Explain a balance sheet and prepare a balance sheet for a farm, given specific asset and liability information.

Assets are resources owned by the farm. We categorize them into Non-Current Assets (long-term) and Current Assets (short-term).

Non-Current Assets:

• Land: Kshs. 420,000
• Farm buildings: Kshs. 75,000
• Dairy animals: Kshs. 126,000
• Tools and equipment: Kshs. 75,000

Current Assets:

• Inputs in store: Kshs. 5,500
• Debtors (K.C.C.): Kshs. 13,600
• Debtors (Ubao Farm): Kshs. 18,000
• Debtors (2 bull calves): Kshs. 9,600
• Debtors (National Cereals and Produce Board): Kshs. 16,000

Liabilities are obligations owed by the farm. We categorize them into Non-Current Liabilities (long-term) and Current Liabilities (short-term).

Non-Current Liabilities:

• Bank loan: Kshs. 80,000

Current Liabilities:

• Creditor (manure): Kshs. 1,200
• Creditor (fertiliser): Kshs. 2,400
• Creditor (feeds): Kshs. 12,800
• Wages payable: Kshs. 3,800
• Interest payable: Kshs. 1,500

Owner's Equity is calculated using the accounting equation: Assets = Liabilities + Owner's Equity.
Therefore, Owner's Equity = Total Assets - Total Liabilities.

$$\begin{align*} \text{Owner's Equity} &= 758,700 - 101,700 \\ &= \text{Kshs. } 657,000 \end{align*}$$

$$\begin{array}{|l|r|r|} \hline \textbf{Choka Farm} & & \\ \textbf{Balance Sheet as at 31st December, 2003} & & \\ \hline \textbf{ASSETS} & \textbf{Kshs.} & \textbf{Kshs.} \\ \text{Non-Current Assets} & & \\ \text{Land} & 420,000 & \\ \text{Farm buildings} & 75,000 & \\ \text{Dairy animals} & 126,000 & \\ \text{Tools and equipment} & 75,000 & \\ \cline{2-2} \text{Total Non-Current Assets} & & 696,000 \\ \text{Current Assets} & & \\ \text{Inputs in store} & 5,500 & \\ \text{Debtors:} & & \\ \text{K.C.C.} & 13,600 & \\ \text{Ubao Farm} & 18,000 & \\ \text{Bull calves} & 9,600 & \\ \text{National Cereals and Produce Board} & 16,000 & \\ \cline{2-2} \text{Total Current Assets} & & 62,700 \\ \cline{2-3} \textbf{TOTAL ASSETS} & & \textbf{758,700} \\ \hline \textbf{CAPITAL AND LIABILITIES} & & \\ \text{Owner's Equity (Capital)} & & 657,000 \\ \text{Non-Current Liabilities} & & \\ \text{Bank Loan} & & 80,000 \\ \text{Current Liabilities} & & \\ \text{Creditors (manure)} & 1,200 & \\ \text{Creditors (fertiliser)} & 2,400 & \\ \text{Creditors (feeds)} & 12,800 & \\ \text{Wages payable} & 3,800 & \\ \text{Interest payable} & 1,500 & \\ \cline{2-2} \text{Total Current Liabilities} & & 21,700 \\ \cline{2-3} \textbf{TOTAL CAPITAL AND LIABILITIES} & & \textbf{758,700} \\ \hline \end{array}$$

The final balance sheet is presented above.