn over (4090484) -7- 3.1.3 Assets that are used in the production process to produce other assets that can be sold. 3.1.4 The mutual relationship between the different types of assets and liabilities.  3.1.5 The debt of the enterprise plus the value of the leased land. (5 × 2) (10) 3.2 Briefly explain the TWO purposes of drawing up the balance sheet in the farming enterprise. (2) 3.3 Briefly explain what you would use the value of the leased land for in relation to calculating a form of capital. (2) 3.4 The following information regarding assets and liabilities is given on the 31 December 2016.  DESCRIPTION VALUE (R) Electricity account paid in advance 6 000 Deferred bonus payment funds 25 000 Sugar-cane plantation on the land for ten years 20 000 Cattle feed purchase but not used 10 000 Positive bank balance at Standard Bank 35 500 Office equipment 25 000 Tractors 130 000 VAT owed to the farmer by receiver of revenue 20 000 Weedkillers in store 2 000 Debtors 6 000 Kraals and fences 50 000 Value of extra land rented from the neighbour 500 000 Land purchased 750 000 Renovations of the buildings 15 000 Outstanding account at NTK co-operative 3 000 Bank overdraft at ABSA 30 000 Balance of bond at ABSA for the land bought 400 000 Balance 5 year purchase agreement with Standard Bank 80 000 Determine the following totals for the farming enterprise as they will appear in a balance sheet. Show ALL calculations in detail. NOTE: A negative mark will be given for each item entered incorrectly. TIP: Draw up a balance sheet. 3.4.1 Current liabilities (3) 3.4.2 Medium-term liabilities (2)  3.4.3 Long-term liabilities (2) 3.4.4 Total debt (3) Copyright reserved Please turn over (4090484) -8- 3.4.5 Net worth (3) 3.4.6 Total liabilities (1) 3.4.7 Current assets (7) 3.4.8 Investment and other (2) 3.4.9 Movable assets (4)  3.4.10 Fixed assets (4) 3.4.11 Total assets (2) 3.4.12 Value of leased field (1) 3.4.13 Total capital invested (2) QUESTION 4: THE FARMING INCOME STATEMENT The following financial information and production details are provided for a financial year about a certain farmer that farms with sheep and lucerne.  R Rent paid for part of the lucerne field 20 000 Interest paid on land bank loans 15 000 Repayment on loans (excluding interest) 10 000 Bales of lucerne sold 160 000 Bales of lucerne fed to sheep 30 000 Fuel stock at the beginning of the year 4 000 Fuel stock at the end of the year 2 000 Fuel purchased during the year 12 000 Ewes bought on credit by the farmer 10 000 Wages of permanent labourers 48 000 Depreciation on improvements and equipment 32 000 Veterinary costs and medicines 20 000 Sheep sold, money not received yet 130 000 Sale of wool to BKB 30 000 Sheep slaughtered for domestic use 2 500 Sheep slaughtered for the labourers 4 000 Unsold wool stock at the beginning of the year 30 000 Unsold wool stock at the end of the year 10 500 Value of sheep at the end of the year 270 000 Value of sheep at the beginning of the year 250 000 Maintenance of vehicles and implements 35 000 Electricity 50 000 Auxiliary farm expenses 9 000 Value of sheep stolen 15 000  Protective clothing for labourers 6 000 Copyright reserved Please turn over (4090484) -9- Calculate the following showing ALL calculations and formulae where applicable: 4.1 The gross production value for the sheep branch (10)  4.2 The gross production value for the lucerne branch (4) 4.3 The gross production value for the farm as a whole (5) 4.4 The cost of labour for the year (5) 4.5 The cost of fuel for the year (5) 4.6 The total production, marketing and administration costs for the year (11) 4.7 The net farm income (5) 4.8 The farm profit  (5) TOTAL: 200 Copyright reserved