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Financial Accounting 1 The Ostrich Farm. Financial Accounting 2 Basic Information commercial ostrich industry began about 150 years ago in South Africa.

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Presentation on theme: "Financial Accounting 1 The Ostrich Farm. Financial Accounting 2 Basic Information commercial ostrich industry began about 150 years ago in South Africa."— Presentation transcript:

1 Financial Accounting 1 The Ostrich Farm

2 Financial Accounting 2 Basic Information commercial ostrich industry began about 150 years ago in South Africa especially good for their meat eggs are edible but they are mainly used for breeding and art purposes one pair of mature ostrich is worth about 8 ostrich eggs one adult ostrich yields around 100 kg of meat 100 kg meat is worth about 9 eggs One adult ostrich consumes about 35 kg of feed per day

3 Financial Accounting 3 Beginning-1 father divided his ostrich farm of 30 squared kilometers that is worth ninety ostrich eggs between his two daughters total of thirty ostriches the daughters did not own the land or the ostriches but were responsible from running the operations older daughter received a land of 20 squared kilometers with 20 ostriches, and the younger the remaining land with its ostriches

4 Financial Accounting 4 Beginning-2 In each piece of land there is one egg incubator that is expected to last eight years with good use, and a portable shelter for the animals which can usually be used for two years. Each egg incubator is worth two pairs of ostriches and the shelter about two eggs. The father also gave each daughter bird feed that would be enough for the first half of the year kg of feed is worth one egg.

5 Financial Accounting 5 Decision Which daughter is doing better? Criteria?

6 Financial Accounting 6 What do we need to answer? performance ownership common denominator or measurement unit

7 Financial Accounting 7 Solution Common denominator – eggs or birds? Father or daughters? Wealth increase? How to measure?

8 Financial Accounting 8 Measurement Unit -Eggs

9 Financial Accounting 9 Older Sister Capital –whose?

10 Financial Accounting 10 During the year- Older slaughtered 9 ostriches at midyear (assume one year is 360 days) and exchanged the meat for another portable shelter and bird feed The hens laid a total of 300 eggs of which 2 were broken She gave 45 eggs to her helpers and 3 eggs to the veterinarian the egg incubator broke down and she promised to give the fixer 2 eggs during the next season Her father took 25 eggs

11 Financial Accounting 11 End of the year- Older At the end of the year, she received 25 pairs of ostriches of a different breed in exchange for 9 eggs a pair. These ostriches are expected to be ready for processing when they are 18 months old, at almost half the age of the other breed.

12 Financial Accounting 12 During the year: Older *126 eggs plus 69.3 eggs

13 Financial Accounting 13

14 Financial Accounting 14 During the year – Older –2

15 Financial Accounting 15 End of the year Older

16 Financial Accounting 16 Younger sister Capital –whose?

17 Financial Accounting 17 During the year- Younger hatched 10 eggs and exchanged the chicks for 20,000 kg of feed and one small used incubator that is worth 5 eggs and that could be used for 5 more years at the beginning of the year slaughtered 1ostrich mid-year and exchanged for bird feed hens laid 277 eggs during the year. She used 45 eggs to purchase more bird feed, gave 25 eggs to the helpers, 2 eggs to the veterinarian, and 50 eggs to her father Her portable shelter became unusable due to a very active animal. She got a new shelter, and gave one egg and promised to give one more egg next season

18 Financial Accounting 18 End of the year-Younger At the end of the year, she exchanged her remaining eggs for 18 pairs of ostriches of the same breed as hers

19 Financial Accounting 19 During the year: Younger *63 eggs eggs

20 Financial Accounting 20

21 Financial Accounting 21 During the year: Younger-2

22 Financial Accounting 22 End of the year- Younger

23 Financial Accounting 23 Comparison- Beginning of the year: total egs Older Younger ostrich land incubator feed shelter

24 Financial Accounting 24 Comparison – End of the year total eggs older younger ostrich feed land Incubator Shelter Owes: 2 eggs 1 egg

25 Financial Accounting 25 Which one is doing better? What about the eggs given to the father? Which daughter is using the resources more efficiently? Who has increased the wealth more?

26 Financial Accounting 26 Wealth Older Beginning 284 eggs End eggs (owe 2 eggs) Younger Beginning 151 eggs End eggs (owe 1 egg) How much is the net worth or capital or owners equity?

27 Financial Accounting 27 Increase in wealth Difference between the beginning and the ending capital Older: 72.7 Younger 98.3 Now lets see what caused the capital increase….

28 Financial Accounting 28 Older –Annual Performance meat produced 81 eggs300 total revenue 381 eggs cost ostrich 9x4 36 feed195.3 Cost gross margin149.7 help45 vet3 broke2 fix2 total expenses 52 income 97.7 gave to father 25 Increase 72.7eggs

29 Financial Accounting 29 Younger-Annual Performance sheltereggs hatched eggs meat 9 eggs 277 total revenue311 ostrich 4 feed119.7 hatched eggs 10 Cost gross margin177.3 help25 vet2 shelter unusable2 total expenses 29 income gave to father50 Increase 98.3

30 Financial Accounting 30 Moral of the Story We need a common measurement – money Period is important – a year from now older might be better Entity is different than the owner Each financial statement answer a different question Balance sheet: how resources are allocated Income Statement : how efficiently the resources are used.

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