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Linking the Canfarm Farm Record System to a linear programming farm planning model Kendon, Richard P. 1979

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LINKING THE CANFARM FARM RECORD SYSTEM TO A LINEAR PROGRAMMING FARM PLANNING MODEL by R i c h a r d P. Kendon A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE i n THE FACULTY OF GRADUATE STUDIES (Dept. o f A g r i c u l t u r a l Economics) We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA March, 1979 (cT) R i c h a r d P a u l Kendon, 1979 I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e Head o f my D e p a r t m e n t o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f &G-£)C uzTu £ f l ^ HcoH/OWc S> The U n i v e r s i t y o f B r i t i s h C o l u m b i a 2075 W e s b r o o k P l a c e V a n c o u v e r , C a n a d a V6T 1W5 D a t e i i ABSTRACT LINKING THE CANFARM FARM RECORD SYSTEM TO A LINEAR PROGRAMMING FARM PLANNING MODEL by Richard P. Kendon The farm record keeping system i s frequently used by the farm business manager f o r h i s t o r i c a l accounting, mainly to s a t i s f y i n s t i t u t i o n a l r e q uire-ments f o r information, p a r t i c u l a r l y that of taxation. L i t t l e emphasis has been placed on the record system as an aid i n forward planning. Farm planning aids frequently ignore the record keeping aspect of farm business management and are generally unrelated to record keeping systems used on the farm. The Canfarm Farm Record System and the various Canfarm Farm Planning Packages are likewise unrelated. This lack of a comprehensive Managerial Information and Decision System f o r the Canadian farm business manager may, i n part, account for the slow rate of adoption of computerized record keeping systems and farm planning aids. The objective of t h i s study was to integrate the Canfarm Farm Record System with a farm planning model, i n order to suggest a format for the future development of an extension oriented Managerial Information and Decision System. The s p e c i f i c objectives were: 1) to i d e n t i f y the Canfarm Farm Record System, the statements that are generated from the Record System and the accounting items which make up these statements; 2) to construct, document and v a l i d a t e a l i n e a r programming farm model which incorporates the information contained i n the Canfarm Farm Record System and generates output i n statements that are consistent ( i d e n t i c a l ) with the Record System statements; and, 3) to develop recommendations f o r standardization of pro-jected f i n a n c i a l reports that e x i s t i n g models could adopt, and which could be incorporated i n t o future models. A s i g n i f i c a n t cost of using any system i s the investment i n time required to become acquainted with that system. Consequently, the fewer the concepts to be learned, the lower would be the cost of learning f o r both the extension agent and the farm business manager. In a d d i t i o n to reducing the number of new concepts, i n t e g r a t i n g a record system with the planning function provides the c o n t r o l l i n k through the comparison of planned versus actual values that i s not a v a i l a b l e with fragmented packages. These consid-erations, i n conjunction with management theory and theories of the f i r m formed the t h e o r e t i c a l background to t h i s study. Linear programming was chosen as an appropriate s o l u t i o n method due to i t s lack of conceptual complexity, the a v a i l a b i l i t y of a s u i t a b l e algorithm and i t s maximizing c a p a b i l i t i e s . The Canfarm Farm Record System was described i n terms of i t s accounting concepts. The flow of data was shown, from the farmer's journal e n t r i e s , through the various d e t a i l e d reports, to the summary f i n a n c i a l statements and to the Balance Sheet. Four reports, the Farm Operating Statement, the Income Statement, the Statement of Assets, L i a b i l i t i e s and Owners Equity (Balance Sheet), plus the Cash Flow Statement, were chosen as the basic reports to be generated by the model. The empirical work was shown to c o n s i s t of several stages, from the capturing of the h i s t o r i c a l records, the formulation of the farm plan, the i v generation of the LP matrix, to the s o l u t i o n of the projected farm plan. A report writer converts the output from the LP s o l u t i o n and produces the four f i n a n c i a l statements. The f i n a l stage i s the c o n t r o l l i n k , i n which the projected reports are compared to the actual records as they become av a i l a b l e . The model was designed to be applicable to a v a r i e t y of farm planning s i t u a t i o n s , i n ad d i t i o n to being able to l i n k up with other models. I t was therefore subjected to several t e s t s , including a simulation run using case farm data from the Canfarm Farm Record System to t e s t the model structure, i n t e g r a t i o n with two d i f f e r e n t farm planning models to demonstrate i t s f l e x i b i l i t y and comparison with the same data fed through the Canfarm Farm Record System. Once t h i s stage was reached, other p o t e n t i a l a p p l i c a t i o n s were o u t l i n e d and then a recommendation was proposed f o r the adoption of a standardiza-t i o n base f o r future models as well as f o r wider a p p l i c a t i o n s of t h i s model. V TABLE OF CONTENTS LIST OF TABLES v i i i LIST OF FIGURES i x LIST OF EQUATIONS x i i ACKNOWLEDGEMENTS x i i i CHAPTER PAGE 1 INTRODUCTION 1 1.1 BACKGROUND OF THE PROBLEM 2 1.1.1 Managerial Information and Decision Systems 3 1.1.2 The Role of Canfarm 5 1.1.3 Delivery Systems 7 1.1.4 Review of Farm Planning Systems and Approaches ... 8 1.1.5 Review of Approaches to the Integration of Record and Farm Planning Systems 14 1.2 STATEMENT OF OBJECTIVES 19 1.3 ORGANIZATION OF THE STUDY 20 2 ANALYTICAL FRAMEWORK 21 2.1 THE THEORIES OF THE FIRM 22 2.2 THE CONCEPTUAL FRAMEWORK 27 3 THE CANFARM FARM RECORD SYSTEM 34 3.1 INTRODUCTION 34 3.2 STATEMENT OF ASSETS, LIABILITIES AND OWNERS EQUITY 39 3.2.1 Assets 41 3.2.2 L i a b i l i t i e s 47 3.2.3 Owners Equity 48 3.3 THE FARM INCOME STATEMENT 51 3.4 FARM OPERATING STATEMENT 53 v i CHAPTER PAGE 3.5 CASH FLOW STATEMENT 56 3.6 OTHER STATEMENTS 58 3.7 CHOICE OF REPORTS FOR THE MODEL 59 4 THE EMPIRICAL MODEL 61 4.1 METHOD OF SOLUTION 62 4.2 PERSPECTIVE OF THE MODEL 63 4.3 THE MODEL IN DETAIL 65 4.3.1 The Farm Operating Statement 66 4.3.2 Income Statement 66 4.3.3 Cash Flow Statement 70 4.3.4 Statement of Assets, L i a b i l i t i e s and Owners Equity 74 5 APPLICATION OF THE MODEL 81 5.1 TEST OF THE ACCOUNTING MATRIX 82 5.2 INTEGRATION WITH A FARM PLANNING MODEL 88 5.3 VERIFICATION WITH THE RECORD SYSTEM I l l 6 RECOMMENDATIONS FOR A STANDARDIZATION BASE 118 6.1 LINEAR PROGRAMMING APPLICATIONS 120 6.1.1 Objective Function Considerations 120 6.1.2 Time Periods 121 6.1.3 C a p i t a l Budgeting 122 6.1.4 Risk Programming .... 122 6.2 APPLICATION WITH NON-OPTIMIZING MODELS 123 6.3 STANDARDIZATION OF OUTPUT 124 6.4 IMPLICATIONS FOR THE DELIVERY SYSTEM 129 v i i CHAPTER PAGE 7 SUMMARY AND CONCLUSIONS 131 7.1 SUMMARY OF THE THESIS 131 7.2 LIMITATIONS AND RECOMMENDATIONS FOR FURTHER STUDY 134 7.3 CONCLUSIONS 136 SELECTED BIBLIOGRAPHY 138 APPENDIX EXAMPLES OF SELECTED CANFARM FARM RECORD SYSTEM REPORTS ... 145 v i i i LIST OF TABLES TABLE PAGE 3.1 Sources of Balance Sheet Items 43 5.1 R e c o n c i l i a t i o n Between Short's Results and Model Output 105 i x LIST OF FIGURES FIGURE PAGE 2.1 Stages of the Managerial Information and Decision System .... 28 2.2 Flow Diagram of the Conceptual Model 30 2.3 Sub-division of the Model Matrix 32 3.1 Continuum Levels Within Canfarm 36 3.2 Schematic Diagram of Canfarm Reports 38 3.3 I n t e r r e l a t i o n s h i p of F i n a n c i a l Reports 40 3.4 Statement of Assets, L i a b i l i t i e s and Owners Equity 42 3.5 C a p i t a l Cost Allowance and Management Depreciation 46 3.6 Owners Equity Section of the Balance Sheet 49 3.7 The Farm Income Statement 52 3.8 The Farm Operating Statement 54 3.9 The Cash Flow Statement 57 4.1 Stages of the Model 64 4.2 Operating Statement Sub-Matrix 67 4.3 C a p i t a l Cost Allowance Sub-Matrix 71 4.4 Cash Flow Sub-Matrix 73 4.5 The Model i n Matrix Form 76 4.6 Statement of Assets, L i a b i l i t i e s and Owners Equity Sub-Matrix 77 5.1 Accounting Test Run Operating Statement 83 5.2 Accounting Test Run Income Statement 84 5.3 Accounting Test Run Statement of Assets, L i a b i l i t i e s and Owners Equity 86 X FIGURE PAGE 5.4 Accounting Test Run Cash Flow Statement 87 5.5 Flow Diagram of Model Integration and Solution 89 5.6 Test Model Operating Statement 91 5.7 Test Model Income Statement 99 5.8 Test Model Statement of Assets, L i a b i l i t i e s and Owners Equity 100 5.9 Test Model Cash Flow Statement 101 5.10 Test Two Operating Statement 107 5.11 Test Two Income Statement 108 5.12 Test Two Statement of Assets, L i a b i l i t i e s and Owners Equity . 109 5.13 Test Two Cash Flow Statement 110 5.14 V a l i d a t i o n Operating Statement 112 5.15 V a l i d a t i o n Income Statement 114 5.16 V a l i d a t i o n Statement of Assets, L i a b i l i t i e s and Owners Equity 115 5.17 V a l i d a t i o n Cash Flow Statement 116 6.1 Framework of the Proposed Managerial Information and Decision System 125 A-1 Example of Farm Report Index 146 A-2 Example of Statement of Assets, L i a b i l i t i e s and Owners Equity (Fixed Assets and Intangibles Stated at Estimated Values) 147 A-3 Example of Farm Operating Statement with Physical Quantities 148 A-4 Example of Inventory Report - Farm 150 A-5 Example of Statement of Changes i n F i n a n c i a l P o s i t i o n 152 A-6 Example of Bank Account Report 153 x i FIGURE PAGE A-7 Example of Cr e d i t Account Report 155 A-8 Example of Summary Cr e d i t Account Report 157 A-9 Example of Statement of Owners Contributions and Withdrawals 159 A-10 Example of Income f o r Tax Purposes (Cash Method) Report 160 A - l l Example of Schedule of Fixed Assets and C a p i t a l Cost Allowance 161 A-12 Example of Schedule of Fixed Assets and Depreciation 163 A-13 Example of Currency Report 164 A-14 Example of Transaction L i s t i n g 165 x i i LIST OF EQUATIONS EQUATION PAGE 2.1 Linear Programming Problem 31 3.1 Change i n Assets 39 3.2 Change i n L i a b i l i t i e s 39 3.3 Change i n Owners Equity 39 4.1 Excess of Income Over Expenses 66 4.2 Net Farm Income 68 4.3 C a p i t a l Cost Allowance Diminishing Balance Items 68 4.4 Adjusted Undepreciated Balance 69 4.5 Total C a p i t a l Cost Allowance 69 4.6 The Cash Flow Statement 70 4.7 Closing Total Assets 78 4.8 T o t a l Undepreciated C a p i t a l Cost 78 4.9 Closing Accumulated C a p i t a l Cost Allowance 79 4.10 T o t a l L i a b i l i t i e s 79 4.11 Owners Equity at Year End 79 x i i i ACKNOWLEDGEMENTS I would l i k e to thank my th e s i s advisor, Dr. E a r l Jenson, and the other members of my th e s i s committee, Dr. John Graham and Dr. Malcolm T a i t , . f o r t h e i r continued support, d i r e c t i o n and encouragement which enabled me to complete t h i s t h e s i s . Cameron Short's assistance and co-operation i n supplying data tapes and guidance i n int e g r a t i n g t h i s model with h i s i s gr e a t l y appreciated. I would also l i k e to thank Joanne Stenson f o r transforming the d r a f t into t h i s f i n a l copy. Thanks also go to David Shanks f o r h i s assistance i n programming the report writer. A s p e c i a l note of thanks to Garry Bradshaw f or goading me in t o completing t h i s t h e s i s and f o r arranging f o r some much needed educational leave. CHAPTER ONE INTRODUCTION Technological innovation has removed much of the drudgery from farming i n recent years and has contributed to the g r e a t l y increased e f f i c i e n c y of a g r i c u l t u r e . I t has also dramatically increased the complexity of the problems confronting the farm manager. From 1971 to 1977, farm i n t e r e s t payments rose 100 percent, farm mortgage i n t e r e s t rose 201 percent while the Consumer P r i c e Index rose only 61 percent ( S t a t i s t i c s Canada, 1978). In the United States, the increase i n farm short-term debt from 1950 to 1974 was 1643 percent while r e a l estate debt rose 1481 percent (Hopkin, 1975). In order to operate e f f i c i e n t l y i n t h i s environment, and quite p o s s i b l y i n order to survive, the farm manager needs to u t i l i z e e f f e c t i v e management tools to a i d i n the d e c i s i o n making process. However, farm managers seem re l u c t a n t to adopt management planning techniques and models. This may be because*.they are not aware of the products; that they do not see the need for them; or, that e x i s t i n g tools do not meet the f e l t needs of the farm manager. The i n t e n t of t h i s thesis i s to examine some of the a v a i l a b l e farm planning t o o l s and to propose a Managerial Information and Decision System based on the i n t e g r a t i o n of a farm record system and a farm planning model. Such a system may be more suitable i n an integrated form to the needs of_ the farm manager, than as stand-alone u n i t s . 2 1.1 BACKGROUND TO THE PROBLEM In order to i n v e s t i g a t e this: problem, that the adoption of management tools by farm managers lags: behind the adoption of production techniques, i t Is f i r s t necessary to c l a r i f y the nature of the planning models under discussion. This necessitates d i s t i n g u i s h i n g between research and extension''" models. Candler et a l . (1970, p.71) provide the necessary d i s t i n c t i o n ; "...the research worker frequently wants to change the structure of the problem but not the data, whereas the extension worker wishes to change the data but not the structure". Concern here i s with the l a t t e r type. Ease of i n p u t t i n g data, confidence i n the accuracy of the r e s u l t s and a b i l i t y to i n t e r p r e t the r e s u l t s are also of prime concern to the producer and h i s advisor. A second problem area involves the concept that Eisgruber (1973, p. 930) c a l l s "Managerial Information and Decision Systems". Bookkeeping or record systems and forward planning models, when used, tend to e x i s t i n i s o l a t i o n from each other. Uniformity i s lacking between planning aids and between record systems. Eisgruber (1971, p.63) hypothesizes that "the farm manager would undoubtedly accept some of our work f a s t e r i f he were not forced to acquaint himself with the p e c u l i a r i t i e s and e c c e n t r i c i t i e s of each of our programs". 1. For the purposes of t h i s study, the term "extension" r e f e r s to the advisory capacity provided at the farm l e v e l by various agencies. 3 Integration of management subsystems involves two dimensions. Horizontal i n t e g r a t i o n might be viewed as consistency between l i k e systems. V e r t i c a l i n t e g r a t i o n could iinply the l i n k i n g of h i s t o r i c a l record systems with, forward planning packages. A t h i r d p o t e n t i a l problem area i n the adoption of farm planning aids i s education and an e f f e c t i v e d e l i v e r y system. I f the farm manager does not receive adequate t r a i n i n g i n why and how to use a planning method and does not have ready access to counselling and service, adoption cannot take place. Consequently, the agency involved i n extending farm planning services to the farm community must commit resources and active support to the program. Hence the adoption process requires extension agencies to adopt the process before there can be any hope of adoption taking place at the farm l e v e l . The purpose of the remainder of t h i s section i s to b r i e f l y o u t l i n e the concepts, i n s t i t u t i o n s and methods involved i n Managerial Information and Decision Systems as well as to review some of the work that has already been done i n t h i s area. 1.1.1 Managerial Information and Decision Systems A Managerial Information and Decision System as conceptualized by Eisgruber (1973, p. 930) i s : . . . a system which may d e l i v e r any type of information to the de c i s i o n maker for the purpose of changing h i s knowledge so as to enable him to s e l e c t future courses of action which lead to outcomes which have higher net payoffs than would otherwise be the case. 4 Information i n t h i s context must be distinguished from data. Data may be considered as a set of unrelated f a c t s which only become information once evaluated, applied to a problem and found to be pertinent to that problem. Decision-making requires the s e l e c t i o n of a plan of a c t i o n , i n c l u d i n g no action, from a se r i e s of a l t e r n a t i v e s with some objective i n mind. The framework, thus envisaged, c o n s i s t s of a set of subsystems which are linked formally or informally to complete the system. The system, then, i s not s t a t i c but evolves and i s applied according to the problem confront-ing the d e c i s i o n maker. Record keeping i n a g r i c u l t u r e tends to be regarded as an end i n i t s e l f . I t s primary purpose i s often to s a t i s f y i n s t i t u t i o n a l r e q u i r e -ments, p a r t i c u l a r l y that of taxation. In t h i s regard, records kept merely fo r tax minimization strategy, whether with respect to depreciation of assets or to account f o r other tax deductions, may be "at best misleading and at worst v i r t u a l l y useless from a management point of view" (Menz and Longworth, 1976A1. More importantly, the r a t i o n a l manager w i l l not expend a greater cost on keeping records than the expected return from that a c t i v i t y . Consequently, when viewed as an end i n i t s e l f , the returns to record keeping beyond that imposed upon the farm may be viewed as inconsequential. Farm planning methods ranging from back-of-the-envelope p a r t i a l budgets to sophisticated computer models, tend to be used i n i s o l a t i o n rather than as an i n t e g r a l p a r t of a Managerial Information and Decision System. Without accurate h i s t o r i a l data as part of the input, and lacking a c o n t r o l l i n k to compare the projected r e s u l t s with what a c t u a l l y happens, planning t o o l s may give only part of the answer, may be 5 inaccurate, and may cause the farm manager to f a i l to see the p o i n t of i t s use. In addition, i f the learning process i s confused by the farm manager having to learn new concepts f o r each part of the planning process, he may well f e e l h i s time could be better spent i n other a c t i v i t i e s . The set of subsystems comprising a Managerial Information and Decision System must not omit the manager. As pointed out by Sonntag (1972) " . . . computer models do not replace the manager as the d e c i s i o n maker; they merely f a c i l i t a t e the performance of the management function". Possibly i n i m p l i c i t awareness of t h i s , much of the l i t e r a t u r e on t h i s topic r e f e r s simply to Management Information Systems. However, the danger i n omitting "decision" from the t i t l e i s that the d e c i s i o n function may e a s i l y be overlooked. The discussion of Management Information and Decision Systems i n Canada i s not complete without examining the r o l e of Canfarm. 1.1.2 The Role of Canfarm The p o t e n t i a l b e n e f i t s of a natio n a l comprehensive Managerial Information System (MIS) i n Canada were a r t i c u l a t e d by Warren Vincent i n 1962 (McArthur, 1975) . Out of t h i s concept grew the Canadian Farm Manage-ment Data System (Canfarm), a co-operative Federal, P r o v i n c i a l and U n i v e r s i t y program. Plaunt (JL967). has o u t l i n e d the o r i g i n and i n i t i a l developments of Canfarm. G i l c h r i s t (.1969) provides a further summary of a c t i v i t i e s , as does Britney (1974). and Thompson (1976). 6 The Federal component of Canfarm; known as the Canfarm Service Agency (CSA), provides the data processing services and undertakes the majority of new development i n consultation with the "Co-operating Agencies". These agencies c o n s i s t of the P r o v i n c i a l Departments of A g r i c u l t u r e , U n i v e r s i t i e s , and the Farm Credit Corporation. A t h i r d category, A f f i l i a t e Agencies, consists of agri-business firms and farm organizations. I t i s the functionoof the Co-operating and A f f i l i a t e Agencies to d e l i v e r Canfarm services to the user. The services provided by Canfarm c o n s i s t of a record system, a data bank and farm planning programs. The Canfarm Farm Record System, operational since 1976, i s the t h i r d version, having grown out of the experience gained with the f i r s t two versions. I t i s based on the double entry accounting system. The Record System w i l l be described i n some d e t a i l i n Chapter Three. Data from those farms who have agreed to p a r t i c i p a t e , may be r e t r i e v e d through the data bank service and, i f required, may be analyzed with the a i d of s t a t i s t i c a l packages a v a i l a b l e through the Canfarm computer. Farm planning services are provided across Canada v i a remote access terminals, u t i l i z i n g a data communications network. A m a i l - i n service i s also a v a i l a b l e . The r o l e of Canfarm, as stated by Britney (1974, p. 304): . . . i s to a s s i s t the i n d i v i d u a l farmer i n two major areas: A. To enlarge, and hence, improve the c a p a b i l i t i e s of h i s MIS. B. To augment the decision-making function through the use of Farm Planning Packages This r o l e i s further placed i n perspective by Britney (1974, p. 327): Canfarm i s not a complete MIS f o r the Canadian farmer - nor should the attempt be made to make i t so. Canfarm must be considered a component of the " o v e r a l l " MIS used by the Canadian farmers. 7 Britney also describes the scope of farm planning within Canfarm as: . . . our advancement i s not i n the area of management science research; but i n taking the " p i l o t " models (systems) and adapting them to the Canadian a g r i c u l t u r a l s i t u a t i o n f o r p r a c t i c a l a p p l i c a t i o n ( i . e . the a b i l i t y to service farmers through the current Extension System) to i n d i v i d u a l farmers on a voluntary b a s i s . The extension system r e f e r r e d to, i s an i n t e g r a l p art of the d e l i v e r y system outlined i n the next section. 1.1.3 Delivery Systems Education i s the c o n s t i t u t i o n a l j u r i s d i c t i o n of the Provinces i n Canada, inc l u d i n g the r o l e of extension. While U n i v e r s i t i e s i n Canada do provide some extension ser v i c e s , they lack the mandate and funding of the American Land Grant colleges. The Farm C r e d i t Corporation ( a Crown Corporation) i n i t s r o l e of providing loans to Canadian producers, i s involved i n extension only as a secondary function. Therefore, the main thrust of d e l i v e r i n g any Management Information (and Decision) System f a l l s to the P r o v i n c i a l Departments of A g r i c u l t u r e and t h e i r Extension Branches. The i n d i v i d u a l extension agent must be w i l l i n g to adopt a system i n order to become involved i n extending i t s use to the a g r i c u l t u r a l community. The extension agent, by the very nature of h i s duties, i s not generally a s p e c i a l i s t . The burden of having to learn many d i f f e r e n t systems, and, r e l e a r n each time a new model comes along, w i l l undoubtedly weaken h i s involvement. A d e l i v e r y system includes, but i s more than, the technology required to move data or information over distance. Harrison and Rades (1974) and 8 La Due (1976) and "(1978) have o u t l i n e d the pros and cons of m a i l - i n , touchtone phones and terminals as methods of transmission. 1.1.4 Review of Farm Planning Systems and Approaches Decision making, as a function of the farm manager, necessitates choosing a plan of action from several a l t e r n a t i v e s . Before such a choice can be made, the a l t e r n a t i v e s need to be evaluated i n the l i g h t of some c r i t e r i a . Farm planning models provide a means of examining the r e l a t i o n s h i p between the v a r i a b l e s that c o n s t i t u t e a farm production u n i t , through the establishment of a s e r i e s of i n t e r r e l a t e d mathematical equations. If a model can be v a l i d a t e d , shown to hold true to r e a l i t y , the farm manager can simulate a l t e r n a t i v e production plans without having to under-take the r i s k and delay of actual experimentation on the farm. A computer-ized model can enable the examination of many a l t e r n a t i v e s i n a very short space of time. The c r i t e r i a , or objective function, that provide the basis f o r evaluation of a l t e r n a t i v e plans may, f o r example, be to choose a plan g i v i n g the highest net income, or i t might be to maximize owners equity, or i t might be to maximize l e i s u r e time, subject to some acceptable minimum l e v e l of income. The term 'model' as used throughout t h i s study, r e f e r s to these concepts. Solution procedures f o r farm f i r m planning models f a l l i n t o two broad categories, (a) optimizing, and, (b) search or simulation procedures, each with t h e i r advantages and disadvantages. Optimizing techniques w i l l be discussed f i r s t . Within the framework of a Managerial Information and Decision System, as outlined i n section 1.1.1, l i n e a r programming (LP) may be a u s e f u l 9 planning t o o l providing a means of a l l o c a t i n g scarce resources among production a l t e r n a t i v e s to achieve some maximum b e n e f i t . H i l l i e r and Lieberman (.1967, p. 127) define l i n e a r programming as the planning method that " . . . deals with the problem of a l l o c a t i n g l i m i t e d resources among competing a c t i v i t i e s i n an optimal manner". Requirements of l i n e a r programming are that the objective function and constraints be l i n e a r , that the a c t i v i t i e s be a d d i t i v e and the inputs d i v i s i b l e . Eisgruber (1973) provides some i n s i g h t to the h i s t o r i c a l development of LP i n a g r i c u l t u r e . Use of LP grew slowly i n the 1950's mushroomed i n the 1960's and has seemingly s t a b i l i z e d i n the 1970's, f a l l i n g i n t o disfavour i n some c i r c l e s as alternate methods have been developed and improved. A wide range of a p p l i c a t i o n s of LP to farm planning e x i s t , although the procedure i t s e l f i s not without i t s l i m i t a t i o n s and drawbacks. Scott (1970) o u t l i n e s some of the p o t e n t i a l appeal of LP, i n d i c a t i n g that i t i s w e l l - s u i t e d to examining short-run a l t e r n a t i v e s , e s p e c i a l l y on the multi-product farm. Comparisons of resource u t i l i z a t i o n and l e a s t cost feed rations are c i t e d as examples of successful a p p l i c a t i o n s of LP. One advantage of LP often c i t e d , i s the a d d i t i o n a l information gained through the i n t e r p r e t a t i o n of shadow p r i c e s . McCarl et a l . (1977) and McCarl (1977) caution the i n t e r p r e t a t i o n , i n an applied context, of degenerate cases where there are several sets of shadow p r i c e s . An example of the a p p l i c a t i o n of LP i n a farm s i t u a t i o n i s the experience at Purdue U n i v e r s i t y with farmer-oriented LP (McCarl et a l . 1977). Extended through "Top Farmer" workshops by u n i v e r s i t y s t a f f and by International Harvester, farmers are able to u t i l i z e the model to answer questions concerning machinery, cropping p r a c t i c e s , changes i n labour and land s i z e . O v e r a l l , t h i s model i s a successful farm planning t o o l , r e q u i r i n g extension s t a f f i n t e r a c t i o n to make the model p r a c t i c a l . The model i s l i m i t e d to a si n g l e objective function of p r o f i t maximiza-t i o n , i s non-stochastic and operates f o r a si n g l e time period. A second example of the a p p l i c a t i o n of l i n e a r programming i s the Oklahoma State U n i v e r s i t y Extension Service which provides a LP whole farm planning service (Kletke et a l . , 1975). The LP segment constitutes a compatible component of the o v e r a l l management service that can be used as a stand-alone farm planning model or can be linked to a budget generator, using a combination of stored data and farmer data. Consider-able emphasis i s placed upon farmer confidence i n , and acceptance of, the program. As stated above, a l i m i t i n g feature of LP i s the requirement that the inputs be d i v i s i b l e . This can create d i f f i c u l t i e s when some of the inputs, such as t r a c t o r s or b u i l d i n g s , are not d i v i s i b l e . The r e s t r i c t i o n of d i v i s i b i l i t y may be relaxed somewhat through the use of integer or mixed integer algorithms, allowing the i n c l u s i o n of lumpy inputs i n t o the model. The r e s t r i c t i o n of l i n e a r i t y has been overcome through the develop-ment of quadratic programming (QP) which enables some of the l i m i t a t i o n s of l i n e a r i t y to be relaxed while s t i l l r e t a i n i n g the optimizing feature. Louwes, Boot and Wage C1963) and, Scott and Baker (1972), provide descriptions of t h i s method together with examples of i t s a p p l i c a t i o n . 11 Algorithms f o r QP are not as r e a d i l y a v a i l a b l e as are those f o r LP solutions and also tend to be more expensive i n terms of computer time. These f a c t o r s tend to somewhat negate the advantages of QP at the present time. Linear programming methods t r a d i t i o n a l l y provide f o r only one objec-t i v e function. The farm f i r m seems l i k e l y to have more than one s p e c i f i c goal (see Chapter Two, section 1). In order f o r LP to a s s i s t planning under these conditions a method i s required to handle multiple goals. Candler and Boehlje (1971) have proposed a method of incorporating multiple goals i n t o the l i n e a r programming framework. Aspects of r i s k and uncertainty may also be incorporated i n t o the LP framework. Hazell (1971) and Johnson et a l . (1967) have developed models which enable r i s k and uncertainty to be considered i n the farm plan. The dynamic problem has been approached i n two ways. Multiperiod models are used to determine a s i n g l e optimum plan over more than one planning period. Swanson (1955) and Loftsgard and Heady (1959) were the forerunners i n development of such "dynamic" l i n e a r programming models. Dynamic LP provides a u s e f u l t o o l i n i n v e s t i g a t i n g the problem of farm growth. Boehlje and White (1969) present an example of such an a p p l i c a t i o n . Day (1962) formulated an approach, "recursive programming", which he f e l t was a more appropriate planning process given future uncertainty and the short time horizon faced by the farm d e c i s i o n maker. This process " . . . consists of a sequential chain of r e c u r r i n g l i n e a r programming problems i n which the s t r u c t u r a l components of each y e a r 1 s problem depend on the s o l u t i o n f o r the preceeding year". Heidhues (1966) u t i l i z e d t h i s approach to evaluate e f f e c t s of p o l i c i e s on d i f f e r e n t types of farms i n Germany. C r i t i c i s m of "optimizing" models, frequently comes i n the form of comparison with various "simulation" methods. Furtan and Lee (1975) define simulation as ". . . the operation of experimentation on a numerical model which represents the structure of some r e a l world (dynamic) process". While t h i s d e f i n i t i o n might include forms of mathematical programming, t h e i r concept i s that the c l o s e r to the r e a l world the "simulator" becomes, the l e s s i t tends to resemble "optimizing" algorithms. The b e n e f i t of such simulation models i s that they are free of the l i m i t a t i o n s of l i n e a r i t y , d i v i s i b i l i t y and s i n g u l a r i t y of goals. As simulation does not employ optimizing techniques, the s o l u t i o n may be neither optimal nor e r r o r - f r e e . Lee (1971), however, makes a strong case that the optimum i n l i n e a r programming may be i l l u s i o n a r y , due to what he c a l l s "predecisions" or errors i n structure. Hence, while the s o l u t i o n i s e r r o r - f r e e , the model i s not. However, t h i s c r i t i c i s m may not be applicable only to LP, but to modelling i n general. There does not appear to be any reason why simulation cannot s u f f e r from predecision. Lins (1969) points out that "the simultaneous s o l u t i o n of the LP matrix i s , i n essence, an assumption of p e r f e c t knowledge; f o r one time period i n recursive l i n e a r programming and f o r a l l time periods i n m u l t i -period programming". The i m p l i c a t i o n here i s that the longer the time 13 horizon of the dynamic model, the l e s s r e a l i s t i c , or optimal, are the r e s u l t s . La Due (1971, p. 42) further i n d i c a t e s that recursive l i n e a r programming may be sub-optimal as "short-run optimization may lock out optimum long-run a l t e r n a t i v e s " . La Due also f e e l s that simulation can better handle multiple goals. He argues that LP can only handle m u l t i -goals through the use of r e s t r i c t i o n s and then only when a common measure-ment f o r the goals e x i s t s . Simulation can handle c o n d i t i o n a l r e l a t i o n s h i p s as well as q u a l i -t a t i v e v a r i a b l e s . La Due points out that an "advantage of simulation i s that i t t e l l s how to get there from here" (1971, p. 43). By comparison, optimizing techniques merely present the f i n a l plan of resource u t i l i z a -t i o n without the steps required to implement that plan. Chien and Bradford (1976), i n incorporating the behavioural theory of the fir m with the t r a d i t i o n a l theory, have u t i l i z e d a combination of multi-period l i n e a r programming and computer simulation techniques to approach the farm growth process. Simulation methods c l e a r l y provide u s e f u l tools i n analyzing whole systems. Their a b i l i t y to make synthetic decisions at each fork i n the road, t h e i r c a p a b i l i t y to learn from previous consequences, and the ease with which p r o b a b i l i t y d i s t r i b u t i o n s may be incorporated, p o t e n t i a l l y permit close approximations of the r e a l world. They tend to require l e s s computer capacity than comparable optimizing algorithms. However, the burden on programmer resources i s higher f o r simulation. S t r u c t u r a l errors are possib l e , although the designer of a simulation program may be more aware of such problems than the user of a canned program. 14 J u s t as l i n e a r programming has i t s l i m i t a t i o n s , t h o s e o f s i m u l a t i o n a r e a l s o n o t h a r d t o f i n d . D i l l o n (1971) s t a t e s t h e t h r e e l a w s o f s i m u l a t i o n : 1. S i m u l a t i o n , l i k e s t a t i s t i c s , c a n n o t p r o v e a n y t h i n g . 2. S i m u l a t i o n , l i k e s t a t i s t i c s , can p r o v e n e a r l y a n y t h i n g . 3. Once s t a r t e d , s i m u l a t i o n o f a system w i l l c o n t i n u e u n t i l a v a i l a b l e f u n d s a r e e x h a u s t e d . C r i t i c i s m o f l i n e a r programming and i t s v a r i a t i o n s s e r v e as w a r n i n g s n o t t o t a k e t h e p r o c e d u r e s beyond t h e bound o f t h e i r c a p a b i l i t i e s . The o p t i m i z a t i o n f e a t u r e o f l i n e a r programming, p l u s t h e a v a i l a b i l i t y o f canned programs, make t h i s a h i g h l y u s e f u l management t o o l i n a p p r o p r i a t e a p p l i c a t i o n s . Theory and " r e s e a r c h models" abound. What i s s t i l l l a c k i n g i s an e f f e c t i v e l i b r a r y o f a p p l i c a b l e e x t e n s i o n a i d s . 1.1.5 Review o f A pproaches t o t h e I n t e g r a t i o n o f R e c o r d and Farm P l a n n i n g Systems . B l a c k i e and Dent (1973) b e l i e v e t h a t f a r m e r s f r e q u e n t l y f a i l t o r e a l i z e t h e c o n n e c t i o n between a r e c o r d i n g a c t i v i t y and p l a n n i n g . I n a d d i t i o n , t h e y c l a i m t h a t most c o m p u t e r i z e d r e c o r d k e e p i n g systems s i m p l y become e x t e n s i o n s o f manual systems because t h e y f a i l t o i n c o r p o r a t e t h e t e c h n i q u e o f budget c o n t r o l . T h e i r p r o p o s e d scheme emphasized dynamic c o n t r o l , i n t h a t b u d g e t s a r e compared a t r e g u l a r i n t e r v a l s , d e v i a t i o n s a r e n o t e d and r e v i s e d b u d g e t s e s t a b l i s h e d . Menz and L o n g w o r t h (1976A, p. 204) e x p r e s s s i m i l a r s e n t i m e n t s ; " R e c o r d - k e e p i n g needs t o be seen as an a i d t o f u t u r e f o r w a r d p l a n n i n g and c u r r e n t t a c t i c a l d e c i s i o n making". T h e i r argument f o l l o w s f r o m Huffman's (1974, p. 85) s t a t e m e n t t h a t " ' a l l o c a t i v e a b i l i t y 1 . . . h i g h l i g h t s t h e c o n s t a n t need t o a d j u s t r e s o u r c e s i n t h e l i g h t o f c h a n g i n g c i r c u m s t a n c e s . " - T i n s l e y (1972) a l s o o u t l i n e s t h e need f o r a p l a n n i n g and c o n t r o l mechanism, u s i n g h i s t o r i c a l r e c o r d s as a s t a r t i n g p o i n t . He p o i n t s o u t t h a t " w i t h o u t c o m p a r a t i v e p r o j e c t i o n s , t h e manager i s l i k e l y t r a v e l l i n g w i t h o u t a map". Manager i n v o l v e m e n t , a c c o r d i n g t o T i n s l e y , c a n c o n t r i b u t e s i g n i f i c a n t l y t o t h e s u c c e s s o f f o r w a r d p l a n n i n g . Mauldon (1973) p r o p o s e s a p l a n n i n g and c o n t r o l model, n o t i n g a d e c r e a s e i n " t o t a l i n f o r m a t i o n i n a c c u r a c y " as e x p e r i e n c e w i t h t h e c o n t r o l system i n c r e a s e s . Connor and V i n c e n t (1970) a p p r o a c h t h e p r o b l e m from a somewhat d i f -f e r e n t p e r s p e c t i v e . The management f u n c t i o n , t h e y c l a i m , makes use o f f o u r c a t e g o r i e s o f i n f o r m a t i o n : 1) d e s c r i p t i v e , o f t h e "what i s " c o n d i t i o n ; 2) d i a g n o s t i c , o r p r o b l e m i d e n t i f i c a t i o n a r e a ; 3) p r e d i c t i v e , o r "what i f . . . ? " ; and, 4) p r e s c r i p t i v e i n f o r m a t i o n , aimed a t t h e "what s h o u l d be done" q u e s t i o n . Thus, t h e y s t r e s s " t h e p r a g m a t i c v a l u e o f r e l a t i n g i n f o r m a t i o n t o management f u n c t i o n s " . Lee (1971) and K l e i n and Lee (1974) u t i l i z e s i m u l a t i o n models t o d e p i c t an " a d a p t i v e p r o c e s s " c o n s t i t u t i n g ". . . a c y c l e o f r e c e i v i n g i n f o r m a t i o n , making d e c i s i o n s on t h e b a s i s o f t h i s i n f o r m a t i o n , g a i n i n g e x p e r i e n c e , and t h e r e b y , o b t a i n i n g new i n f o r m a t i o n f o r t h e f o l l o w i n g p e r i o d " ( K l e i n and Lee, 1974, p. 1 5 ) . The knowledge i s g a i n e d , and t h e d e c i s i o n s a r e p e r f o r m e d by t h e model. H i s t o r i c a l i n f o r m a t i o n , presumably;' i n p a r t d e r i v e d f r o m f a r m r e c o r d s , f o r m an e s s e n t i a l i n p u t t o t h e model. Debouche e t a l . (1974) r e c o u n t e x p e r i e n c e i n B e l g i u m w i t h a p i l o t s t u d y t o i n c o r p o r a t e a r e c o r d k e e p i n g system w i t h a l i n e a r programming 16 planning process. They conclude that i n t e g r a t i o n would provide more r e a l -i s t i c c o e f f i c i e n t s f o r the planning model. They perceive two p o s s i b l e methods. The f i r s t i s a completely automated system, providing a s o l u t i o n i n one run. The second proposes p a r t i a l i n t e g r a t i o n , n e c e s s i t a t i n g manual intervention but allowing f o r corrections to be made. Ei t h e r method, they believe, w i l l provide extension s t a f f with a new dimension i n management and analysis techniques. Ginzel (1973) has developed a p r o j e c t i o n mechanism, based on the Purdue Farm Records System. This p r o j e c t was conceived to remedy a de f i c i e n c y r e s u l t i n g from the perceived lack of use of record systems i n developing information f o r forward planning. The problem approached, was to ". . . provide a mechanism for aiding managers develop and evaluate action plans and (to) make i t possible to use the farm records p r o j e c t reports as a feed back con t r o l mechanism" (Ginzel, 1973, p. 4). Information needs for planning form part of Marceau's (1970) case f o r the d e s i r a b i l i t y of i n t e r f a c i n g a record system with both accounting and forward planning systems. S i m i l a r sentiments were expressed by other p a r t i c i p a n t s at the U n i v e r s i t y of I l l i n o i s seminar s e r i e s , Computer-Assisted Planning Systems f o r Individual Farms. Tongate (1970, p. 39) states that: The information generated by (the farmer's) record system must e f f e c t i v e l y describe the r e s u l t s of past decisions, provide a basis for evaluating those decisions, and allow for estimating the r e s u l t s to be expected from a l t e r n a t i v e courses of action i n the future. Mueller (1970) provides a l i s t of functions of farm accounting systems which includes the "basis f o r forward planning and budgeting" and " a p p l i c a -tions of record data i n planning". He points out that the planning process 17 must meet f e l t needs of producers and that the planning service requires i n t e g r a t i o n with the c o l l e c t i o n and processing of data. Smith (1970) uses the appropriate analogy of obtaining a s o i l a n a lysis and f a i l i n g to use the r e s u l t s to plan the f e r t i l i t y program as being as worthless as keeping farm records and not using the information f o r planning. Eisgruber (1973) and Lee and Nicholson (1973) have c a l l e d f o r the development of comprehensive information systems i n the United States and i n Canada. There seems to be no lack of impetus to t h i s end, only a shortage of solutions. Eisgruber (1971) has i n d i c a t e d that "the bigger contribution w i l l come with the i n t e g r a t i o n of e x i s t i n g models and not with the creation of new ones". To summarize t h i s section, the problem that t h i s t h e s i s i s concerned with i s the f a c t that the adoption of management tools i n a g r i c u l t u r e seems to lag behind the rate of adoption of production technology. One possible explanation f o r t h i s i s that the management tools a v a i l a b l e to the farm manager do not meet h i s f e l t needs. Recordkeeping seems to be seen by the farm manager as an end i n i t s e l f . This may i n part be due to the imposition on the farm of the requirement of records f o r taxation and other government regulations. I t may also be due to the apparent lack of i n t e g r a t i o n of records i n t o the planning process. S i m i l a r l y , planning tools that do e x i s t tend to be used i n i s o l a t i o n , rather than as an i n t e g r a l p art of a Managerial Information and Decision System. This may r e s u l t i n informational input to the planning process being incomplete, or i t may r e s u l t i n the s o l u t i o n to the plan providing only part of the p i c t u r e , or, farm managers may not use the planning t o o l . I t i s hypothesized, then, that the i n t e g r a t i o n and standardization of farm records and projected farm planning statements w i l l r e s u l t i n the improved acceptance of both, by farm managers and extension s t a f f . The remainder of t h i s thesis i s concerned with the development of a framework to integrate a farm planning model with a v i a b l e f i n a n c i a l record system In order to achieve a Managerial Information and Decision System that farm managers can, and w i l l , accept. The formal statement of t h i s objective follows. 19 1.2 STATEMENT OF OBJECTIVES Farm planning models are being developed within the Canfarm frame-work which produce projected farm statements that are not comparable i n format to the Canfarm Farm Record System reports. The confusion r e s u l t i n g from the non-standardized statements adversely a f f e c t s the educational process at the farm manager l e v e l and at the extension s t a f f l e v e l . This confusion leads to a reluctance on the part of farmers to use farm planning models i n general and pos s i b l y to a reluctance to use the Canfarm Farm Record System and Farm Planning Packages s p e c i f i c a l l y . As Canfarm i s a nation-wide program, the scope of t h i s problem concerns each a g r i c u l t u r a l region of Canada, as well as a l l types of a g r i c u l t u r a l production. The c e n t r a l theme of the study i s to integrate selected statements from the Canfarm Farm Record System i n t o a farm planning model, to achieve a standard basis f o r p r o j e c t i n g these selected f i n a n c i a l reports i n a format comparable to h i s t o r i c a l reports. Ths s p e c i f i c goals leading to the achievement of t h i s c e n t r a l theme are: 1. I d e n t i f y the Canfarm Farm Record System, the statements that are generated from the Record System and the accounting items which make up these statements. 2. Construct, document and v a l i d a t e a l i n e a r programming farm model which incorporates the information contained i n the Canfarm Farm Record System and generates output i n sta t e -ments that are consistent (identical) with the Record System statements. 3. Develop recommendations f o r standardization of projected f i n a n c i a l reports that e x i s t i n g models could adopt, and which could be incorporated i n t o future models. 20 1.3 ORGANIZATION OF THE STUDY The objective of t h i s chapter has been to provide a general over-view of the study by providing some background to the problem by o u t l i n i n g the concepts, methods and i n s t i t u t i o n s involved and by st a t i n g the object-ives. Chapter Two provides a review of the theories of the firm as they r e l a t e to the problem, together with the conceptual framework of the model being developed. Chapter Three consists of an i d e n t i f i c a t i o n of the Canfarm Farm Record System, the i n t e r r e l a t i o n s h i p of the various reports providing sup-po r t i v e d e t a i l to the Balance Sheet, plus the format of the reports to be generated by the planning model. The empirical model i s outlined i n Chapter Four, and the r e s u l t s of the ap p l i c a t i o n s of the model are presented i n Chapter Fi v e . In Chapter Six, the perspective of the model with respect to i m p l i -cations f o r wider a p p l i c a t i o n i s discussed. In addition, Chapter Six contains the proposed standardization base. Chapter Seven includes the summary and conclusions of the study, together with the l i m i t a t i o n s of the model and an i n d i c a t i o n of further research needs. 21 CHAPTER TWO ANALYTICAL FRAMEWORK As stated i n Chapter One, the objective of t h i s thesis i s to integrate a v i a b l e farm planning model with an e x i s t i n g computerized record system, i n order to provide the farm manager with a more complete planning process. In t h i s chapter, the relevant t h e o r e t i c a l background i s reviewed. Section 2.1 summarizes the t r a d i t i o n a l theories of the fir m with respect to production planning and p r o f i t maximization. In addition, some of the l i m i t a t i o n s of t h i s theory are pointed out as they a f f e c t the conceptual framework of a Managerial Information and Decision System. Section 2.2 contains a b r i e f discussion of the conceptual framework of the t h e o r e t i c a l model as a Managerial Information and Decision System, p o t e n t i a l l y able to u t i l i z e various planning methods and incorporating double entry accounting theory. 22 2.1 THE THEORIES OF THE FIRM In t r a d i t i o n a l theory, the firm i s viewed as having the si n g l e goal of maximizing i t s p r o f i t s . Operating i n a p e r f e c t l y competitive market, the firm i s assumed to be a p r i c e taker, producing a homogeneous product, having mobile resources and blessed with p e r f e c t knowledge. P r o f i t i s maximized by producing to the point where marginal cost i s j u s t equal to marginal revenue. The Lagrangean m u l t i p l i e r method and l i n e a r programming provide t o o l s to determine the optimal mix of factors and product(s), given c e r t a i n t y of p r i c e s and knowledge of the firm's production function. Hicks (1946, p. 194) points out that "the dynamic problem i s the s e l e c t i o n of a c e r t a i n production plan from among the a l t e r n a t i v e s that are open". The goal being the maximization of a stream of future p r o f i t s or, net present value of future p r o f i t s . The added realism of Hicks' c o n t r i b u t i o n s t i l l leaves the c o n t r o v e r s i a l assumptions of p r o f i t maximization and p e r f e c t knowledge to be resolved. Cyert and March (1964) question the premise that p r o f i t maximization i s the only objective of the f i r m . The behavioural theory of the f i r m substitutes Simon's concept of " s a t i s f i c i n g " f o r optimizing (March and Simon, 1963). The f i r m i s viewed as choosing from alternate production plans, using the c r i t e r i a of some minimum acceptable performance. Cyert and March (1964, p. 10) suggest that the firm has "a u t i l i t y f unction with e s s e n t i a l l y only two values - good enough and not good enough". 23 The t r a d i t i o n a l theory also lacks realism i n the assumption of p e r f e c t knowledge. Information ( l i k e any other input) must be sought at a cost (March and Simon, 1963). Moreover, Cyert and March (1964, p. 10) argue that "introducing expected value c a l c u l a t i o n s i n the case of r i s k solves only some of the problems". A fur t h e r c r i t i c i s m l e v e l l e d at the t r a d i t i o n a l theory i s that i t explains market behaviour, rather than the firm's behaviour (Eisgruber'. and Lee, 1971). However, orthodox theory has been defended on the grounds that i t is_ intended as a theory of markets; to explain, at a general l e v e l , how the p r i c e system a l l o c a t e s resources. I t was not developed to s p e c i f i c a l l y explain f i r m behaviour, " . . . e s p e c i a l l y with regard to the i n t e r n a l a l l o c a t i o n of resources and the process of s e t t i n g p r i c e s and outputs" (Cyert and March, 1964, p. 15). Eisgruber and Lee (1971) believe that the t r a d i t i o n a l and behavioural theory of the firm can be r e c o n c i l e d . They view the approaches as being l i k e two sides of one coin. Which approach to apply i n a p a r t i c u l a r s i t u a -t i o n depends on the objectives of that a p p l i c a t i o n . They recommend the following substitutes f o r some of the l i m i t i n g concepts: (i). E x p l i c i t emphasis on i n t r a f i r m r e l a t i o n s h i p and the firm's organizational structure; ( i i ) M u l t i p l e goal function; ( i i i ) S a t i s f i c i n g rather than maximizing; and, (iv) The search f o r information. The structure of the f i r m may well have a bearing on the objectives of that firm. The owner/operator producer may view h i s goals quite d i f f e r e n t l y to the h i r e d manager of a corporate farm, even though they may farm s i m i l a r acreages and face common dec i s i o n a l t e r n a t i v e s . 24 The presence of multiple goals i n the farm f i r m appears probable. Patrick and Eisgruber (1968) c i t e four c l a s s i f i c a t i o n s of farm family goals. These are: (i) l i v i n g standard, or the desire for current income to provide a s a t i s f a c t o r y l e v e l of consumption; ( i i ) farm ownership, or the desire to own land and accumulate net worth; ( i i i ) l e i s u r e - c h i l d r e n , or the desire f o r l e i s u r e time and family; and (iv) c r e d i t using - r i s k taking, or the willingness to s a c r i f i c e s e c u r i t y or accept r i s k , i n order to obtain other goals. This c e r t a i n l y does not i l l u s t r a t e a c l e a r - c u t si n g l e objective of p r o f i t maximization. However, t h i s s i t u a t i o n might be reformulated as a constrained optimization problem to maximize p r o f i t s subject of acceptable l e v e l s of free-time, l e v e l of r i s k , etcetera. The goals of the farm f i r m may change over time. The young farmer may be aggressively pursuing expanded net worth, the middle-aged farmer may be a f t e r Higher family l i v i n g income and the older farmer may want to l i m i t a c t i v i t i e s to those enjoyed most, provided a s a t i s f a c t o r y l e v e l of income i s maintained. As p e r f e c t knowledge has proven u n r e a l i s t i c , i t s substitute, the search for information, i s required. Since returns to information are d i f f i c u l t , i f not impossible, to measure, i t w i l l not be easy to recognize "the point where the marginal cost of search equals the marginal expected returns from i t " (Cyert and March, 1964, p. 10). Consequently, the firm's planning process needs to be re-examined. Hicks (1964, p. 193) states that "the d e c i s i o n which confronts any p a r t i c -u l a r entrepreneur . . . may be regarded as the establishment of a production plan". In the dynamic sense, t h i s implies the s o l u t i o n of the maximization problem over the e n t i r e horizon at one time. Modigliani and Cohen (1961, p. 19) modify t h i s theory with the concept of the d e c i s i o n facing the entrepreneur being "the s e l e c t i o n of the 'best' f i r s t move". Such a d e c i s i o n takes i n t o account long-range strategy, plus the action required i n the immediate period, recognizing that the longer the time horizon, the l e s s c e r t a i n the outcome and the more c o s t l y the search. Drucker (1959, pp. 238-240) o u t l i n e s three common misconceptions regarding long range planning. F i r s t , he claims, planning i s not f o r e -casting, but, i n f a c t , i t " i s necessary p r e c i s e l y because we cannot f o r e -cast". Secondly, i t does not deal with future decisions but rather "with the f u t u r i t y of d e c i s i o n s " or "what we have to do today to be ready f o r an uncertain tomorrow". Th i r d l y , he states, "long-range planning i s not an attempt to eliminate r i s k " . F i n a l l y , Drucker's d e f i n i t i o n of long-range planning establishes the c e n t r a l premise of t h i s t h e s i s . He states: I t i s the continuous process of making present entrepreneurial (risk taking) decisions systematically and with the best possible knowledge of t h e i r f u t u r i t y , organizing systematically the efforts needed to carry out these decisions, and measuring the r e s u l t s of these decisions against the expectations through organized, syste-matic feed-back. From the t r a d i t i o n a l theory of the firm, there has evolved a more complete but also more complex p i c t u r e of the u n i t of production. In a l l p r o b a b i l i t y , t h i s f i r m has several goals to s a t i s f y . Rather than being a p r o f i t maximizer, looking f o r the sharpest needle i n the haystack, the fi r m i s searching f o r one "sharp enough to sew with" (March and Simon, 1963, p. 141).. Faced with a highly uncertain future, a systematic adaptive or h e u r i s t i c planning process i s required. 26 What the manager of t h i s firm needs, then, are planning tools which help to "make mistakes as f a s t as po s s i b l e " (Wheeler, 1956, p. 360). The model developed i n t h i s t h e s i s i s an attempt at e s t a b l i s h i n g a planning t o o l that w i l l enable the farm manager to make these mistakes, not only as f a s t as po s s i b l e , but without being subjected to the r i s k s and delays of a c t u a l l y t r y i n g out alternate production plans on the farm. As outlined i n t h i s section, the i n d i v i d u a l farm firm probably does not f i t the mould of the fir m described i n the t r a d i t i o n a l theory of the firm even though t h i s theory may describe how firms behave c o l l e c t i v e l y . The behavioural theory of the fir m presents the concept of s a t i s f i c i n g as opposed to maximizing behaviour. Out of the r e c o n c i l i a t i o n between the two theories comes the recognition that a management strategy i s needed to account f o r such f a c t o r s as multiple goals, the need f o r information and the absence of accurate forecasts. This strategy, i t i s proposed, i s to gain s u f f i c i e n t information on a l l relevant f a c t o r s i n order to make the "best f i r s t move". Once that move i s made, the manager requires feedback, as the success or f a i l u r e of that move i s part of the input to the dec i s i o n for the next move. The conceptual framework of a model intended to a s s i s t i n t h i s planning process i s presented i n the next section. 27 2.2 THE CONCEPTUAL FRAMEWORK The d e t a i l e d formulation of the model developed i n t h i s t h e s i s i s contained i n Chapter Four. The e s s e n t i a l components and the t h e o r e t i c a l base w i l l be o u t l i n e d i n t h i s section. In Chapter One, the need f o r f i n a n c i a l management and planning f o r i n d i v i d u a l farms was discussed. Section 1.4 presented some of the research models which have attempted to provide solutions to management decision requirements. Section 2.1 of t h i s chapter o u t l i n e d how the behavioural theory of the f i r m modifies the t r a d i t i o n a l theory, p a r t i c u -l a r l y with regard to goals, maximizing behaviour and p e r f e c t knowledge. Keeping i n mind the 'gap' between research and extension models, as pointed out by Candler et a l . (.1970) , the aim of t h i s t hesis i s to provide some d i r e c t i o n f o r planning models that the farm manager and h i s extension advisor can and w i l l use. Thus the need f o r s i m p l i c i t y seems paramount. Consequently, i t i s f e l t that the problem needs to be broken i n t o stages. A f u l l - f l e d g e d h e u r i s t i c simulation model may eventually be required, but f o r a s t a r t , the manager may be best able to act at the d e c i s i o n points given accurate and pertinent information. Figure 2.1 i l l u s t r a t e s the cycle of events that c o n s t i t u t e the Managerial Information and Decision System upon which the t h e o r e t i c a l model i s based. This cycle s t a r t s at a p o i n t f a m i l i a r to the farm manager, hi s record system. Next, the manager inputs the modifications required to develop the future plan. A projected plan i s then formulated, using the s o l u t i o n procedure, from which f a m i l i a r f i n a n c i a l statements f o r the next year are presented to the decision maker on a comparative b a s i s . 28 Comparison Planned vs Actual s 6 H i s t o r i a l Records Year t+n 2 Modifications to Previous Production Plan V f 3 Projection Mechanism 5 4 Subjective Evaluation s Projected F i n a n c i a l Statements Year t+n Figure 2.1 Stages of the Managerial Information and Decision System \ At t h i s time, the d e c i s i o n maker may accept or r e j e c t the plan based upon h i s q u a l i t a t i v e or subjective requirements. For example, the projected plan may be too r i s k y , r e q u i r i n g the manager to constrain the a c t i v i t i e s at a l e v e l which i s deemed s u f f i c i e n t l y c e r t a i n . Modifications to the plan zero-in on a s o l u t i o n s a t i s f a c t o r y to the manager. The next stage i s the c o n t r o l l i n k . As the plan i s implemented, subsequent reports from the record system show the planned versus a c t u a l . The r e s u l t intended i s improved d e c i s i o n making on each subsequent round of planning. The p r o j e c t i o n mechanism (stage 3 of Figure 2.1) may u t i l i z e any one of the planning systems described i n Chapter One. To review, the methods discussed were: 1. Linear programming, including integer, mixed integer and multiple goal programming. 2. Quadratic programming. 3. Multiperiod, i n c l u d i n g dynamic programming and recursive programming. 4. Simulation methods ranging from simple c a l c u l a t i o n s to complex learning and stochastic models. Thus the method of s o l u t i o n within the Managerial Information and Decision System framework may be seen as interchangeable. Figure 2.2 i l l u s t r a t e s the flow of events taking place i n t h i s conceptual model. The data input c o n s i s t s of the accounting data, the production c o e f f i c i e n t s and r e l a t i o n s h i p s , c o n s t r a i n t l e v e l s and expected future p r i c e s , plus any other f a c t o r s which may be included i n the p a r t i c u l a r planning method u t i l i z e d . The s o l u t i o n method co n s i s t s of the INPUT CONTROL j SOLUT] METHOE CON i ) | -i \ OUTPUT FIELD ACCEPTANCE Figure 2.2 Flow Diagram of the Conceptual Model algorithm chosen from the group l i s t e d above and incorporates the f i n a n c i a l accounting theory upon which the Canfarm Farm Record System i s based. This accounting theory w i l l be discussed below and fur t h e r amplified i n the i d e n t i f i c a t i o n of the itecord System i n Chapter Three. The output comprises the f i n a n c i a l statements, consistent with the Record System reports, consistent between s o l u t i o n methods, and i d e a l l y , i n a format that can be consistent with models yet to be developed. The output i s also designed to provide the c o n t r o l l i n k of comparison between planned r e s u l t s versus actual r e s u l t s . F i n a l l y , the system w i l l need to be f i e l d tested. I t i s the purpose of t h i s study to develop the model but does not include the f i e l d t e s t stage as that w i l l involve an e n t i r e study of i t s own. For the purposes of t h i s t h e s i s , the s o l u t i o n procedure u t i l i z e s l i n e a r programming due to: 1. Ease of conceptual a p p l i c a t i o n 2. Readily a v a i l a b l e algorithms 3. Maximizing feature The predecision, or error i n structure, i s hopefully minimized through adequate v a l i d a t i o n . Maximization may be contradictory to the e n t i r e planning process, however when used as a component of the complete process and not as a substitute for i t , the effectiveness of knowing the optimum combination of resources i s not l o s t . The l i n e a r programming problem may be represented as i n Equation 2.1 2.1 Maximize C'x subject to Ax ~ b and x — 0 where C i s a 1 x n vector of p r i c e s x i s a n x 1 vector of a c t i v i t i e s b i s a m x 1 vector of resource constraints and A i s a m x n matrix The objective function C'x represents gross margin, or simply revenue l e s s expenses. The recommendations f o r further study i n Chapter Six indi c a t e the a p p l i c a t i o n of alternate objective functions to the problem. The elements of the vector x are the a c t i v i t i e s of the l i n e a r programming problem. The matrix A may be further subdivided as shown i n Figure 2.3 Figure 2.3 Sub-division of the Model Matrix where A^ i s the production matrix, A^ i s the f i n a n c i a l matrix, and shows the i n t e r r e l a t i o n s h i p between A^ and A^. In terms of accounting theory, as the Record System i s a double entry system, the approach of I j i r i (1965) has been used as a s t a r t i n g point f o r the model. I j i r i has developed a planning process u t i l i z i n g the double entry bookkeeping system and l i n e a r programming to formulate goal analyses. A multiple goal and multiple period approach was also formulated. The model herein developed combines the double entry record system with l i n e a r programming. I j i r i ' s d e b i t / c r e d i t system i s modified by a s e r i e s of accounting rows which trans f e r the l e v e l of a c t i v i t i e s i n a s o l u t i o n to the appropriate accounts. Double entry i n t e g r i t y i s maintained by a s e r i e s of c o n t r o l rows. Mul t i p l e goals are not s p e c i f i c a l l y incorporated. They e a s i l y could be included i n the manner proposed by 33 I j i r i , through a s e r i e s of constraints, provided measurement i n common and d i v i s i b l e u n i t s i s p o s s i b l e . The model contains t h i r t e e n accounting periods and, as such, may be considered multiple period, although the applications c i t e d i n Chapter Five are based on a f i s c a l year with r e p o r t -ing on a monthly b a s i s . To summarize, the theory of the f i r m has been presented as being somewhat more complex than i s indicated by the t r a d i t i o n a l theory of the firm. The firm i n such an environment requires a more sop h i s t i c a t e d planning mechanism i n order to achieve the best p o s s i b l e e f f i c i e n c y . Con-sequently, a conceptual framework for a Managerial Information and Decision System has been o u t l i n e d based on a modified behavioural theory of the firm. In the next chapter, the s p e c i f i c s of the Canfarm Farm Record System are d e t a i l e d and Chapters Four and Five present the empirical model that i s based on t h i s framework. 34 CHAPTER THREE 1 THE CANFARM FARM RECORD SYSTEM 3.1 INTRODUCTION In Chapter One, the r o l e and organization of Canfarm was described. This chapter w i l l attempt to portray the relevant aspects of the t h i r d version of the Canfarm Record System required i n the development of the model discussed i n Chapter Four. A comprehensive user's manual i s a v a i l a b l e from Canfarm Service Agency which describes, i n some d e t a i l , the procedures followed i n using the Record System. The goal of t h i s chapter i s to complement the user's manual by i d e n t i f y i n g the accounting r e l a t i o n s h i p s that c o n s t i t u t e the system. The Canfarm Farm Record System went in t o production i n January 1976, a f t e r one year of f i e l d t e s t i n g . Although i t i s based on the double entry system, users need not be f a m i l i a r with accounting and l i t t l e , i f any, accounting terminology i s used. The system operates on a twelve month f i s c a l year b a s i s , the s t a r t of which i s determined by the user at the time of r e g i s t r a t i o n . A l l reports are o p t i o n a l . The l e v e l of complexity i s at the d i s c r e t i o n of the farmer and h i s advisor and may be increased or decreased from year to year. Data input, by d a i l y j o u r n a l , i s mailed to Canfarm Service Agency. Output reports are returned by m a i l . A more d e t a i l e d overview of t h i s aspect of the system i s provided by Bauer (1977). 1. As mentioned e a r l i e r , t h i s i s the t h i r d version developed by Canfarm. 35 The f i r s t step i s the r e g i s t r a t i o n of the farm. A s e r i e s of forms are f i l l e d i n by the farmer, with the assistance of the contact agent, which i d e n t i f y the farm, i t s geographic l o c a t i o n and e s t a b l i s h the continuum of l e v e l s (from s t r a i g h t f i n a n c i a l accounting to so p h i s t i c a t e d enterprise and l o t analysis with cost and overhead accounts), records of physic a l q u a n t i t i e s and maintenance of inventory balances. Figure 3.1 i l l u s t r a t e s these continuum l e v e l s within the Canfarm Farm Record System. The next step i s the establishment of beginning balances. These include payable and receivable accounts, both long and short term; opening bank balances; opening inventories; the f i x e d assets of the farm on hand at the beginning of the f i s c a l year, t h e i r year of purchase, and the method and rate of depreciation. Following t h i s , the farmer requests the reports ( f i n a n c i a l s t a t e -ments) required and the frequency with which they are to be generated. A discussion of the i n d i v i d u a l reports follows l a t e r i n the chapter. Once r e g i s t r a t i o n , beginning balances and the request f o r reports have been submitted, the farmer receives a transaction l i s t i n g , which enables correc-tions to be made, together with a set of statements, i n c l u d i n g the opening Statement of Assets, L i a b i l i t i e s and Owners Equity or, the beginning Balance Sheet. From t h i s point, the farmer may begin submitting the d a i l y a c t i v i t y input, generally on a monthly basis. Any necessary c o r r e c t i o n s are made on the transaction l i s t i n g s and then f i n a n c i a l reports are issued at the requested i n t e r v a l s . In order to generate the Statement of Assets, L i a b i l i t i e s and Owners Equity, the Farm Income Statement and the Statement 36 BASIC ACCOUNTING SYSTEM Figure 3.1 Continuum Levels Within Canfarm Source: Britney (1973) of Change i n F i n a n c i a l P o s i t i o n , ending inventories f o r the period must be submitted. Figure 3.2 i l l u s t r a t e s the sequence of events that take place from time of r e g i s t r a t i o n to the generation of the c l o s i n g Balance Sheet. The opening Balance Sheet i s the r e s u l t of the flow from r e g i s t r a t i o n to the input of beginning balances. The d a i l y journal input leads to the transaction l i s t i n g , which r e s u l t s i n the output of the various d e t a i l e d reports. These d e t a i l e d reports, i n conjunction with the information contained i n the opening Balance Sheet and the c l o s i n g Inventory Report, enable the system to produce the Summary C r e d i t Account Report, the Farm Income Statement and the Statement of Assets, L i a b i l i t i e s and Owners Equity. Enterprise analysis reports are derived from the i n d i v i d u a l records within the transaction l i s t i n g s . These, i n turn, become a subset of the Operating Statement, Income Statement and Balance Sheet. The d e t a i l e d reports also provide the basis f o r tax statements and the Cash Flow Statement. Registration J o u r n a l Input T r a n s a c t i o n L i s t i n g E n t e r p r i s e A n a l y s i s Reports Schedule of F i x e d A s s e t s Statement of Owners C o n t r i b u t i o n s and Withdrawals C r e d i t Account Report Currency Report Bank Account Report Farm Inventory Report Farm Operating Statement Beginning Balances Input •7> Summary C r e d i t Account Report Farm Income Statement Tax Statements Funds Flow A n a l y s i s Statements Statement of A s s e t s , L i a b i l i t i e s , Owners E q u i t y F i g u r e 3.2 Schematic Diagram o f Canfarm Reports Source: Bauer (1977) 39 3.2 STATEMENT OF ASSETS, LIABILITIES AND OWNERS EQUITY The i n t e r r e l a t i o n s h i p of the f i n a n c i a l reports i s shown i n Figure 3.3. At the heart of t h i s diagram i s the Statement of Assets, L i a b i l i t i e s and Owners Equity (Balance Sheet) which i s derived from the basic balance sheet equation: ASSETS = LIABILITIES + OWNERS EQUITY The assets at the end of the accounting period equal the assets a t the beginning of the period plus or minus any changes during the period when the changes during the period are defined as:"'" 3.1 CHANGE IN ASSETS = [(£ .PAI. - £ .PAD.) - ( 2 .NAI . - X.NAD.)] 3 3 3 3 3 3 3 3 ( p o s i t i v e ( p o s i t i v e (negative (negative asset asset asset asset increase), decrease} increase) decrease) 3.2 CHANGE IN LIABILITIES Z .PLD.) 3 3 ( p o s i t i v e ( p o s i t i v e l i a b i l i t i y l i a b i l i t y increase) decrease) C ^ N L I . -(negative l i a b i l i t y increase) Z ' j N L i y ] (negative l i a b i l i t y decrease) and: 3.3 CHANGE IN OWNERS EQUITY [{(2 jPOEI. - E -POED.) : 3 - (2 -NOEI. 3 3 - 27 .NOED .)' 3 3 • ( p o s i t i v e ( p o s i t i v e (negative (negative owners owners owners owners equity equity equity equity increase). decrease) increase) decrease) [LZ j P S l j - 2 .PSD.) -3 3 - CZjNSIj - £ .NSD.) 3 3 ( p o s i t i v e ( p o s i t i v e (negative (negative sale sale sale sale increase) decrease) increase) decrease) ( Z -PEI • -3 j ZjPEDj) + ( E j N E I j - 2 jNED.)]] (po s i t i v e ( p o s i t i v e (negative (negative expense expense expense expense increase) decrease) increase) decrease) 1. Adapted from: Canfarm, unpublished Version I I I Business S p e c i f i c a t i o n s . BANK ACCOUNT RErORT Bank balance 3,291 INVENTORY REPORT Total crops 32,840 - — , lotal livestock 20,375 - " " " ^ TRANSACTION LISTINGS SCHEDULE OF FIXED ASSETS Undepreciated balance 96,865-Total CCA for year 9,324 BALANCE SHEET Bank 3,291 Total crops 32,840 , Total livestock 20,375 Total undepreciated capital cost 96,865 Total assets 158,604 Total l iabi l i t ies Owners equity (Jan. 1) (Jan.) contributions withdrawals net farm income Owners equity (Dec. 31) Total Liabilit ies & Owners Equity INCOME STATEMENT Income 37 ,230 Expense 24 466 Excess of income over expense 12 764 k Add inventory (Dec. 31) 53 584 Less inventory (Jan. 1) 40 290 > Less C C A . 9 324 Net farm income 16 734-CREDIT ACCOUNT REPORT Total l iabi l i t ies 81,381 STATEMENT OF OWNERS CONT. AND WITHDRAWALS — Contributions 5,164 Withdrawals 11,155 FARM OPERATING STATEMENT Excess of income over expenses 12,764 Figure 3.3 I n t e r r e l a t i o n s h i p of Fi n a n c i a l Reports 41 This section w i l l i d e n t i f y the linkages between the f i n a n c i a l statements, showing how the various reports t i e together to form the Statement of Assets, L i a b i l i t i e s and Owners Equity. The essence of the system i s i t s a b i l i t y to enable the farm manager or h i s accountant to trace the path from i n d i v i d u a l transaction through intermediate and summary statements to the f i n a l statement. S i m i l a r l y , the audit t r a i l can be followed from the Balance Sheet to the i n d i v i d u a l transactions. The various stages that the input data goes through to reach the Balance Sheet w i l l be shown, beginning with the current assets and going to f i x e d assets, current l i a b i l i t i e s , term l i a b i l i t i e s and f i n a l l y , owners equity. The basic format of the Balance Sheet i s quite conventional, as shown i n Figure 3.4. Table 3.1 shows the source statements f o r each item on the Balance Sheet. 3.2.1 Assets The d e t a i l of the current asset segment of the Balance Sheet i s derived from the Currency Report, the Bank Account Report, the C r e d i t Account Report and the Inventory Report. Farm Currency i s taken from the balance on the Currency Report, r e f e r r i n g to farm currency or petty cash only, as d i s t i n c t from personal currency. The term currency i s used rather than cash, to avoid confusion when a cheque i s written and i t i s r e f e r r e d to as paying cash as opposed to using c r e d i t . An example of the Farm Currency Report can be found i n Appendix A. BASIC FARM 11 STATEMENT OF ASSETS, LIABILITIES AND OWNERS EQUITY AS AT DEC 31, 1975 732446 2 PRODUCED ON 02/11/75 # * * ASSETS * * * CURRENT ASSETS FARM CURRENCY FARM BANK CURRENT RECEIVABLES INVENTORIES HAY BARLEY RAPE OATS STRAW TOTAL CROPS INVENTORY BEEF COW BEEF BREEDING HEIFER BEEF BULL BEEF CALVES TOTAL LIVESTOCK INVENTORY TOTAL SUPPLIES INVENTORY TOTAL CURRENT ASSETS TOTAL ASSETS (ATCCST) FIXED ASSETS (AT COST) LAND 49,000 BUILDINGS, MACH. £ EQUIP. 113,392 LESS: ACCUMULATED CCA. 65,526 TOTAL UNDEPRECIATED CAPITAL COST 15,650 6,058 6,000 2,632 2,500 11,025 4,125 3,300 1,925 OTHER ASSETS INVESTMENTS TOTAL OTHER ASSETS TOTAL ASSETS 1,927 1975 127 3,164 2,936 32,840 20,375 369 $59,811 96,865 1974 150 4,605 3,082 REF NO. 15,837 22,800 1,653 $48,127 105,447 1,927 1,883 $158,604 $155,457 LAND $80,000 ESTIMATED BUILDINGS, MACH. 6 EQUIP. :88,267 . VALUES INTANGIBLES (QUOTAS, ETC) 0 * * * LIABILITIES CURRENT LIABILITIES CURRENT PAYABLES 361 CHARGE ACCOUNTS 0 BANK DEMAND NOTES 0 TOTAL CURRENT LIABILITIES TERM LIABILITIES FARM IMP LOANS 12,090 BANK-NON FIL 4,580 FARM CREDIT CORP 64,350 TOTAL TERM LIABILITIES TOTAL LIABILITIES * * * OWNERS EQUITY * * OWNERS EQUITY JAN 1 64,779 OWNERS CONTRIBUTIONS 5,164 OWNERS WITHDRAWALS -11,155 NET FARM INCOME 16,734 GAIN ON ASSET DISPOSAL 1,701 OWNERS EQUITY DEC 31 1975 361 81,020 $81,381 1974 1,903 88,775 REF NO. $90,678 77,223 64,779 TOTAL LIABILITIES £ OWNERS EQUITY $158,604 $155,457 Figure 3.4 Statement of Assets, L i a b i l i t i e s and Owners Equity 43 TABLE 3.1 SOURCES OF BALANCE SHEET ITEMS ITEM SOURCE ASSETS FARM CURRENCY FARM BANK CURRENT RECEIVABLES INVENTORIES FIXED ASSETS AT COST AND TOTAL UNDEPRECIATED CAPITAL COST CURRENCY REPORT BANK ACCOUNT REPORT(S) CREDIT ACCOUNT REPORT INVENTORY REPORT SCHEDULE OF FIXED ASSETS AND C C A . OR DEPRECIATION * * * LIABILITIES LIABILITIES CREDIT ACCOUNT REPORT OWNERS EQUITY OWNERS EQUITY - BEGINNING OF YEAR OWNERS CONTRIBUTION AND WITHDRAWALS NET FARM INCOME GAINS OR LOSSES ON ASSET DISPOSALS OPENING BALANCE SHEET OR BEGINNING BALANCES STATEMENT OF OWNERS CONTRI-BUTIONS AND WITHDRAWALS INCOME STATEMENT SCHEDULE OF FIXED ASSETS * * * The f a r m c u r r e n c y b a l a n c e t h e n a p p e a r s on t h e B a l a n c e S h e e t as a c u r r e n t a s s e t , p r o v i d e d t h e r e a r e e n t r i e s i n t h i s c a t e g o r y . The Bank A c c o u n t R e p o r t i s used t h r o u g h o u t t h e y e a r by t h e f a r m w i s h i n g t o r e c o n c i l e t h e Canfarm r e c o r d s w i t h t h e i r bank s t a t e m e n t . Each t r a n s a c t i o n t h a t a f f e c t s t h e f a r m bank a c c o u n t ( s ) , d e p o s i t o r w i t h d r a w a l , i s r e p o r t e d on t h i s s t a t e m e n t . A s e p a r a t e r e p o r t i s i s s u e d f o r each r e g i s t e r e d bank a c c o u n t . An example o f a Farm Bank A c c o u n t R e p o r t i s shown i n A p p e n d i x A. The f i n a l b a l a n c e a t y e a r end i s t h e n t r a n s f e r r e d t o t h e B a l a n c e Sheet ( c u r r e n t a s s e t s e c t i o n ) . The C r e d i t A c c o u n t R e p o r t keeps t r a c k o f p a y a b l e and r e c e i v a b l e a c c o u n t s o f c u r r e n t ( l e s s t h a n one y e a r ) and term d u r a t i o n (see A p p e n d i x A ) . The c l o s i n g b a l a n c e o f c u r r e n t r e c e i v a b l e a c c o u n t s i s t h e n added t o t h e c u r r e n t a s s e t s . The I n v e n t o r y R e p o r t i s g e n e r a t e d from t h e b e g i n n i n g i n v e n t o r i e s s u b m i t t e d on b e g i n n i n g b a l a n c e s and t h e c l o s i n g i n v e n t o r i e s s u b m i t t e d a t t h e end o f t h e y e a r o r a c c o u n t i n g p e r i o d . The b a l a n c e s i n i n v e n t o r y a t y e a r end, a r e t h e n t r a n s f e r r e d t o t h e i n v e n t o r y s e c t i o n o f c u r r e n t a s s e t s on t h e B a l a n c e Sheet (see Appendix A f o r an example o f t h e I n v e n t o r y R e p o r t ) . The l e v e l o f d e t a i l a p p e a r i n g i n t h e i n v e n t o r y s e c t i o n o f t h e B a l a n c e S h e e t depends on t h e d e t a i l s u b m i t t e d by t h e f a r m e r . The t o p e i g h t d o l l a r v a l u e i t e m s appear i n d i v i d u a l l y , t h e r e m a i n d e r a r e a g g r e g a t e d . 45 In summary, the t o t a l current assets reported on the Balance Sheet i s the t o t a l of farm currency, farm bank, current receivables and inventories. Generally, land, b u i l d i n g s and machinery f a l l i n t o the category of f i x e d assets. The Schedule of Fixed Assets and C.C.A. (Capital Cost Allowance) or, the schedule of Fixed Assets and Depreciation (see Appendix A), generate the information for t h i s segment of the Balance Sheet. The value at cost of the f i x e d assets comes from two sources; one, the beginning balances l i s t e d at the time of r e g i s t r a t i o n , and; two, the purchases and sales of f i x e d assets that have taken place during the year. These f i x e d assets are aggregated to three main categories: Land and Improvement; Buildings and Structures; and Machinery and Equipment. Next, the t o t a l accumulated depreciation i s deducted. The two routes f o r reaching accumulated depreciation are shown i n Figure 3.5. The user has the option of using the income tax regulations f o r c a l c u l a t i n g depre-c i a t i o n by the C a p i t a l Cost Allowance Method. Using t h i s method, accumulated depreciation i s generated from the Schedule of Fixed Assets and C.C.A. The second method of c a l c u l a t i n g depreciation i s known i n the Canfarm System as Management Depreciation, whereby the farmer uses the depreciation method and rate of h i s own choice to a s s i s t i n the decision-making function. In a d d i t i o n to choosing h i s own rate of depreciation, he can also use the s t r a i g h t l i n e or diminishing balance method. In t h i s case, the accumulated depreciation i s generated from the Schedule of Fixed Assets and Depreciation. Beginning Balance +_ S a l e and Purchase A c t i v i t y F i x e d A s s e t s a t C o s t Schedule of F i x e d A s s e t s and C C A . Less Accumulated C C.A. or Depr'n. < Schedule o f F i x e d A s s e t s and Depr'n. ± Tax Statements T o t a l Undepreciated C o s t F i g u r e 3.5 C a p i t a l C o s t Allowance and Management D e p r e c i a t i o n 47 I f the farm i s using both C C A . and depreciation, then the informa-t i o n contained i n the Balance Sheet o r i g i n a t e s from the depreciation schedule. The net value of the f i x e d assets, a f t e r depreciation i s deducted, then appears on the Balance Sheet as t o t a l undepreciated c a p i t a l cost. An optional method of handling the current valuation of assets i n the Canfarm system i s estimated value. This method, which can only be used i n addition to C C A . or depreciation, i s most commonly used to appreciate f i x e d asset values, land i n p a r t i c u l a r , and appears on the State-ment of Assets, L i a b i l i t i e s and Owners Equity (Fixed Assets and Intangibles Stated at Estimated Values). An example of t h i s statement may be found i n Appendix A. The l a s t section on the asset side of the Balance Sheet picks up the remaining farm assets that do not f a l l i n t o the above categories. Most commonly, these are investments or receivables of term longer than one year; f o r example, loans, notes, or mortgages receivable. These are generated from the term receivables section of the C r e d i t Account Report. 3.2.2 L i a b i l i t i e s The C r e d i t Account Report generates the current l i a b i l i t i e s section of the Balance Sheet. There are f i v e c l a s s i f i c a t i o n s of current l i a b i l i t i e s : 1. Current Payables, which encompasses a l l current l i a b i l i t i e s i f no further d e t a i l i s required by the farm or which acts as a miscellaneous f i l e . 2. Charge Accounts 3..' Wheat Board Advance 4. Bank Demand Notes 5. Current Notes 48 Term l i a b i l i t i e s are transferred to the Balance Sheet from the Cre d i t Account Report. There are eleven c l a s s i f i c a t i o n s of term l i a b i l i t i e s : 1. Term Payables, a general c l a s s i f i c a t i o n 2. Farm Improvement Loans 3. Bank - Non F.I.L. 4. Credit Union 5. Insurance and Trust Companies 6. Dealer and Supply Companies 7. Finance Companies 8. Farm C r e d i t Corporation 9. Federal Government - Non F.C.C. 10. Municipal and P r o v i n c i a l Government 11. Private Individuals Only those l i a b i l i t y c l a s s i f i c a t i o n s that have been r e g i s t e r e d and used within the l a s t f i s c a l year, w i l l be pri n t e d on the Balance Sheet. As i l l u s t r a t e d i n Appendix A, i n addition to the Cr e d i t Account Report, which l i s t s a l l c r e d i t a c t i v i t y f o r the period, there i s a Summary Credit Account Report, which, as the name implies, summarizes c r e d i t a c t i v i t y f o r the period. 3.2.3 Owners Equi ty The change i n owners equity over the accounting period i s d e t a i l e d i n the owners equity section of the Balance Sheet. Table 3.1 l i s t s the source statements and Figure 3.6 i l l u s t r a t e s the flow of items c o n s t i t u t i n g t h i s segment. Owners equity, at the s t a r t of the period, i s taken from the opening Balance Sheet or the c l o s i n g amount from the previous period. The t o t a l s of owners contributions and withdrawals are brought forward from the Statement of Owners Contributions and Withdrawals, shown i n Appendix A. The Farm Income Statement provides the d e t a i l behind the net farm income Operating Statement Excess of Income Over Expense Inventory Report Total Farm Inventory Schedule of Fixed Assets & C C A . Gains on Asset Disposal -Beg. Balance Sheet Owners Equity Statement of Owners Contributions and Withdrawals Contributions Withdrawals — Income Statement Excess of Income Over Expense Add Inventory Dec. 31 Less Inventory Jan. 1 Less C C A . Net Farm Income• Owners Equity at Jan. 1 Owners Contributions Owners Withdrawals Net Farm Income Gain on Asset Disposal Owners Equity Dec. 31 Figure 3.6 Owners Equity Section of the Balance Sheet value. Any gains or losses on asset d i s p o s a l are noted from the Schedule of Fixed Assets. The Statement of Assets, L i a b i l i t i e s and Owners Equity i s generated f o r any monthCs) f o r which inventories have been submitted. 3.3 THE FARM INCOME STATEMENT The Farm Income Statement provides supportive d e t a i l to the net farm income f i g u r e on the Balance Sheet. The Income Statement i s i t s e l f a summary statement, being designed to f i t onto one page. Therefore, only the top eight income items and the top t h i r t e e n expense items are printed i n d i v i d u a l l y . The remainder are aggregated i n t o Other Crops, Other Livestock and Other Supply and Services. The value of net farm income i s Excess of Income Over Expenses, taken from the Operating State-ment, plus or minus inventory change f o r the year, l e s s C a p i t a l Cost Allowance or depreciation. This report i s shown i n Figure 3.7. BASIC FARM 11 FARM INCOME STATEMENT JAN 1, 1975 TO DEC 31, 1975 INCOME RAPE BARLEY OATS HAY TOTAL CROPS BEEF CALVES BEEF COW BEEF BULL TOTAL LIVESTOCK TOTAL INCOME EXPENSES MIXED FORAGE SEED CATS OTHER CROPS TOTAL CROPS BEEF BULL TOTAL LIVESTOCK INTEREST GASOLINE PEST CONTROLS SUPPL BUILDING REM GEN FARM EQUIPM RSM TRACTOR REM PROPERTY TAX CHEMICAL FERTILIZER OTHER SUPPLIES AND SERVICES TOTAL SUPPLIES AND SERVICES TOTAL EXPENSES EXCESS OF INCOME OVER EXPENSES ADD:INVENTORY DEC 31 LESS:INVENTORY JAN 1 LESS:C.C.A. AMOUNT FOR THIS PERIOD NET FARM INCOME Figure 3.7 The Farm Income Statement 732446 3 PRODUCED ON 02/11/75 1975 10,000 8,100 5,000 1,680 9,550 2,000 900 24,780 12,450 $37,230 I REF -!NO. 1,200 900 790 1,800 7,254 1,766 1,253 1,218 1,177 864 840 813 4,592 2,890 1,800 19,776 $24,466 12,764 53,584 40,290 9,324 $16,734 CTl 3.4 FARM OPERATING STATEMENT The Farm Operating Statement provides background d e t a i l f o r the Income Statement. Each i n d i v i d u a l income and expense item i s l i s t e d . The length of t h i s report i s governed by the user's choice of item codes and modifiers. The more codes used, the longer the report. The report, as i l l u s t r a t e d i n Figure 3.8, i s f o r the l a s t quarter of the year. For any month that the report i s issued, months of the current quarter are p r i n t e d i n d i v i d u a l l y and previous quarters within the f i s c a l year are aggregated. BASIC FARM 11 FARM OPERATING STATEMENT JAN 1, 1975 TO DEC 31, 1975 1ST 2ND 3RD QUARTER QUARTER QUARTER DESCRIPTION INCOME 3,600 - BARLEY 1,500 OATS 1,680 HAY RAPE TOTAL CROPS 900 BEEF BULL BEEF COW 1,000 BEEF CALVES TOTAL LIVESTOCK " $ 1 7 5 0 0 $4,600 $2,580 TOTAL INCOME EXPENSES 600 BARLEY 900 OATS 1,200 MIXED FORAGE SEED 190 RAPE TOTAL CROPS 1,800 BEEF BULL TOTAL LIVESTOCK 115 29 PROTEIN SUPPLEMENTS 40 20 8 MINERAL £ VITAMINS 40 8 16 MINERAL £ VITAMINS 80 MINERAL £ VITAMINS 140 VETERINARY SERVICES 153 42 37 DRUGS 1,253 PEST CONTROLS SUPPL 813 CHEMICAL FERTILIZER 53 CONTAINERS £ TWINE 127 77 GASOLINE 190 270 508 GASOLINE 345 117 DIESEL FUEL 54 37 33 NATURAL GAS 14 14 LUBRICANTS 27 27 14 LUBRICANTS 22 TRACTOR R£M 52 TRACTOR R£M 388 TRACTOR R£M 180 57 48 TRUCK R£M Figure 3.8 The Farm Operating Statement 732446 PRODUCED ON 02/11/75 ITEM OCTOBER NOVEMBER DECEMBER YEAR-TO-DATE NO 2,700 1,800 8,100 112 1,075 2,425 5,000 113 1,680 141 10,000 10,000 162 24,780 900 311 2,000 2,000 312 8,550 9,550 313 12,450 $137775 "$14,775 $37,230 600 112 S 900 113 S 1,200 153 190 162 S 2,890 1,800 311 1,800 30 74 247 513 40 108 514 M 32 96 514 S 80 514 V 20 160 521 50 38 320 523 1,253 54 813 551 N 53 564 168 371 611 0 139 136 152 1,395 611 P 175 637 612 12 14 20 169 6144 15 43 616 G 123 192 616 0 22 621 298 350 621 A 104 492 621 B 285 622 L n B A S I C F A R M 1 1 FARM O P E R A T I N G S T A T E M E N T ( C O N T ' D ) J A N 1 , 1 9 7 5 TO D E C 3 1 , 1 9 7 5 1 S T 2ND 3 R D Q U A R T E R Q U A R T E R Q U A R T E R D E S C R I P T I O N E X P E N S E S ( C O N T ' D ) 1 9 9 1 5 0 9 1 A U T O M O B I L E R&M 1 8 3 5 0 7 4 6 5 G E N F A R M E Q U I P R t M 5 9 2 5 4 3 6 8 B U I L D I N G R £ M 1 5 B U I L D I N G R S M 1 0 5 5 0 B U I L D I N G REM 1 9 0 S T R U C T U R E S R t M 1 2 RGM M A T E R I A L S 2 0 0 H I R E D L A B O U R 1 4 6 G O V ' T P E N S I O N P R E M 3 6 M A R K E T I N G C O S T S 9 3 9 0 3 I N T E R E S T . 6 9 1 1 S E R V I C E C H A R G E I N S U R A N C E 4 3 4 2 2 8 T E L E P H O N E 1 9 8 1 6 2 1 0 3 H Y D R O / E L E C T R I C I T Y 8 4 0 P R O P E R T Y T A X - 3 7 6 P A T R O N A G E R E B A T E T O T A L S U P P L I E S £, S E R V I C E S $ 8 , 3 9 6 $ 3 , 1 4 7 $ 4 , 0 1 6 T O T A L E X P E N S E S $ 1 , 4 5 3 E X C E S S OF I N C O M E OVER E X P E N S E S $ 6 , 8 9 6 $ 1 , 4 3 6 E X C E S S OF E X P E N S E S OVER INCOME F i g u r e 3.8 (Continued) 7 3 2 4 4 6 2 0 P R O D U C E D ON 0 2 / 1 1 / 7 5 I T E M O C T O B E R NOVEMBER D E C E M B E R Y E A R - T O - D A T E NOS 7 1 8 4 6 5 6 2 3 2 2 1 , 1 7 7 6 2 6 3 4 1 , 0 4 8 6 3 1 1 5 6 3 1 1 5 5 6 3 1 3 2 2 5 1 2 6 3 4 1 2 6 4 1 2 0 0 6 5 1 1 4 6 6 5 3 3 6 7 1 4 , 5 5 0 1 , 4 4 4 2 6 4 7 , 2 5 4 7 2 1 3 8 3 6 7 2 3 1 9 6 2 1 4 4 1 0 7 3 1 5 1 5 2 1 1 6 4 7 4 1 1 3 7 6 0 0 7 4 2 8 4 0 7 5 1 - 3 7 6 8 3 1 4 1 9 , 7 7 6 $ 5 , 4 5 0 $ 2 , 5 4 4 $ 9 1 4 $ 2 4 , 4 6 6 $ 8 , 3 2 6 $ 1 2 , 2 3 1 $ 1 2 , 7 6 4 $ 9 1 4 Ln 3.5 CASH FLOW STATEMENT The Cash Flow Statement, i l l u s t r a t e d i n Figure 3.9, draws a l l the transactions a f f e c t i n g the cash p o s i t i o n of the farm from the transac-t i o n l i s t i n g s and sorts them into cash inflows and cash outflows. The Canfarm Farm Record System i s on an accrual b a s i s . Consequently, adjus ments are made f o r such items as sales on c r e d i t and charged purchases. As i n the Operating Statement, the months of the current quarter are l i s t e d , while those of the p r i o r quarters are aggregated. BASIC FARM 11 CASH FLOW STATEMENT JAN 1, 1975 TO DEC 31, 1975 1ST 2ND 3RD QUARTER QUARTER QUARTER DESCRIPTION OCTOBER NOVEMBER DECEMBER 732446 27 PRODUCED ON 02/11/75 REF YEAR-TO-DATE NO. -2,148 4,335 5,365 4,755 13,775 14,775 37,230 750 3,475 468 428 605 5,164 245 12,845 19,538 5,970 50,379 8,000 392 12,845 19,538 5,970 58,770 5,450 2,544 914 24,466 1,543 2,517 44 868 828 1,105 11,155 1,678 7,860 3,372 2,019 36,503 8,000 11,221 650 2,800 660 7,755 0 8,510 14,172 2,679 55,479 4,335 5,365 3,291 3,291 4,755 1,500 2,725 947 1,721 4,600 969 245 2,092 2,580 1,747 9,927 7,045 6,419 3,000 2,000 392 3,000 12,927 9,436 9,419 8, 396 974 2,147 1,259 3,147 44 3,260 419 4,016 2,947 10,258 6,031 6,963 648 300 1,314 1,259 3,345 11,206 7, 344 11,567 1,721 2,092 -2,148 CASH FLOW BEGINNING CASH BALANCE INCOME FIXED ASSET DISPOSALS OWNERS CONTRIBUTIONS LESS: AMOUNTS SOLD ON CREDIT MONEY BORROWED PAYMENTS RECEIVED ON ACCOUNT TOTAL CASH INFLOW CASH OUTFLOW EXPENSES FIXED ASSET PURCHASES INVESTMENT PURCHASES OWNERS WITHDRAWALS LESS: AMOUNTS CHARGED PAYMENTS - CUR.LOANS t CHG ACCTS PAYMENTS - TERM LOANS MONEY LOANED OUT TOTAL CASH OUTFLOW ENDING CASH BALANCE Figure 3.9 The Cash Flow Statement 58 3 . 6 OTHER STATEMENTS The reports o u t l i n e d above, i l l u s t r a t e the e s s e n t i a l components of the accounting r e l a t i o n s h i p s of the Canfarm Farm Record System. Other reports a v a i l a b l e provide further background to those statements shown i n Figure 3 . 3 or provide information f o r tax purposes. Appendix A contains an example farm report index, plus examples of some of the other reports not discussed above. The whole farm may be broken down in t o enterprises, which i n turn, divide i n t o l o t s . The d i v i s i o n s are at the user's d i s c r e t i o n and the reports are t i t l e d by the user. Overhead and cost account reports are also a v a i l a b l e . Tax statements are provided on accrual or cash basis, according to the user's method of tax f i l i n g . 59 3.7 CHOICE OF REPORTS FOR THE MODEL The data required f o r four reports, the Statement of Assets, L i a b i l i t i e s and Owners Equity, the Income Statement, the Operating State-ment and the Cash Flow Statement, are produced by the report w r i t e r from the output of the model, as w i l l be shown i n Chapters Four and F i v e . The Balance Sheet, according to Boulding (1950), i s ". . . the c e n t r a l a n a l y t i c a l concept of the theory of the firm . . . " As shown i n Figure 3.3, a l l roads through the Record System lead to the Statement of Assets, L i a b i l i t i e s and Owners Equity and every accounting item i s summarized here. The Globe and M a i l (February 12, 1977). reported that bankers want to see a balance sheet and a cash flow statement. Frey (1975) argues that used on a projected basis " . . . the flow of funds statement becomes a t e s t of f e a s i b i l i t y of the planned program." Doanes A g r i c u l t u r a l Report (December 1977) advised t h e i r subscribers that: The most us e f u l co-ordinated f i n a n c i a l statements to use fo r summarizing your farm's f i n a n c i a l p o s i t i o n and demon-s t r a t i n g your managerial a b i l i t y are the balance sheet, income statement and cash flow p r o j e c t i o n . As shown above, i n Section 3.3, the Income Statement i s a summary report and the Farm Operating Statement provides the d e t a i l of income and expense items. Consequently, the Farm Operating Statement i s added to the l i s t . In a d d i t i o n to these four statements providing the major information input to management, they force the planning model to consider a l l aspects of the farm's accounting and f i n a n c i a l information. P r o j e c t i o n of other reports would e n t a i l modified data s o r t i n g and a d d i t i o n a l report w r i t i n g modules, But would not provoke s t r u c t u r a l changes i n the model. By p r o j e c t i n g these four reports through the planning model of Chapter Four, and enabling the planned statement to be compared with the actual reports produced by the Record System, the gap i n the Managerial Information and Decision System i s , hopefully, closed. 61 CHAPTER FOUR THE EMPIRICAL MODEL Having thus i d e n t i f i e d the aspects of the Canfarm Farm Record System relevant to t h i s study, the conceptual model, as outlined i n Section 2.2, may now be em p i r i c a l l y applied. The purpose of the empirical model described i n t h i s chapter, and the app l i c a t i o n s demonstrated i n Chapter Five i s , i n addi t i o n to achieving the stated objectives, to develop a method co n s i s t i n g of a se r i e s of procedures that can be used by a wide v a r i e t y of farm planning models to produce projected f i n a n c i a l reports. The projected f i n a n c i a l reports are v i r t u a l l y i d e n t i c a l i n format to four of the reports described i n Chapter Three. These are: 1. Statement of Assets, L i a b i l i t i e s and Owners Equity; 2. Farm Operating Statement; 3. Farm Income Statement; and, 4. Cash Flow Statement. These four reports are the c e n t r a l components of any farm record system, as shown i n Figure 3.3, and, i n turn, contain the e s s e n t i a l f i n a n -c i a l information required to formulate farm management decisions. The remainder of the f i n a n c i a l statements described i n Chapter Three provide supportive d e t a i l to. the above reports. 4.1 METHOD OF SOLUTION In Chapter Two, the uses of l i n e a r programming i n farm planning were outlined, together with the reasons f or i t s choice as a s o l u t i o n method f o r t h i s study. The use of l i n e a r programming i n the model does not preclude the methods and concepts that are developed i n t h i s chapter being used with other types of farm plan f o r e c a s t i n g . For example, the model may well be applicable f o r use with methods such as p a r t i a l budgeting and simulation. This aspect of the p r o j e c t w i l l be expanded i n Chapter Six. 63 4.2 PERSPECTIVE OF THE MODEL To place the model Into perspective, the flow of data and events i s depicted i n Figure 4.1. In stage one, a set of h i s t o r i c a l records are obtained, e i t h e r from the Canfarm Farm Record System or any other accounting system, that provides the minimum required information. Stage two integrates h i s t o r i c a l information with the components f o r a projected farm plan, while stage three formulates the l i n e a r programming matrix through a combination of manual and computer routines. The so l u t i o n to the matrix i s then obtained using the Mathematical Programming System Extended (MPSX) routine (stage four) and t h i s s o l u t i o n i s converted i n t o the four standard output formats, with the a i d of a report w r i t i n g program (stages f i v e and s i x ) . These projected reports can then be compared with the actual f i n a n c i a l reports f o r the period, as they become a v a i l a b l e (stage seven). Throughout the development work, every e f f o r t has been made to achieve a f l e x i b l e end product that i s r e a d i l y adaptable to a wide v a r i e t y of si t u a t i o n s . For t h i s reason, the matrix generator constructs the f i n a n c i a l submatrix A^ described i n Figure 2.3 of Section 2.2. The production matrix A^ i s a previously developed model that i s to be integrated with t h i s model (A^)- Submatrix i s the l i n k between A^ and A^ and therefore i t s generation depends on the structure of A., . Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 additional activities for year of plan production coefficients yields .3 fl projected farm plan solution report writer projected financial reports 1. Opera-ting statement 2. Income statement 3. Cash flow statement 4 . Balance sheet prices constraints 4J T3 S 01 Figure 4.1 Stages of the Model 4.3 THE MODEL IN DETAIL This section w i l l describe the equations that make up the f i n a n c i a l submatrix A^, i l l u s t r a t e the sub—submatrieies which make up A^ and also i l l u s t r a t e the transfer rows which make up the l i n k i n g submatrix A^, as shown i n Figure 2.3. The f i r s t step i n construction of the model was the development of the accounting rows that c o n s t i t u t e the f i n a n c i a l submatrix A^. Next the model was integrated with an e x i s t i n g model (submatrix A^) by adding the tr a n s f e r s c o n s t i t u t i n g submatrix h^. Chapter Five w i l l show the output from t h i s integrated model. The f i n a n c i a l submatrix (A^) of the model i s divided i n t o t h i r t e e n time periods, 1 through 12 representing the twelve months of the year and the t h i r t e e n t h being used to give the 'year to date' t o t a l . Thus, the model as constructed covers one f i s c a l year. Very l i t t l e m o dification would be required to make the model perform on a multi-year basis or to make i t recursive. The implications involved i n extending the time frame are discussed i n Chapter Six. The following four sections specify the four f i n a n c i a l reports i n equation form: i l l u s t r a t e , where necessary, the submatricies f o r that statement; and, provide d e s c r i p t i o n s of how each report i s derived. The notation used i n the equations consists of a number of English c a p i t a l l e t t e r s i n d i c a t i n g a c t i v i t i e s , with subscripts denoting time, t , and i n d i v i d u a l a c t i v i t i e s , j , where t has values 1 through 13 and j has values 1 through n (where n i s s p e c i f i c to the p a r t i c u l a r s i t u a t i o n being modelled). As t and j are common to equations 4.1 through 4.11, they are not defined under each equation. 66 4.3.1 The Farm Operating Statement The following equation s p e c i f i e s the a c t i v i t i e s making up the Farm Operating Statement, to derive the value of excess of income over expenses. 4.1 [I - E ] t (excess of income over expenses) V.ICROP.^ ^D Dt (crop income) 2 .ILIVE.. D Dt (livestock income) 2 .IS&S.. D Dt (supply & service income) 2 .ECROP D Dt (crop expenses) 22 . ELIVE . D Dt (livestock expenses) 2 j E S & s . t (supply service expenses) Figure 4.2 i l l u s t r a t e s the transfe r and accounting submatrix comprising t h i s portion of the model. To keep the sub-goal of being able to adapt t h i s model to almost any other model, t h i s statement i s obtained v i a transfers rather than as an i n t e g r a l p art of an optimizing process. Inte-gration of t h i s statement with an e x i s t i n g model that i s i n MPS format, requires only the i n s e r t i o n of the appropriate transfer rows. The Operating Statement submatrix i s generated by a sub-routine based upon the item codes to be used i n a p a r t i c u l a r a p p l i c a t i o n . 4.3.2 Income Statement The format of the Income Statement has been described i n Chapter Three and i l l u s t r a t e d i n Figure 3.7. The income and expense items come from the "3 C fD i-( PJ rt H-3 ia tn rt Bi rt fD 3 rt W C tr I 2 f1 3 c o n 3 H H- H-fD CO fl CO CO Bi 8) O & rt H-3* Bl ro ua K 0 H-CO fD CO •a n> o _ H- B> Mi rt H- «. fD P-a x CO n tr i 3 BJ X 3 Bl n o 3 rr Bi H-3 H O tn C t r 3 Bi rt H H-X o H < fD O rt O H Income - Expense Total Expense Transfer S & S Expense Transfer Livestock Expense Transfer Crop Expense Total Income Transfer S & S Income Transfer Livestock Income Transfer Crop Income OBJECTIVE o o Crop Income i--n £> a M L i v e s t o c k Income CO n D U l Supply s S e r v i c e Inc. u > U l O * D o *> T o t a l Income >j> n CD D U l i l Crop Expense U l n CO o 0 1 L i v e s t o c k Expense cn a\ o CO o Supply & S e r v i c e Expense n CO T o t a l Expense CO o I D Income-Expense II II n II H II ll II II O o o o o o o o O R.H.S. L9 6 8 Operating Statement segment of the matrix and are ranked by the report writer i n the same manner as the Record System.. The value of Excess of Income over Expense (or Excess of Expense over Income), i s always i d e n t i c a l to that f i g u r e on the Operating Statement. Net Farm Income, as derived i n the model, i s s p e c i f i e d by the follow-ing eguation: 4.2 NETFARMI = [ i - E ] (net farm (excess of income) income over expenses) + CINV (closing inventory) Net Farm Income i s c a l c u l a t e d by a s i n g l e accounting row i n the matrix. Beginning and c l o s i n g inventories are given and/or c a l c u l a t e d i n the Balance Sheet segment (Section 4.3.4). The C a p i t a l Cost Allowance for diminishing balance (d.b.) items i s calculated on a tax c l a s s pool basis, according to the following eguation: 4.3 YCCADB = 2 k . TA U N D B ] . ^ ( c a p i t a l cost (adjusted allowance f o r the undepreciated year d.b. items) balance) where, k_. = c a p i t a l cost allowance rate k f o r tax c l a s s j . And: C I N V ( t - l ) (beginning inventory) YCCAfc ( c a p i t a l cost allowance) 69 4.4 AUNDB. j t BPURCH t BACCA t (adjusted undepreciated balance) (beginning assets at cost) (beginning accumulated C.C.A.) + V . ADDN . V .SOLD. -! -1 j t j t (items added to c l a s s ) (items removed from class) Figure 4.3 i l l u s t r a t e s the c a l c u l a t i o n of C a p i t a l Cost Allowance i n the LP matrix. C C A . f o r s t r a i g h t l i n e items, i n general, those f i x e d assets purchased before 1972, has to be cal c u l a t e d on an i n d i v i d u a l b a s i s . For the sake of s i m p l i c i t y , these are ca l c u l a t e d outside the model. There are several reasons f o r t h i s . From the model's point of view, as each i n d i v i d u a l asset has to be calculated separately, t h i s would enormously expand the number of a c t i v i t i e s i n the model without any appreciable gain i n i t s e f f e c t i v e n e s s . Further, as time passes, the number of s t r a i g h t l i n e assets and t h e i r undepreciated balances diminishes. F i n a l l y , i f any kind of depreciation schedule i s a v a i l a b l e , c a l c u l a t i n g s t r a i g h t l i n e C a p i t a l Cost Allowance i s a matter of a few minutes with a hand c a l c u l a t o r . Therefore: 4.5 YCCA^ = YCCADB. + YCCASL t t t (to t a l C C A . I ( C C A . diminishing balance itemsI ( C C A . s t r a i g h t l i n e items) 70 Management depreciation and how i t i s handled by the Farm Record System was outlined i n Chapter Three. For the model to generate farm s p e c i f i c depreciation rates on a diminishing balance method, a l l that would be required i s to a l t e r the C C A . c o e f f i c i e n t s i n Figure 4.3. Again, f o r the same reasons as above, i t would be u n r e a l i s t i c f o r the model to ca l c u l a t e s t r a i g h t l i n e management depreciation. 4.3.3 Cash Flow Statement 1 4.6 The Cash Flow Statement may be s p e c i f i e d as: CBAL t (cash balance) CBAL (t-1) (cash balance previous period) Z .INCOM.^ (t o t a l income) + £ . SFASSET . . (fixed asset disposals). £ .OWCON.^  3 I t (owners contributions) 2 . SCREDIT. 3 D.t (sold on cr e d i t ) £ .BORROW. 3 I t (money borrowed) + S .ACCT 3 Jt (received on account) S .EXPEN. 3 31 (t o t a l expenses) - 2 . PFASSET (fixed asset purchases) S . INVEST.^ 3 Jt (investment purchases) Cont'd 1. See F i g . 3.9 f o r an example of the Cash Flow Statement. -p co • o < u • e • -p • 0 u rfl o 0 CD CO -r-i • -n +J -r-i •n •n -0 •P B tn A CU CO 3 CO CO 03 fl CO Ul CO CQ u co C CO 0 co CO CO (ti O ITS 0 (ti •H (tt m tn cu l< H •H H 4-> H fl O • U o 4-> O 0 U m i< o •H fl CO • •H Q • CO It! • tr> x C7i X T) X 0 H cu id T3 (d QJ (0 D • ft) H (0 • m -P pq +> < -P Q 4-> U 4-1 U X! OBJECTIVE Beg. Assets °1,1 = 0 Accum. C.C.A. D„ „ = .Q 2,2 F. Asset Purch. = 0 3,3 F. Asset Sale = 0 4,4 Adj. Undepr. Bal. - S , l C5,2 - C5,3 C5,4 C5,5 = 0 C.C.A. ~A^ r = 0 6,5 6,6 Undepr. Cap. Cost " C7,4 S,6 C7,7 = 0 Legend: A i s a general sub-matrix with some non-zero elements C i s a row sub-matrix or vector D i s a diagonal sub-matrix Unless otherwise s p e c i f i e d , a sub-matrix may contain + or - values Figure 4.3 Ca p i t a l Cost Allowance Sub-Matrix 4.6 cont'd - £ .OWITH. j t 2 . CHARG. •£-1 -x -I j t (owners withdrawals) (amounts charged1 - 2 .PCLOAN. j t 2 . PTLOAN. j t (pay current loans1 (pay term loans) - 2.LNOUT. j t (money loaned out). This equation may be s i m p l i f i e d somewhat i n the case of a projected cash flow statement. A l l sales could be considered on a cash b a s i s . Short term c r e d i t requirements are financed through operating c r e d i t . Hence, a c t i v i t i e s , "sold on c r e d i t " and "amounts charged" can be dropped. Further, i t i s assumed that the farm i s not i n the business of lending money. There-fore, any investment purchases not d i r e c t l y a f f e c t i n g farm production are of a personal nature. This enables the "investment purchases" and "money loaned out" a c t i v i t i e s to be suppressed. F i n a l l y , "payments received on account" are outside the con t r o l of the farm manager and hence not p r e d i c t -able. Two solutions are po s s i b l e . I f the receivable i s of a non-recurring nature i t could be written o f f . Or, i f i t can be considered constant from one year to the next, i t could be c a r r i e d as an asset on the books from year to year. E i t h e r way i t can be excluded as an a c t i v i t y i n the projected cash flow statement. P i c t o r i a l l y , the cash flow matrix f o r one time period (in t h i s case a month) i s shown i n Figure 4.4. 73 + J u fl • c n •H 0 fl fl 4-> rH -P fl c c n 4-> r d r d + + OJ 0 •H + J •H jS 0 0 0 -P c n u c n c n CD c n rH H JS c n .fl OJ c n r d JS JS c n (1) r d c n D c n c n c n c n u • • t n c n r d e U o r d fl r d o 4-1 r d r d U 0 H OJ • O OJ OJ • u u u i-H c M >i C 4-1 > 1 >1 • A 0) • O • X • r d r d • • Xi •H i n 0 c n Xi OJ 43 o c n Q j a 4-1 Xi OBJECTIVE Beginning Cash Tr. Income S e l l f i x e d assets Owners co n t r i b u t i o n Subtotal cash i n Money borrowed Total cash inflow Tr. expense Buy f i x e d assets Owners withdr. Subtotal cash out Pay curr. loans Pay term loans Total cash outflow Ending cash b a l . 1 1 I I I I I I 1 :.T I I I l T T T T I i " I I I i l l I i i = 0 = 0 < 0 S 0 = 0 £ 0 = 0 = 0 £ 0 £ 0 = 0 0 £ o = 0 = 0 Bound Figure 4.4 Cash Flow Sub-Matrix A c t i v i t i e s determined within the model are brought i n v i a t r a n s f e r rows. A c t i v i t i e s , such as the sale of f i x e d assets, which are not determined within the model, are included through the use of bounds. Constraints, such as on operating c r e d i t , are introduced through the bound row. Objective function values f o r t h i s section, f o r example, cost of i n t e r e s t on borrowed money, are omitted. This i s f o r reasons of f l e x i -b i l i t y and a d a p t a b i l i t y . This model could be used i n conjunction with another model which already c a l c u l a t e s these f a c t o r s , causing d u p l i c a t i o n . Another reason i s f o r s i m p l i c i t y i n generating t h i s p ortion of the matrix. I t i s quite f e a s i b l e f or the objective function values to be inserted a f t e r generation of the matrix. 4.3.4 Statement of Assets, L i a b i l i t i e s and Owners E q u i t y 1 The balance sheet i s the c o n t r o l center f o r any record system. This i s e s p e c i a l l y true f o r the Canfarm Farm Record System where the Statement of Assets, L i a b i l i t i e s and Owners Equity controls the i n t e r n a l accuracy of the records, or, i n accounting terms, debits equal c r e d i t s . Moveover, as shown i n Figure 3.3, every report generated by the Record System provides background information to the Statements of Assets, L i a b i l i t i e s and Owners Equity. This holds true f o r the model where the projected balance sheet t i e s together the projected statements and ensures that the assets equal l i a b i l i t i e s plus owners equity. 1. The format of t h i s statement i s i l l u s t r a t e d i n Figure 3.4. 75 Figure 4.5 i l l u s t r a t e s the complete model i n matrix form and demonstrates the t i e - i n to the c l o s i n g Statement of Assets, L i a b i l i t i e s and Owners Equity. The diagonal submatricies D(7,l) to D(7,6) are used to tr a n s f e r the various components to the year end Statement of Assets, L i a b i l i t i e s and Owners Equity submatrix A(7,7), which i s d e t a i l e d i n Figure 4.6. The projected balance sheet, d i f f e r s from the Farm Record Statement of Assets, L i a b i l i t i e s and Owners Equity, only i n that i t i s s l i g h t l y s i m p l i f i e d by: 1. Treating a l l farm currency (petty cash) as part of Farm Bank, enabling the c l o s i n g Farm Bank amount to come d i r e c t l y from the Cash Flow Statement ending cash balance;' 2. Current receivables are treated as e i t h e r zero or unchanged from the previous year end. The r a t i o n a l e behind t h i s was o u t l i n e d i n Section 4.3.3; 3. Estimated v a l u e s 1 are excluded as they would require the user to place a value on each asset f o r each year into the future that i s to be modelled; and, 4. Only the general c l a s s i f i c a t i o n of current l i a b i l i t i e s and term l i a b i l i t i e s are c a l c u l a t e d i n the model. The complete l i s t of l i a b i l i t y c l a s s i f i c a t i o n (as l i s t e d i n Chapter Three) can be printed i n the output statements, but to have the model include every c l a s s i f i c a t i o n f o r every month would add approximately 620 a c t i v i t i e s to the model without an appreciable gain of information. 1. See Chapter Three, Section 3.2.1. This concept might u s e f u l l y be re-introduced into an equity maximizing model. 76 Beginning Balance Optimization Model Operating Statement Sale & Purchase of Fixed Assets CCA Calculation Income Statement Cash Flow Statement Closing Balance Sheet R.H.S. OBJECTIVE C0,2 Beginning Balance Items Vl < 0 Optimization Model A2,2 * b 2 Transfer to Operating Statement D3,2 A3,3 £ o Fixed Assets & Vl A, „ 4,4 6 0 Income Statement S,l C5,3 S,4 C5,5 < o Transfers to Cash °6,1 D6,3 °6,4 A6,6 £ 0 Transfers to Balance Sheet °7,1 °7,3 °7,4 D7,5 °7,6 A„ 7,7 ± 0 Bounds B l B4 B 6 A i s a general sub-matrix with some non-zero elements B i s a s t r u c t u r a l bound vector C i s a row sub-matrix or vector D i s a diagonal sub-matrix b i s a r i g h t hand side vector Unless otherwise s p e c i f i e d , a sub-matrix may contain + or - values Figure 4.5 The Model i n Matrix Form •H 3 rH rH O1 rd rd OJ • cn CO CO CO >1 < -p CO C O 0 CD u >1 CO OJ O CO ft ft rH 0 u C J 0 •H cn •ri !—1 cn CO 43 + J o • • O -p cn OJ >i -P •ri -ri rd fl 4-1 xi C J •H cu •rl 4-> 3 OJ T J T J OJ > CD C o . rH •H 4-1 •ri 43 rd E T J •H u > OJ rd • ft •H 4-> •ri 3 •ri U 0 4-1 4-1 >i •ri OJ 0 C > T S rd cn CO Xi •H rH CT1 ri T I O OJ OJ 4-1 CO o +J •H fl fl 3 U •P 4 J rd rH •H OJ 4-1 4S c CO cn •ri OJ fl -H rd o OJ CD •H •H 43 C 4-1 •H CO CO 3 T 3 u OJ H cn u . CO CO rH 43 rd Cn 0 -H rd rd O1 c > CJ to Cn rd ft cn CO rd •H C o E co rd 4-1 c 0 OJ Cn fl OJ rd m -p •H rH •ri fi c c xi fl •H 4-> •H fl •H • T S c rH C cn CO rd 0 0 cn OJ to H -H T S to fl u H OJ rH c u iH MH u 4-> u ft OJ ft (0 rH CO 3 OJ ed SH G rd •ri as OJ c cn CO Xi u 0 > ft 0 •H 0 xi 4 J U ti 4-1 Cn fl cj 4-> •ri cn fl Cn rd 3 u •H 3 rH rH • 4-> 0 3 OJ 0 OJ OJ rd 0 •H 4-1 u o rH CO CJ 42 o 4-> O 4-) O 4-> 4-> 43 O 0 C Cn rH O transfer farm bank 1 t r . curr. receivables 1 tr. crop inv. 1 tr. l i v e inv. 1 tr. supp. inv. 1 = 0 t r . closing land 1 t r . bldg. men. equip. 1 t r . c. accum. C.C.A. 1 total und. cap. cost -1--1 1 1 t r . other assets 1 total assets -1 -1- 1- 1-•1 -1--1 1 t r . c. l i a b i l i t i e s 1 t r . term l i a b i l i t i e s 1 = 0 total l i a b i l i t i e s •1 -1 1 tr. equity (t-1) 1 = 0 owners contr. 1 S 0 owners withdr. 1 £ 0 t r . net farm income 1 = 0 gain on asset disp. 1 £ 0 loss on asset disp. 1 * o owners equity •1--1 1--1--1 1 1 = 0 balance control -1 1 1 = 0 bounds A A A A A i s some value 2 0 Figure 4.6 Statement of Assets, L i a b i l i t i e s and Owners Equity Sub-Matrix 78 The Cash Flow Statement generates the l e v e l of the l i a b i l i t y a c t i v i t i e s through vectors PCLOAN, (pay term loan), BORROW (borrow term c a p i t a l ) and any negative cash balance becomes operating c r e d i t , which can have associated costs and upper l i m i t s . Equations 4.7 through 4.11 specif y the Statement of Assets, L i a b i l i -t i e s and Owners Equity: 4.7 TASSETS t (closing t o t a l assets) 2 .BANK.,. D Dt (closing bank balance) 2 .CCRECEIV.^ D Dt (closing current receivables) + S.TCROPINV.^ D Ht (t o t a l crop inventory) 2 . TLIVEIN. 3 Dt ( t o t a l l i v e s t o c k inventory) + S .TSSINV _ 3 Dt (t o t a l supplies inventory) TUNDECCt ( t o t a l undepreciated c a p i t a l cost) + 2 . OASSETS . ^  D Dt (other assets) where: 4.8 TUNDECCt ( t o t a l un-depreciated c a p i t a l cost) 2 . CLAND. 3 Dt (closing land at cost) - CACUMCCA, 2 .CBMEQUIP D Dt (closing bldgs., mach. & equip, at cost) (closing accumu-late d CCA) Note that t o t a l undepreciated c a p i t a l cost (TUNDECC) may also be reached by subtracting the t o t a l c a p i t a l cost allowance f o r the year from the adjusted undepreciated balance, which was ca l c u l a t e d i n Section 4 . 3 . 3 . And: 4 . 9 CACUM'CCA (closing ac-cumulated CCA for t h i s year) And: 4 . 1 0 T L I A P J ( t o t a l l i a b i l i t i e s ) CACUMCCAt_1 (beginning accumu-late d CCA) + YCCA t ( t o t a l CCA for t h i s year) X . T C L I A B . ( t o t a l current l i a b i l i t i e s ) 2 .COSTSFA^ D Dt (cost of sold f i x e d assets) V , TTLIAB. ^ D Dt (t o t a l term l i a b i l i t i e s ) Note that the i n d i v i d u a l current and term l i a b i l i t i e s were d e t a i l e d i n Section 3 . 2 . 2 . Owners Equity at the end of the year i s cal c u l a t e d by: 4.11 OEQUITY = OEQUITY (owners equity year end) t-1 (equity end previous year) D Dt (owners withdrawals) + GSFASSET t (gain on asset disposal) Z .OCONTR.^ D Dt (owners contributions) NETFARMIt (net farm income) LSFASSET t (loss on asset disposal) This completes the s p e c i f i c a t i o n of the model i n terms of submatrix A^. Chapter Five w i l l demonstrate a p p l i c a t i o n s of the model with e x i s t i n g 80 production models (sub-matrix A) and show how the i n t e g r a t i o n (sub-matrix A 2) takes place. Chapter Six w i l l look into some of the p o t e n t i a l uses of the model. CHAPTER FIVE APPLICATION OF THE MODEL Three steps were taken to t e s t the model's accounting a b i l i t i e s and i t s a p p l i c a b i l i t y to d i f f e r e n t farm planning s i t u a t i o n s . The f i r s t step was to duplicate the Canfarm Farm Record System reports using the data from a case farm on the Canfarm Farm Record System. The second was the i n t e g r a t i o n of the model with two d i f f e r e n t LP farm planning models. T h i r d l y the r e s u l t s from one of these applications were run through the Canfarm Farm Record System for a comparison. 82 5.1 TEST OF THE ACCOUNTING MATRIX In order to ensure that the accounting matrix, A^ i n f i g u r e 2.3, i s accurate and does indeed represent the Canfarm Farm Record System, the set of farm records i l l u s t r a t e d i n Chapter Three was duplicated by the model. This was accomplished by entering the monthly transactions and beginning balances shown on the Canfarm Farm Record System reports i n t o the model. I f the accounting segment of the model i s functioning c o r r e c t l y , then the output should be comparable to that of the Canfarm Farm Record System. Figure 5.1 i l l u s t r a t e s the model generated operating Statement which can be compared to the operating Statement shown i n Figure 3.8. Before these two statements can be compared d i r e c t l y , a r e c o n c i l i a t i o n i s required. The Canfarm Farm Record System does not p r i n t the decimal values f o r i n d i v i d u a l items, but does carry them forward to the t o t a l . As the input to the model was taken from the monthly f i n a n c i a l reports, the i n d i v i d u a l income and expense values as input to the model are understated by the cent amounts, causing the value of the year-to-date Excess of Income over Expenses to be $7.00 l e s s on the model report. Next, as negative expense items would not normally be considered i n a planning s i t u a t i o n , the model was not able to handle the $376.00 patronage rebate as a negative expense. This amount was considered as miscellaneous income. Some of the smaller i n d i v i d u a l items were aggregated to save on the number of a c t i v i t i e s . With these adjustments, the two reports can be reconciled. Note that the model reports negative values of Excess of Income over Expenses, whereas the Farm Record System reports these as Excess Expenses over Income. 1ST QUARTER RASIC FARM 11 FARM OPERATING STATEMENT JAN 1 1975 TO DEC 31 1975 2ND 3RD QUARTER QUARTER DESCRIPTION 25 MAY 77 OCTOBER NOVEMBER DECEMBER YEAR TO DATE ITEM INCOME 3,600 BARLEY 1,500 OATS 1,680 HAY RAPE T0T4L CROPS 900 BEEF BULL BEEF COWS I ,000 BEEF CALVES TOTAL LIVESTOCK 376 MISC INCOME TOTAL SUPPLIES £ SERVICES 1 ,500 4,976 2,580 TOTAL INCOME 2.700 1,075 10,000 13,775 1, 800 2,425 2,000 8,550 14,775 8, 100 5.000 1.680 10,000 900 2.000 9,550 376 24,780 12.450 376 37,606 11200 11300 14100 16200 31100 31200 31300 81000 600 9 CO 1,200 190 1 ,800 115 160 293 813 244 1.C29 712 247 93 8,396 -6,896 29 28 42 1,253 779 755 244 146 2 49 3,52 5 1,451 24 37 53 735 654 430 200 9 82 903 EXPENSES BARLEY OATS MIXED FORAGE SEED RAPE TOTAL CROPS BEEF BULL TOTAL LIVESTOCK PROTEIN SUPPLEMENTS MINERAL f. VITAMINS VETERINARY SERVICES PEST CONTROLS SUPPL CHEMICAL FERTILIZER CONTAINERS £ TWINE FUELS £ LUBRICANTS EQUIPMENT REM RLDG £ STRUCTURE REM HIRED LABOUR GENERAL EXPENSES INTEREST TOTAL SUPPLIES £ SERVICES 4,018 TOTAL EXPENSES -1,438 EXCESS OF INCOME OVER EXPENSES 326 7 356 211 4.550 5. 450 8,325 30 72 70 150 5 47 232 1,444 2.545 12.230 74 38 340 33 166 264 915 -915 600 900 1,200 190 1, 800 248 284 480 1. 253 813 53 2. 574 3. 02 5 I. 742 346 2.087 7.254 2 .890 1 ,800 11200 11300 153 JO 16200 31100 51300 51400 52100 54000 55100 56400 61000 62000 63000 65100 7C0O0 72100 20.159 24.849 12,757 F i g u r e 5.1 A c c o u n t i n g T e s t Run, O p e r a t i n g Statement oo BASIC FARM 11 FARM INCOME STATEMENT JAN 1 1975 TO DEC 31 1975 INCOME RAPE RARLEY OATS HAY TOTAL CROPS BEEF CALVES 8EEF COWS BEEF BULL TOTAL LIVESTOCK MISC INCOME TOTAL SUPPLIES TOTAL INCOME EXPENSES MIXED FORAGE SEED OATS BARLEY OTHER CROPS TOTAL CROPS BEEF BULL TOTAL LIVESTOCK INTEREST EOUIPMENT PCM FUELS £ LUBRICANTS GENERAL EXPENSES BLDG £ STRUCTURE R£M PEST CONTROLS SUPPL CHEMICAL FERTILIZER VETERINARY SERVICES HIRED LABOUR OTHER SUPPLIES TOTAL SUPPLIES TOTAL EXPENSES EXCESS OF INCCME OVER EXPENSES ADD:INVENTORY DEC 31 LESS:INVENTORY JAN 1 LESS:C.C.A. AMOUNT FOR THIS PERIOD NET FARM INCCME 25 MAY 77 1975 1974 10,000 16200 8,100 11200 5,000 11300 1.6110 14100 24,780 9,550 31300 2.000 31200 900 31100 12,450 376 81000 376 37,606 1. 200 15300 900 11300 600 11200 190 2,890 1, 800 31 100 1.800 7,254 72100 3,025 - 62000 2.574 61000 2. 037 70000 1.742 630CO 1.253 5400G 813 55100 480 52100 346 65100 585 20,159 24,849 12,757 53.584 40,290 9,324 16,726 Figure 5.2 Accounting Test Run; Income Statement 85 Figure 5.2 shows the Income Statement as produced by the model. Com-pared to Figure 3.7, the r e s u l t s i n d i c a t e the same $7.00 discrepancy i n Excess of Income Over Expenses. This report shows that C a p i t a l Cost Allowance and Inventories are being handled c o r r e c t l y . The Statement of Assets, L i a b i l i t i e s and Owners Equity, i s i l l u s t r a t e d i n Figure 5.3 and may be compared to the Statement of Assets, L i a b i l i t i e s and Owners Equity produced by the Canfarm Farm Record System, shown i n Figure 3.4. Rounding dif f e r e n c e s occur i n the farm bank t o t a l , due to those same rounding d i f f e r e n c e s i n the income and expense items. This same rounding d i f f e r e n c e i s also r e f l e c t e d i n the Net Farm Income, under the equity section. S i m i l a r l y , there i s a small rounding discrepancy i n the fi x e d asset section. Note that the Model reports "Less: Accumulated C C A . " as a negative value whereas the Canfarm Farm Record System does not p r i n t the minus sign. The Cash Flow Statement, as outl i n e d i n Chapter Four, was not designed with s p e c i f i c a c t i v i t i e s to handle amounts sold on c r e d i t , amounts charged, investment purchases, or payments received on account. However, the pro-jected Cash Flow Statement contains two a c t i v i t i e s to account f o r these types of items, miscellaneous adjustment f o r cash inflow and the same f o r cash outflow. Figure 5.4 shows the model Cash Flow Statement. When compared to Figure 3.9, the same discrepancies occur as was the case f o r the Operating Statement. A d d i t i o n a l rounding di f f e r e n c e s are also present. As each discrepancy between the two systems can be reco n c i l e d , i t was concluded that the accounting matrix of the model and the report writer are v a l i d and that the next step could take place. B A S I C F A R M 1 1 S T A T E M E N T OF A S S E T S , L I A B I L I T I E S AND OWNERS E Q U I T Y A S AT DEC 31 1 9 7 5 2 5 MAY 77 A S S E T S * « * 1 9 7 5 1 9 7 4 C U R R E N T A S S E T S F A R M C U R R E N C Y FAR V RANK C U R R E N T R E C E I V A B L E S I N V E N T O R I E S HAY 1 5 , 6 5 0 B A « L E Y 6 , 0 5 8 R A P E 6 . 0 0 0 O A T S 2 , 6 3 2 STRAW 2 , 5 0 0 T O T A L C R O P S I N V E N T O R Y B E E F COWS 1 1 , 0 2 5 B E E F B R E E D INC, H E I F E R 4 , 1 2 5 3 E E F B U L L 3 . 3 0 0 B E c F C A L V E S 1 , 9 2 5 T O T A L L I V E S T O C K I N V E N T O R Y OTHER S U P P L I E S 3 6 9 T O T A L S U P P L I E S I N V E N T O R Y T O T A L C U R R E N T A S S E T S F I X E J A S S E T S ( A T C O S T I I . A N C 4 9 , 0 0 0 a U I L D I N G S , M A C H . £ E O U I P . 1 1 3 . 3 9 3 i - E S S : A C C U M U L A T E D C C A r 6 5 , 5 2 9 T O T A L U N D E P R E C I A T E D C A P I T A L C O S T OTHER A S S E T S I N V E S T M E N T S T O T A L O T H E R A S S E T S T O T A L A S S E T S 1 . 9 2 7 3 , 2 8 6 2 . 9 3 6 3 2 , 8 4 0 2 0 , 3 7 5 3 6 9 5 9 . 8 0 6 9 6 , 8 6 3 1 , 9 2 7 1 5 8 , 5 9 6 1 5 0 4 , 6 0 5 3 , 0 8 2 1 5 , 8 3 7 2 2 , 8 0 0 1 , 6 5 3 4 8 , 1 2 7 1 0 5 , 4 4 7 1 . 8 8 3 1 5 5 , 4 5 7 * * * . L I A B I L I T I E S C U R R E N T L I A B I L I T I E S C U R R E N T P A Y A B L E S T O T A L C U R R E N T L I A B I L I T I E S TERM L I A B I L I T I E S FARM I M P L O A N S B A N K - N O N F I L F A R M C R E D I T CORP T O T A L T E R M L I A B I L I T I E S 36 1 1 2 , 0 9 0 4 , 5 8 0 6 4 , 3 5 0 T O T A L L I A B I L I T I E S 1 9 7 5 3 6 1 8 1 . 0 2 0 8 1 . 3 8 1 1 9 7 4 1 . 9 0 3 8 8 . 7 7 5 9 0 . 6 7 8 OWNERS E Q U I T Y J AN I OWNERS C O N T R I B U T I O N S OWNERS W I T H D R A W A L S NET F A R M INCOME G A I N ON A S S E T 0 1 S P O S A L OWNERS E Q U I T Y DEC 3 1 OWNERS E O U I T Y * 6 4 , 7 7 9 5 . 1 6 4 - 1 1 , 1 5 5 1 6 . 7 2 6 1 . 7 0 1 7 7 , 2 1 5 6 4 . 7 7 9 T O T A L L I A B I L I T I E S £ OWNERS E O U I T Y 1 5 8 . 5 9 6 1 5 5 . 4 5 7 Figure 5.3 Accounting Test Run; Statement of Assets, L i a b i l i t i e s and Owners Equity co 1ST QUARTER BASIC FARM 1 1 CASH FLOW STATEMENT JAN 1 1975 TO DEC 31 1975 2ND 3RD QUARTER QUARTER DESCRIPTION 25 MAY 77 OCTOBER NOVEMBER DECEMBER YEAR-TO-DATE CASH INFLOW 4,755 1,720 2.C91 BEGINNING CASH BALANCE 1 ,500 4,976 2,580 INCOME 2,725 FIXED ASSET DISPOSALS 947 969 1,747 OWNERS CONTRIBUTIONS 9,927 7,665 6,418 SUBTOTAL -2.151 13,775 750 468 12,842 4, 331 14,775 428 19,534 5.361 t 605 5,966 4.755 37.606 3.475 5. 164 51.000 3, 000 1.2 59 14,1e6 2,000 52 5 1 0 , 1 9 0 MONEY BORROWEC MISC. ADJUSTMENT 3,000 9,418 TOTAL CASH INFLOW 12.842 19.534 5.966 8 .000 1.784 60.784 8, 396 975 2,147 11,518 648 3C0 12,446 1,720 3,525 3.26C 6,785 1, 314 8. 099 2,091 CASH OUTFLOW 4,-018 EXPENSES FIXED ASSET PURCHASES MISC. ADJUSTMENT 2,947 OWNERS WITHDRAWALS 6,965 SUBTOTAL 1,259 PAYMENTS - CUR.LOANS £ CHG ACCTS 3,345 PAYMENTS - TERM LOANS MONEY LOANED OUT 11,569 TOTAL CASH OUTFLOW -2,151 ENDING CASH BALANCE 5.450 1,543 868 7, 861 650 8,511 4,331 2. 545 82 8 3. 37 3 8.000 2.800 14. 173 5. 361 915 1.105 2,020 660 2.680 3,286 24,849 2,518 11.155 38.522 11.221 7.755 57.498 3.286 Figure 514 Accounting Test Run: Cash Flow Statement oo 88 5.2 INTEGRATION WITH A FARM PLANNING MODEL The second t e s t of the model's a p p l i c a b i l i t y i s to integrate i t with an e x i s t i n g model. Short (1976) has developed a comprehensive LP farm planning model to determine the most appropriate s e l e c t i o n of crops and production methods f o r a vegetable farm. Short's model met the following c r i t e r i a f o r s e l e c t i o n as a t e s t a p p l i c a t i o n : 1. To be s u f f i c i e n t l y complex to ensure the model would function under a wide range of circumstances; 2. Having a set of f i n a n c i a l records, in c l u d i n g an opening Balance Sheet; and, 3. To be a reasonably t y p i c a l farm planning model, i n order to ensure that the model being developed does not j u s t apply to an obscure case. In addition, there appeared to be a genuine need f o r i n t e r p r e t i v e reports, as the s i z e of Short's matrix made the manual generation of r e s u l t s a tedious task. The i n t e g r a t i o n process was achieved by merging the f i l e containing Short's matrix i n MPS format with the f i l e containing the model matrix and by i n s e r t i n g sub-matrix D^ ^, shown i n Figure 4.5, using the MPSX Revise procedure 1. As i l l u s t r a t e d i n Figure 5.5, the combined model i s then solved; the so l u t i o n basis i s saved on tape, f o r future r e v i s i o n s ; then, the s o l u t i o n i s passed to the report w r i t e r , which reads the tape of Canfarm item codes and produces the f i n a n c i a l reports. 1. This procedure i s outl i n e d i n the IBM, MPSX Manual (1972) pp. 36, 39 and pp. 210, 214. 89 MERGE REVISE SOLVE Figure 5.5 Flow Diagram of Model Integration and Solution The s o l u t i o n i s shown i n Figures 5.6, 5.7, 5.8, and 5.9, i l l u s t r a t i n g the Operating Statement, Income Statement, Statement of Assets, L i a b i l i t i e s and Owners Equity Statement, r e s p e c t i v e l y . These r e s u l t s r e l a t e c l o s e l y to Short's optimal "Plan A", once the two models are r e c o n c i l e d f o r d i f f e r e n c e i n approaches to inventories and i n t e r e s t c a l c u l a t i o n . Table 5.1 shows the r e c o n c i l i a t i o n between the r e s u l t s of the two models. The unreconciled d i f f e r e n c e between the two r e s u l t s stems from the t o t a l f o r chemical f e r t i l i z e r (item code 55100 i n f i g u r e 5.6) which contains a l l the miscellaneous f e r t i l i z e r items, r e l a t i n g l i t e r a l l y to hundreds of a c t i v i t i e s i n the combined matrix. Thus the e r r o r could l i e i n a f e r t i l i z e r a c t i v i t y missing the l i n k to f e r t i l i z e r expense, or, to an error i n Short's manual summation of f e r t i l i z e r expense from the many a c t i v i t i e s . E i t h e r way, t h i s minor discrepancy does not d e t r a c t from the otherwise successful i n t e g r a t i o n of these two models. To further demonstrate the model's a d a p t a b i l i t y , i t was l i n k e d with a l i n e a r programming planning model of a r a b b i t e n t e r p r i s e . The r e s u l t s of t h i s a p p l i c a t i o n are shown i n Figure 5.10, 5.11, 5.12 and 5.13. 1ST CJ AR TER TF ST WOOFL FARM OPERATING STATEMENT JAN 1 1977 TO OEC 31 1977 2ND 3RC QUARTER QUARTER DESCRIPTION 26 MAY 77 JANUARY • FEBRUARY MARCH YEAR TO DAT F ITFM INCOME P4RL FY FIFLO BEANS FIFLO PFAS PCTATCE ? POTATOES POTATOES STRAWRERR IFS RASPBERRIFS RUT A n £G A SEED SLGAR B EFT SEED CAEBACE SEED STRiW PEA VINES TOTAL CROPS INTEREST RECEIVED TOTAL SUPPLIES £ SERVICES TOTAL INCCME 11200 m o o 13300 211 OC 2 11CF 211 OC 25100 25230 27110 27140 27710 2910B 29700 81500 EXPFNSFS RCCT CRCPS SEEDS 7710F RCOT CROPS SEEDS 8,190 8, 190 271 OL TPTA L CROPS 8,190 BEFS Aeooo TTTAL LIVESTOCK INSECTICIDES 541 C C HER RICIEES 54 2 3E HFPRICICES 5420P HFRPICICFS 5470"; FUNGICICES 5450P FUNGICIDES 545CP CHEMICAL FFRTILIZER 9,312 9,312 5510P CHEMICAL FERT IL I 7 ER 2 ,573 2. 573 55100 POTASH FERTILIZERS 55130 SEEC 5610B CONTAINERS E TWINE 56400 PURPLE GASOLINE 93 93 61120 CIFSEL FUEL 130 130 61200 TRACTOR REM 67 67 62100 GEN FARM EQUIP REM 80 80 67630 PART TIME LABOR 65120 Figure 5.6 Test Model Operating Statement 1ST CJ ARTER T E S T M C D E L F A R M O P E R A T I N G S T A T E M E N T J A N I 1 9 7 7 TO DEC 31 1 9 7 7 2 N P } R C Q U A R T E R Q U A R T E R D E S C R I P T I O N 2 6 MAY 7 7 J A N U A R Y F E B R U A R Y MARCH Y E A R TO DAT E I T E M E X P E N S E S ( C O N T I N U E D ) I N T E R E S T L A N D RENT M I S C E X P E N S E T O T A L S U P P L I E S £ S E R V I C E S T O T A L E X P E N S E S E X C E S S OF I N C C M E OVER E X P E N S E S 3 4 2 1 4 2 4 - 4 2 4 6 4 4 5 4 5 1 - 4 5 1 1 8 3 1 . 5 4 7 2 2 , 1 7 8 - 2 2 . 1 7 8 1 9 3 2 . 4 1 3 721 OC 7 7 1 0 0 8 2 0 0 0 1 4 , 8 6 4 2 3 . 0 5 4 - 2 3 , 0 5 4 Figure 5.6 Continued TEST fCDEL FARM OPERATING STATEMENT JAN I 1977 TO DEC 31 1977 1ST 2ND 3RC QUARTER QUARTER QUARTER INSCRIPTION INCOME PARLEY FIELD BEANS FIELD PEAS PCTATCES POT A TOE S PCTATCF S STRAWBERRIES RASPBERRIES RUTABAGA SFFD SUGAR BEET SEED CABBAGE SEED STRAW PEA VINES TOTAL CROPS INTEREST RECEIVED TOTAL SUPPLIES E SERVICES TOTAL INCOME EXPENSES ROOT CROPS SEEDS 8,190 RCOT CROPS SEEDS TOTAL CRCPS BEES TOTAL LI VESTOCK INSECTICIDES HERBICICES HER BICICFS HERBICICES FUNGICIOES FUNGICIDES 9 , 3 1 2 CHFMICAL FERTILIZER 2 , 5 7 3 CHEMICAL FERTILIZER POTASH FERTILIZERS SEED CONTAINERS £ TWINE 9 3 PURPLE GASOLINE 1 3 0 DIESEL FUEL 6 7 TRACTOR R£M 8 0 GEN FARM EQUIP R£M ,. PART TIME LABOR Figure 5.6 Continued 26 MAY 77 APRIL MAY . JUNE YEAR TO OATE ITEM 112C0 13 100 13300 2 HOC 2 110E 211C0 3,000 3.000 25100 25200 27110 27140 27210 2910B 29700 3 .000 81500 3,000 3.000 2,240 2,240 2710E 8.190 2710L 10.430 400 400 48000 400 699 699 54100 2.274 2.274 5470E 747 747 54?0P 1.323 1.323 5420S 266 266 5450R 5450P 9.312 5510P 6.319 8.893 55100 2,348 2.343 55130 756 756 5610B 86 36 56400 293 38 3 428 61120 332 204 5 672 61200 188 94 4 354 62100 369 197 7 654 62600 215 215 65120 CD LJ 1ST CHARTER 193 2,413 23,054 -23,054 TEST MODEL FARM CPEBATING STATEMENT J AN I 1977 TO EEC 31 1977 2ND 3 RC QUARTER QUARTER DESCRIPTION 26 MAY 77 APRI L JUNE EXPENSES (CONTINUED) INTEREST LAND RENT MISC EXPENSE TOTAL SUPPLIES £ SERVICES TOTAL EXPENSES EXCESS OF INCOME OVER EXPENSES 230 1 ,504 5,913 -5,913 34 8 1,513 14,653 -14.653 359 I ,566 4 ,368 -1 ,368 YEAR TO DAT E ITEM 1.131 6.996 72100 7710C 82000 37.161 47,991 -44,991 F i g u r e 5.6 C o n t i n u e d 1ST QU ARTER TEST HCOEL FARM OPERATING STATEMENT JAN 1 1 9 7 7 TO DEC 31 1977 2ND 3RD QUARTER QUARTER DESCRIPTION 26 MAY 77 JULY AUGUST SEPTEMBER YEAR TO DATE 3 , 0 0 0 3,000 INCOME BARLEY F I FLO BEANS F IELO PPAS PCTATOES POTATOES POTATOES STRAWBERRIES RASPBERRIES RUTABAGA SEED SUGAR BEET SEED CABBAGE SEED STRAW PEA VINES TOTAL CROPS INTEREST RECEIVED TOTAL SUPPLIES E SERVICES TOTAL INCCME 19,200 3,000 2,800 5,800 5.400 24,600 23 .760 8.400 12.960 10.080 5,400 1.462 225 62.287 23.760 8.400 12.9 60 19.200 10.080 6,000 2.800 10.800 1.462 ITEM 225 95.462 11200 1 3100 13330 21 IOC 2110E 21100 25100 25700 271 10 27140 27210 2910R 29700 B15Q0 275 95,687 8 , 190 9,312 2,573 93 130 6 7 80 2,24C 40C 699 2,274 747 I, 323 266 6.319 2,346 756 86 335 542 287 574 215 EXPENSES RCOT CRCPS SEEDS .RCOT CROPS SEEDS TOTAL CROPS BEES TOTAL LIVESTOCK INSECTICIDES HERBICIDES HERBICIDES HERBICIDES FUNGICIDES FUNGICIDES CHEMICAL FERTILIZER CHF^ICAL FERTILIZER POTASH FERTILIZERS SEED CONTAINERS £ TWINE PURPLE GASOLINE DIESEL FUEL TRACTOR RtM GEN FARM EQUIP REM PART TIME LABOR 90 133 113 248 305 31 72 558 761 153 22 119 426 3.501 2,240 8, 190 400 699 2.274 747 1. 32 3 266 9.312 8,893 2.343 756 36 978 859 660 1.888 4.477 10.430 400 2710E 2710L 48000 54100 5470E 5420P 5470S 5450B 5450P 5 51 OP 55100 55130 5610B 56400 61120 61200 62100 62600 65120 Figure 5.6 Continued 1ST QUARTER TEST rCOEL FARM OPERATING STATEMENT JAN 1 1977 TO OEC 31 1977 2NR 3RD QUARTER QUARTER DESCRIPTION 26 MAY 77 JULY AUGUST SEPTEMBER YEAR TO DATE ITEM 193 2,113 23,054 -23,054 938 4,583 24,936 -21.93* EXPENSES (CONTINUEC) INTEREST LAND RENT MISC EXPENSE TOTAL SUPPLIES £ SERVICES TOTAL EXPENSES EXCESS OF INCCME OVER EXPENSES 332 200 1,534 6.027 2,452 3.347 7. 958 16,641 379 4,601 57.686 1.665 14.936 72100 77100 82000 52.173 63.003 32.683 Figure 5.6 Continued T F S T P C D E L FARM O P E R A T I N G S T A T E M E N T J A N I 1 9 7 7 TC EEC 31 1 9 7 7 1ST ?NO 3RC QUARTER Q U A R T E R QUARTER D E S C R I P T I O N I N C O M E 2 3 . 7 6 C P A R L E Y 8 , 4 0 0 F I E L D BEANS 1 2 , 9 6 0 F I E L D P E A S P O T A T O E S 1 9 , 2 0 0 P O T A T O E S 1 0 , 0 8 0 P O T A T O E S ' 3 , 0 0 0 3 , 0 0 0 S T R A W B E R R I E S 2 . B C 0 R A S P B E R R I E S R U T A B A G A S E E D SUGAR B E E T S E E D C A B B A G E S E E D 1 0 , 8 0 0 STRAW 1 , 4 6 2 PEA V I N E S T O T A L C R O P S 2 2 5 I N T E R E S T R E C F I V E O T O T A L S U P P L I E S 6 3 . C C C 9 2 , 6 8 7 T O T A L INCOME E X P E N S E S 2 , 2 4 0 ROOT C R C P S S E E D S 8 , 1 9 0 RCOT C R C P S S E E D S T O T A L C R O P S 4 C C B E E S T O T A L L I V E S T O C K 6 9 9 I N S E C T I C I D E S 2 , 2 7 4 H E R R I C I D E S 7 4 7 H E R B I C I C E S 1 , 3 2 3 H E R B I C I D E S 2 6 6 F U N G I C I D E S F U N G I C I C E S 9 , 3 1 2 C H E M I C A L F E R T I L I Z E R 2 , 5 7 3 6 , 3 1 9 C H E M I C A L F E R T I L I Z E R 2 , 3 4 8 P O T A S H F E R T I L I Z E R S 7 5 6 S E E D 86 C C N T A I N E R S C T W I N E 9 3 3 3 5 5 4 9 P U R P L E G A S O L I N E 1 3 0 5 4 2 1 8 7 D I E S E L F U E L 6 7 2 8 7 305 T R A C T O R R£M 80 5 7 4 1 , 2 3 3 G E N F A R M E O U I P R£M 2 1 5 4 , 2 6 2 P A R T T I M E L A B O R Figure 5.6 Continued 2 6 MAY 77 OCTOBER NOVEMBER D E C E M B E R Y E A R TO DATE I T E M 2 3 . 7 6 0 1 1 7 3 0 7 , 8 0 0 1 6 . 2 0 0 1 3 1 0 0 1 2 , 9 6 0 2 5 . 9 2 0 1 3 3 0 0 3 , 5 2 2 3 , 5 2 2 2 1 . 1 3 5 2 8 , i n O 2 1 1 0 C 1 9 . 2 0 0 211 CF 1 0 , 0 8 0 1 0 , 0 8 0 1 0 , 0 8 0 4 0 . 3 2 0 2 1 1 0 0 6 . 0 0 0 2 5 1 0 0 2 . 8 0 0 2 5 2 0 0 4 , 5 0 0 4 . 5 0 0 7 7 1 1 0 1 8 . 2 4 0 1 8 . 7 4 0 2 7 1 4 0 3 4 , 0 0 0 3 4 . 0 0 0 2 7 2 1 0 1 0 . R 0 0 2 9 1 0 B 1 , 4 6 2 2 . 9 2 5 2 9 7 0 0 2 3 2 . 8 4 5 4 7 3 5 0 7 1 , 1 1 9 2 . 3 2 6 8 1 5 0 0 2 . 3 2 6 3 6 , 2 9 8 1 4 , 1 1 0 8 9 , 0 7 4 2 3 5 , 1 7 1 2 . 2 4 0 2 7 1 0 E 8 . 1 9 0 2 7 1 0 L 1 0 , 4 3 0 4 0 0 4 8 C 0 0 4 0 0 6 9 9 5 4 1 0 0 2 . 2 7 4 5 4 2 0 E 7 4 7 5 4 2 0 P 1 . 3 2 3 5 4 2 0 S 2 6 6 5 4 5 0 B 5 4 5 0 P 9 . 3 1 2 5 5 1 0 P 8 . 8 9 3 5 5 1 3 0 2 , 3 4 8 5 5 1 3 0 7 5 6 5 6 1 0 B 86 5 6 4 0 0 9 7 8 6 1 1 2 0 7 0 9 3 0 6 1 2 0 0 24 6 8 5 6 2 1 0 0 19 1 . 9 0 8 6 2 6 C 0 4 , 4 7 7 6 5 1 2 0 1ST Q U A R T E R TF ST MnOFI. F A R r C P E R A T J N G S T A T E M E N T J A N 1 1 9 7 7 TO DEC 3 1 1 9 7 7 2ND I R C Q U A R T E R Q U A R T E R D E S C R I P T I O N 2 6 MAY 77 O C T O B E R NOVEMBER D E C E M B E R Y E A R TO D A T E I T E M 1 S3 2 , 4 1 3 2 3 , 0 5 4 - 2 3 , 0 5 4 9 3 8 4 , 5 8 3 E X P E N S E S ( C O N T I N U E C ) 5 3 3 U T F R E S T L A N D RENT 7 , 9 4 C M I S C E X P E N S E T O T A L S U P P L I E S £ S E R V I C E S 2 4 , 9 3 6 - 2 1 , 9 3 6 1 5 , 0 1 2 T O T A L E X P E N S E S 7 7 , 6 7 5 E X C E S S OF I N C O M E OVER E X P E N S E S 4 5 6 5 7 1 3 5 , 7 2 6 7 , 7 4 0 1 . 4 2 8 9 , 1 6 8 4 , 9 4 2 1 . 1 3 8 1 . 1 3 8 8 7 , 9 3 6 1 . 6 6 5 7 , 7 4 0 1 7 . 9 5 8 7 2 1 0 C 7 7 1 0 0 8 2 0 0 0 6 3 . 0 5 1 7 3 , 3 8 1 1 6 1 , 2 8 9 Figure 5.6 Continued CD T E S T fCDEL F A R M INCOME S T A T E M E N T J A N 1 1 9 7 7 TO OEC 3 1 1 9 7 7 26 MAY 77 INCCME POT ATnE S CAE°AGE SEEO POTATOFS FIELD PEAS PAPL EY POTATOES SUGAP BEET SEED CTrER CROPS TOTAL CRCPS INTEREST RECEIVED TOTAL SUPPLIES TCTAL INCOME EXPENSES ROOT CROPS SEECS POCT CROPS SEECS TOTAL CROPS OTrFR LIVESTOCK TOTAL LIVESTOCK MI SC EXPENSE CHEMICAL FERTILIZER CHEMICAL FERTILIZER • L AND RENT PART T I M E LAPCR POTASH FERTILIZERS HERBICIDES GEN FARM ECUIP RCM INTEREST HERBICIDES PURPLE GASCLINE OTHER SUPPLIES TOTAL SUPPLIES TOTAL EXPENSES EXCESS OF INCOME OVER EXPENSES ACD: INVENTORY CEC 31 LESS: INVENTORY JAN 1 L E S S : C . C . A . ArCUNT FOR THIS PERIOD NET FARM INCOME 1 9 7 7 1 9 7 6 4 0 . 320 2 H 0 0 3 4 . C O O 2 7 2 1 0 2 8 , 1 8 0 2 U 0 C 2 5 , 9 2 0 1 3 3 0 0 2 3 . 760 U 2 Q 0 1 9 , 2 0 0 2 1 1 0 E 1 8 , 2 4 0 2 7 1 4 0 4 3 , 2 2 5 2 3 2 , 8 4 5 2 , 3 2 6 8 1 5 0 0 2 . 3 2 6 2 3 5 , 1 7 1 8 . 190 2 7 1 C L 2 , 240 2 7 1 C E 1 0 . 4 3 0 4 0 0 4 0 0 1 7 . 9 5 8 8 7 C C 0 9 , 3 1 2 5 5 1 0 P 8, e 9 3 5 5 1 0 0 7 , 7 4 0 7 7 1 0 0 4 , 4 7 7 6 5 1 2 0 2 . 348 551 30 2 , 2 7 4 5 4 7 0 E I. 9 0 8 6 7 6 0 0 1 , 6 6 5 7 2 1 C C 1. 3 2 3 5 4 7 0 S 9 7 8 6 1 1 2 0 4, 172 6 3 , 0 5 1 7 3 , 8 8 1 1 6 1 , 2 B 9 2 2 . 6 8 0 8 , 4 0 0 Z C 0 1 8 1 5 5 , 5 5 0 Figure 5.7. Test Model Income Statement TEST KCPEL STATEMENT OF ASSETS, LIABILITIES AND OWNERS EOUITY AS AT DEC 31 1977 26 MAY 77 * * * ASSETS CURRENT ASSETS FAR* RANK INVENTORIES POTATOES TOTAL CROPS INVENTORY TOTAL CURRENT ASSETS FIXFO ASSETS (AT COST) LAND BUILDINGS, MACH. C EQUIP. LESS: ACCUMULATED C . C . A TOTAL UNDEPRECIATED CAPITAL COST OTHEK ASSETS TOTAL CTt-ER ASSETS 22,680 569, 000 245, 476 -79,307 1977 185,18 I 22, 680 207,861 735,168 1976 39,854 8, 400 48,254 739,224 * * * LIABILITIES CURRENT LIABILITIES TOTAL CURRENT LIABILITIES TERM LIABILITIES TOTAL TFRM LIABILITIES TOTAL LIABILITIES 1977 1976 OWNERS EQUITY JAN 1 NET FARM INCOME OWNERS EQUITY DEC 31 OWNFRS EOUITY » 787.478 155,550 943.028 78 7.478 TOTAL ASSETS 943.029 767,478 TOTAL LIABILITIES t CWNERS EOUITY 943.028 787.478 Figure 5.8 Test Model Statement of Assets, L i a b i l i t i e s , and Owners Equity o o T E S T N C D E L C A S H FLOW S T A T E M E N T J A N 1 1 9 7 7 TO CEC 3 1 1 9 7 7 D E S C R I P T I O N C A S H INFLOW B E G I N N I N G C A S H E A L A N C E INCOM E F I X E D A S S E T D I S P O S A L S OWNERS C O N T R I B U T I O N S S U B T O T A L 26 MAY 77 J A N U A R Y F E R R U A R Y M A R C H Y E A R — T O - D A T E 3 9 , 8 5 4 3 9 , 4 2 9 3 8 , 9 7 7 3 9 , 8 5 4 3 9 , 8 5 4 3 9 , 4 2 9 3 8 . 9 7 7 3 9 . 8 5 4 MONEY BORROWEC M I S C . A D J U S T M E N T T O T A L C A S H INFLOW 3 9 , 8 5 4 3 9 , 4 2 9 3 8 , 9 7 7 3 9 . 8 5 4 C A S H OUTFLOW E X P E N S E S 4 2 4 4 5 1 2 2 . 1 7 8 7 3 . 0 5 4 F I X E D A S S E T P U R C H A S E S M I S C . A D J U S T M E N T OViNER S W I T H D R A W A L S S U B T O T A L 4 2 4 4 5 1 2 2 . 1 7 8 2 3 . 0 5 4 P A Y M E N T S - C U R . L O A N S E CHG A C C T S P A Y M E N T S - T E R M L O A N S MCNEY L O A N E D CUT T O T A L C A S H OUTFLOW 4 2 4 4 5 1 2 2 . 1 7 8 2 3 , 0 5 4 E N D I N G C A S H B A L A N C E 3 9 , 4 2 9 3 8 , 9 7 7 1 6 , 7 9 9 1 6 . 7 9 9 Figure 5.9 Test Model Cash Flow Statement T E S T fC O E L C A S H FLOW S T A T E M E N T J A N 1 1 9 7 7 TO OEC 31 1 9 7 7 2 6 MAY 77 1ST O J AR TER O E S C R I P T I O N A P R I L 1 6 , 7 9 9 1 6 , 7 9 9 1 6 , 7 9 9 M A Y JUNF Y E A R - T O - D A T E 3 9 , 8 5 4 3 9 , 8 5 4 3 9 , 8 5 4 C A S H I N F L O W B E G I N N I N G C A S H B A L A N C E I N C O M E F I X E D A S S E T D I S P O S A L S OWNERS C O N T R I B U T I O N S S U B T O T A L MCNEY BORROWED M I S C . A D J U S T M E N T T O T A L C A S H I N F L O W 1 0 . 8 8 5 1 0 , 8 8 5 1 0 , 8 8 5 - 3 . 7 6 8 3 , 0 0 0 - 7 6 8 - 7 6 8 3 9 , 8 5 4 3 . 0 0 0 4 2 . 8 5 4 4 2 , 8 5 4 2 3 , 0 54 2 3 , 0 5 4 2 3 , 0 5 4 1 6 , 7 9 9 C A S H OUTFLOW E X P E N S E S F I X E D A S S E T P U R C H A S E S M I S C . A D J U S T M E N T OWNERS W I T H D R A W A L S S U B T O T A L P A Y M E N T S - C U R . L O A N S C CHG A C C T S P A Y M E N T S - T.ERr L O A N S MONEY L O A N E D OUT T O T A L C A S H OUTFLOW E N D I N G C A S H B A L A N C E 5 , 9 1 3 5 , 9 1 3 1 4 , 6 5 3 1 4 , 6 5 3 5 , 9 1 3 1 4 , 6 5 3 1 0 , 8 8 5 - 3 , 7 6 8 4 , 3 6 8 4 , 3 6 8 4 , 3 6 8 - 5 . 1 3 7 4 7 , 9 9 1 4 7 . 9 9 1 4 7 , 9 9 1 - 5 , 1 3 7 Figure 5.9 Continued TEST XCDEL ? 6 MAY 77 CASH FLOW STATEMENT JAN I 1977 TC OFC 31 1977 1ST 2ND QUARTER QUARTER DESCRIPTION JULY AUGUST SEPTEMBER YEAR-TO-DATE CASH INFLCW 39,854 16,799 BEGINNING CASH RALANCE -5,137 -1,790 14,851 39.854 3»0G0 INCOME 5,800 24,600 62,287 95.687 FIXED ASSET DISPOSALS OWNERS CONTRIBUTIONS 39,854 19,799 SUBTOTAL 662 22.809 77.139 MONEY BORROWED MISC. ADJUSTMENT CASH OUTFLOW 23,054 24,936 EXPENSES 2,452 7,958 4,601 FIXED ASSET PURCHASES MISC. ADJUSTMENT OWNERS WITHDRAWALS 135.541 39,854 19,799 TOTAL CASH INFLCW 662 22,809 77,139 135,541 63.003 23,054 24.936 SUBTOTAL 2,452 7,958 4.601 63.003 PAYMENTS - CUR.LOANS 6 CHG ACCTS PAYMENTS - TERr LOANS MONEY LOANED CUT 23.C54 24.936 TOTAL CASH OUTFLOW 2,452 7,958 4.601 63,003 16,799 -5,137 ENDING CASH 8ALANCE -1,790 14,851 72,537 72,537 Figure 5.19 Continued 1 S T CU AR T E R TEST PCOEL CASH FLOW STATEMENT JAN 1 1977 TO DEC 31 1977 2ND 3 PC QUARTER QUARTER DESCRIPTION 39 ,854 39,854 16,799 3,000 19,799 CASH INFLCW -5,137 BEGINNING CASH BALANCE 92,687 INCOME FIXED ASSET DISPOSALS OWNERS CONTRIBUTIONS 87,550 SUBTOTAL 39,854 19,799 MCNEY BORROWED MISC. ADJUSTMENT 87,550 TOTAL CASH INFLCW 26 MAY 77 OCTOBER NOVEMBER DECEMBER YEAR-TO-DATE 72,537 108,264 113,207 36,298 14,110 89,074 39.854 235.171 108,836 122,375 202.281 275.025 108,836 122.375 202,281 275.025 CASH OUTFLOW 23,054 24,936 15.012 EXPENSES 571 9, 168 1.138 73.881 FIXEO ASSET PURCHASES 15 ,962 15,962 MISC. ADJUSTMENT OWNERS WITHDRAWALS 23,054 24,936 15,012 SU8TOTAL 571 9,168 17,100 89,843 PAYMENTS - CUR.LOANS £ CHG ACCTS PAYMENTS - TERM LCANS MONEY LOANED OUT 23,"C54 24,936 15,012 TOTAL CASH OUTFLOW 571 9, 168 17,100 89.843 16,799 -5,137 72,537 ENDING CASH BALANCE 108,264 113.207 185.181 185.181 Figure 5.9 Continued TABLE 5.1 RECONCILIATION BETWEEN SHORT'S RESULTS AND MODEL OUTPUT A MODEL B SHORT A-B Income Potatoes (.Q) Potatoes CO) Potatoes (E) t o t a l potatoes Cabbage seed F i e l d peas Barley Sugar beet seed F i e l d beans Strawberries Raspberries Rutabaga Seed Straw Pea Vines t o t a l crops Interest received Total Income 40,320 28,180 19,200 87,700 34,000 25,920 23,760 18,240 16,200 6,000 2,800 4,500 10,800 2,925 232,845 2,326 235,171 110,380 34,000 25,920 23,760 18,240 16,200 6,000 2,800 4,500 10,800 2,925 255,525 255,525 - 22,680 - 22,680, + 2,326' - 20,354 Expenses Root crop seed (E) Root crop seed (L) Bees I n s e c t i c i d e Herbicide (E) Herbicide (P) Herbicide (S) Fungicide (B) Chemical f e r t i l i z e r Chemical f e r t i l i z e r Potash f e r t i l i z e r Seed (B) Twine Purple gas Diese l f u e l Tractor R&M (P) (misc.) 2,240 8,190 400 699 2,274 747 1,323 266 9,312 8,893 2,348 756 86 978 930 685 2,240 8,190 400 700 2,274 747 1,323 266 9,312 9,170 2,348 756 87 977 934 678 + + 277 1 1 4 7 Cont'd. TABLE 5.1 CONTINUED Gen. Farm Equip. R&M Part time labour Interest expense Land rent Misc. expense 1,908 4,477 1,665 7,740 17,958 73,881 1,906 4,478 - 662 7,740 17,961 71,825 + + 3 2,056 2,327 2 Tota l Expense + Excess of Inc./Exp. 161,289 183,700 Potato inventory Adj. f o r inventory 22,680 183,969 183,700 + 1. Potato inventory corresponds to d i f f e r e n c e i n potatoes sold as reported by the model and potatoes grown as reported by Short. 2. O f f s e t t i n g methods of reporting i n t e r e s t income and expense. 3. Unreconciled d i f f e r e n c e corresponds to the chemical f e r t i l i z e r miscellaneous category, l e s s rounding d i f f e r e n c e s . r 30 MAY 77 FARM OPERATING STATEMENT JAN 1 1977 TO OEC 31 1977 1ST 2 NO 3RD IARTER 0U4RTER QUARTER OESCRIPTION OCTOBER NOVEMBER DECEMBER YEAR TO DATE ITEM INCOME 10 10 10 BUCK RABBIT 3 3 3 41 3652C 206 206 206 DOE RABBIT 68 68 68 825 3653C RABBIT PELTS 2 3665B 10 10 10 RABBIT PELTS 3 3 3 41 3665D 1.295 1,295 1,295 RABBIT PELTS 431 431 431 5. 181 3665F 19,739 19,739 19,739 DRESSED RABBI T MEAT 6,579 6, 579 6,579 78,956 36700 433 433 433 MANURE 144 144 144 1,732 49100 TOTAL LIVESTOCK 86.778 32 115 179 INTEREST 59 75 91 553 72100 TOTAL SUPPLIES £ SERVICES 553 . — 21,726 21,810 21 .873 TOTAL INCOME 7,291 7,306 7,322 87.331 EXPENSES 4 4 4 BUCK RA BB IT 1 1 I 17 3652R 86 86 85 DOE RABBIT 28 28 28 347 3653R RABBIT PELTS I 36658 6 6 6 RABBIT PELTS 2 2 2 27 36650 860 860 860 RABBIT PELTS 2 86 28 6 286 3.440 3665F TOTAL LIVESTOCK 3.833 70 70 70 FUR ANIMAL RATION 23 23 23 282 5116B 18 18 18 FUR ANI MAL RATION 6 6 6 73 5U6C 4,495 4, 485 4,485 FUR ANIMAL RATION 1,495 1,495 1.495 17,943 5116D 219 219 219 FUR ANIMAL RATION 73 73 73 879 5U6E 9,947 9,947 9,947 FUR ANIMAL RATION 3,315 3,315 3,315 39,790 5116F 3 00 300 300 VET £ MEDICINES 100 too 100 1,200 52000 90 90 90 HEATING FUELS 30 30 30 360 61400 91 91 91 BLDG f, STRUCTURE REM 30 30 30 365 63000 577 563 548 INTEREST 179 177 176 2.223 7210F 955 953 950 INTEREST 316 316 315 3,808 7210M 30 INTEREST 30 7210P 450 450 INTEREST 900 7210S 1 INTEREST 1 72100 1,062 1,062 1,062 MISC EXPENSE 3 54 354 354 4,250 82000 TOTAL SUPPLIES E SERVICES - 72,106 19,2 59 18.76C 19,193 TOTAL EXPENSES 6, 243 6, 242 6,240 75.939 2,467 3,049 2,680 EXCESS OF INCOME OVER EXPENSES 1.047 1,064 1.082 11.392 Figure 5.10 Test Two Operating Statement 30 MAY 77 FARM INCOME STATEMENT JAN 1 1977 TO OFC 31 1977 INCOME ORESSEO RABBIT MEAT RABBIT PELTS MANURE OOE RABBIT BUCK RABBIT RABBIT PELTS RABBIT PELTS TOTAL LIVESTOCK INTEREST TOTAL SUPPLIES TOTAL INCOME EXPENSES RABBIT PELTS DOE RABBIT OTHER LIVESTOCK TOTAL LIVESTOCK FUR ANIMAL RATION FUR ANIMAL RATION MISC EXPENSE INT F R F ST INTEREST VET £ MEDICINES INTERFST FUR ANIMAL RATION BLDG t STRUCTURE R£M HEATING FUELS Fi|R- ANIMAL RATION OTHER SUPPLIES TOTAL SUPPLIES TOTAL EXPENSES EXCESS OF INCOME OVER EXPENSES ADO:INVENTORY DEC 31 LESS: INVENTORY JAN 1 LESS:C.C.A. AMOUNT FOR THIS PERIOD NET FARM INCOME 1977 1976 78,956 36700 5, 181 3665F 1, 732 49100 825 3653C 41 3652C 41 36650 2 3665B 86,778 553 72100 553 87,331 3,440 3665F 347 3653R 45 3,833 39, 790 5116F 17.943 51160 4,250 82000 3, 808 7210M 2,223 7210F 1, 200 52000 900 7210S 879 5116E 365 63000 360 61400 282 5116R 104 72,106 75,939 11.392 10,914 10,914 7,242 4,149 Figure 5.11 Test Two Income Statement STATEMENT DF ASSETS, LIABILITIES AND OWNERS EQUITY AS AT DEC 31 1977 30 MAY 77 * * * ASSETS CURRENT ASSETS FARM BANK CURRENT RECEIVABLES INVENTORIES DOE RABBIT TOTAL LIVESTOCK INVENTORY TOTAL CURRENT ASSETS FIXED ASSETS (AT COST» LAND 6UILDINGS, MACH. £ EQUIP. LESS: ACCUMULATED C C A TOTAL UNDEPRECIATED CAPITAL C O S T OTHER ASSETS TOTAL OTHER ASSETS 10,914 71,200 43,708 -7,242 1977 16,760 355 10,914 28,029 107,665 1976 1 3 9 3 5 5 10,914 11,409 114,908 * * * LIABILITIES CURRENT LIABILITIES TOTAL CURRENT LIABILITIES TERM LIABILITIES FARM IMP LOANS TRUST COMPANIES TOTAL TERM LIABILITIES TOTAL LIABILITIES 1977 22,048 38,842 60,890 60.890 * * * OWNERS EOUITY * » * OWNERS EOUITY JAN 1 50,526 OWNERS CONTRIBUTIONS 26,130 OWNERS WITHDRAWALS -6,000 NET FARM INCOME 4.149 OWNERS EQUITY DEC 31 74.805 1976 3.000 72.790 75,790 50.526 T O T A L A S S E T S 135,695 126,318 T O T A L L I A B I L I T I E S £ OWNERS E Q U I T Y 135,695 126.316 Figure 5.12 Test Two Statement of Assets, L i a b i l i t i e s and Owners Equity o >0 MAY 77 CASH FLOW STATEMENT J AN 1 1977 TO DEC 31 1977 tST 2ND 3RD IARTER QUARTER QUARTER DESCRIPTION OCTOBER NOVEMBER DECEMBER YEAR--TO-DATE CASH INFLOW 139 3, 714 8,640 BEGINNING CASH BALANCE 7,694 10, 698 13.720 139 21, 726 21,810 21,873 INCOME 7,291 7,307 7,322 87.332 FIXED ASSET DISPOSALS 6,330 4, 100 7,600 OWNFRS CONTRIBUTIONS 2, 700 2.700 2.700 26,130 28,196 29,624 38,114 SUBTOTAL 17, 685 20.705 23,743 113.601 126 MONEY BORROWED 126 MISC. ADJUSTMENT. 28,323 29,624 38,114 TOTAL CASH INFLOW 17,685 20,705 23.743 113.728 CASH OUTFLOW 19,259 18,760 19,193 EXPENSES 6,244 6,242 6,240 75,940 FIXED ASSET PURCHASES MISC. ADJUSTMENT 1 , 500 1,500 1,500 OWNERS WITHDRAWALS 500 500 500 6.000 20.759 20,260 20,693 SUBTOTAL 6, 744 6,742 6,740 81 .940 3, 127 PAYMENTS - CUR.LOANS t CHG ACCTS 3,127 721 723 9, 726 PAYMENTS - TERM LOANS 242 242 243 11.900 MONEY LOANED OUT 24,608 20,984 30,419 TOTAL CASH OUTFLOW 6,986 6,985 6,983 96.968 3, 714 8,640 7,694 ENDING CASH BALANCE 10,698 13,720 16,760 16.760 • — • — - — — — — — — Figure 5.13 Test Two Cash Flow Statement I l l 5.3 VERIFICATION WITH THE RECORD SYSTEM The t h i r d t e s t was an a d d i t i o n a l check on the accuracy of the f i n a n c i a l reports. The r e s u l t s of the t e s t model based on Short's model (Figures 5.6 to 5.9) were used as input to the Canfarm Farm Record System. The s o l u t i o n l e v e l s of the income and expense items, the beginning balances, f i x e d asset transactions, and inventory information were entered on the Canfarm Farm Record System journals and processed through the System. The r e s u l t s of t h i s run, i l l u s t r a t e d i n Figures 5.14, 5.15, 5.16 and 5.17 may be compared to Figures 5.6, 5.7, 5.8 and 5.9 r e s p e c t i v e l y , adding further c r e d i b i l i t y to the o v e r a l l v a l i d i t y of the f i n a n c i a l sub-matrix. This accomplishes the second goal of the t h e s i s , which i s to develop a model, incorporating the concepts of the Canfarm Farm Record System, that produces projected f i n a n c i a l reports consistent with the Canfarm Farm Record System reports. Three te s t s were c a r r i e d out to determine the v a l i d i t y of the model and have been reported i n t h i s chapter. The f i r s t was the d u p l i c a t i o n by the model of a t e s t farm on the Record System, to v e r i f y the f i n a n c i a l submatrix A^. The r e s u l t s of t h i s t e s t showed the submatrix to be accurate, the small d i f f e r e n c e s being due to rounding error . The second te s t consisted of du p l i c a t i n g the r e s u l t s of Short's vegetable farm planning model. Some d i f f i c u l t i e s were encountered due to the sheer s i z e of the integrated model, but the o v e r a l l r e s u l t s proved to be successful. As an a d d i t i o n a l demonstration of the a d a p t a b i l i t y of the model, i t was integrated with a r a b b i t enterprise model. As no previous s o l u t i o n was VALIDATION RUN FARM OPERATING STATEMENT JAN 1, 1976 TO DEC 31, 1976 732271 4 PRODUCED ON 15/11/78 1ST QTR. 2ND QTR. 3RD QTR. DESCRIPTION 3,000 8,190 2 , 5 7 3 9 , 3 1 3 2,240 400 700 2 , 2 7 4 747 1 , 3 2 3 266 6 , 3 2 0 2 , 3 4 8 756 87 INCOME 2 3 , 7 6 0 8 , 4 0 0 1 2 , 9 6 0 1 9 , 2 0 0 1 0 , 0 8 0 3 , 0 0 0 2 , 8 0 0 1 0 , 8 0 0 1 , 4 6 3 225 $3 ,000 $ 9 2 , 6 8 8 BARLEY FIELD BEANS FIELD PEAS POTATOES POTATOES POTATOES STRAWBERRIES RASPBERRIES RUTABAGA SEED SUGAR BEET SEED CABBAGE SEED STRAW PEA VINES TOTAL CROPS INTEREST RECEIVED TOTAL SUPPLIES & SERVICES TOTAL INCOME OCTOBER 7 , 8 0 0 1 2 , 9 6 0 3 , 5 2 3 1 0 , 0 8 0 1 , 4 6 3 474 $ 3 6 , 2 9 9 NOVEMBER 3,523 1 0 , 0 8 0 508 $ 1 4 , 1 1 0 DECEMBER 21,135 1 0 , 0 8 0 4 , 5 0 0 1 8 , 2 4 0 3 4 , 0 0 0 1 , 1 1 9 $ 8 9 , 0 7 4 * * EXPENSES * * ROOT CROPS SEEDS ROOT CROPS SEEDS TOTAL CROPS BEES TOTAL LIVESTOCK INSECTICIDES HERBICIDES HERBICIDES HERBICIDES FUNGICIDES CHEMICAL FERTILIZER CHEMICAL FERTILIZER POTASH FERTILIZERS SEED CONTAINERS & TWINE YEAR-TO-DATE 2 3 , 7 6 0 1 6 , 2 0 0 2 5 , 9 2 0 2 8 , 1 8 0 1 9 , 2 0 0 4 0 , 3 2 0 6 , 0 0 0 2 , 8 0 0 4 , 5 0 0 1 8 , 2 4 0 3 4 , 0 0 0 1 0 , 8 0 0 2 , 9 2 5 2 , 3 2 6 2 3 2 , 8 4 5 8 2 , 3 2 6 $2351171 2 , 2 4 0 8 , 1 9 0 400 700 2 , 2 7 4 747 1 , 3 2 3 266 8 , 8 9 3 9 , 3 1 3 2 , 3 4 8 756 87 ITEM NO. 112 131 133 211 211 211 25T 252 2711 2714 2721 291 297 1 5 1 0 , 4 3 0 4 4 0 0 271 2 7 1 D 8 B 541 542 542 542 545 551 551 5513 561 564 Figure 5.14 V a l i d a t i o n Operating Statement VALIDATION RUN FARM OPERATING STATEMENT (CONTINUED) JAN 1 , 1976 TO DEC 3 1 , 1976 1ST 2ND 3RD QTR. QTR. QTR. DESCRIPTION EXPENSES (CONT'D) 9 3 335 549 PURPLE GASOLINE 130 542 188 DIESEL FUEL 68 287 306 TRACTOR R8M 81 574 1 , 2 3 4 GEN FARM EQUIP RsM 215 4 , 2 6 3 PART TIME LABOR 194 938 533 INTEREST LAND RENT 2 , 4 1 3 4 , 5 8 3 7 , 9 4 0 MISC EXPENSE TOTAL SUPPLIES & SERVICES $ 2 3 , 0 5 4 $ 2 4 , 9 3 7 $ 1 5 , 0 1 2 TOTAL EXPENSES $ 7 7 , 6 7 5 EXCESS OF INCOME OVER EXPENSES $ 2 3 , 0 5 4 $ 2 1 , 9 3 7 EXCESS OF EXPENSES OVER INCOME Figure 5.14 Continued 732271 5 PRODUCED ON 15/11/78 OCTOBER NOVEMBER DECEMBER YEAR-TO-DATE ITEM NO. 978 6112 71 931 612 25 685 621 20 1 , 9 0 9 626 4 , 4 7 8 6512 1 , 6 6 5 721 7 , 7 4 0 7 , 7 4 0 771 456 1 , 4 2 8 1 , 1 3 8 1 7 , 9 5 8 8 2 6 3 , 0 5 1 $572 $ 9 , 1 6 8 $ 1 , 1 3 8 $ 7 3 , 8 8 1 $ 3 5 , 7 2 7 $ 4 , 9 4 2 $ 8 7 , 9 3 6 $ 1 6 1 , 2 9 0 VALIDATION RUN FARM INCOME STATEMENT JAN 1 , 1976 TO DEC 3 1 , 1976 732271 3 PRODUCED ON 15/11/78 INCOME POTATOES CABBAGE SEED FIELD PEAS BARLEY SUGAR BEET SEED FIELD BEANS STRAW OTHER CROPS TOTAL CROPS TOTAL SUPPLIES AND SERVICES TOTAL INCOME EXPENSES ROOT CROPS SEEDS TOTAL CROPS TOTAL LIVESTOCK CHEMICAL FERTILIZER MISC EXPENSE LAND RENT PART TIME LABOR HERBICIDES POTASH FERTILIZERS GEN FARM EQUIP R & M INTEREST PURPLE GASOLINE DIESEL FUEL SEED OTHER SUPPLIES AND SERVICES TOTAL SUPPLIES AND SERVICES TOTAL EXPENSES EXCESS OF INCOME OVER EXPENSES ADD: INVENTORY DEC 31 L E S S : INVENTORY JAN 1 L E S S : C C A . AMOUNT FOR THIS PERIOD NET FARM INCOME 1976 8 7 , 7 0 0 3 4 , 0 0 0 2 5 , 9 2 0 2 3 , 7 6 0 1 8 , 2 4 0 1 6 , 2 0 0 1 0 , 8 0 0 1 6 , 2 2 5 2 3 2 , 8 4 5 2 , 3 2 6 $ 2 3 5 , 1 7 1 REF NO. 1 0 , 4 3 0 1 8 , 2 0 6 1 7 , 9 5 8 7 , 7 4 0 4 , 4 7 8 4 , 3 4 4 2 , 3 4 8 1 , 9 0 9 1 , 6 6 5 978 931 756 1 , 7 3 8 1 0 , 4 3 0 400 6 3 , 0 5 1 $ 7 3 , 8 8 1 1 6 1 , 2 9 0 2 2 , 6 8 0 8 , 4 0 0 2 0 , 0 1 9 $ 1 5 5 , 5 5 1 Figure 5.15 V a l i d a t i o n Income Statement VALIDATION RUN STATEMENT OF A S S E T S , L I A B I L I T I E S AND OWNERS EQUITY AS AT DEC 31, 1976 732271 2 PRODUCED ON 15/11/78 ASSETS CURRENT ASSETS FARM BANK INVENTORIES POTATOES TOTAL CROPS INVENTORY TOTAL CURRENT ASSETS FIXED ASSETS (AT COST) LAND B U I L D I N G S , MACH. & EQUIP. L E S S : ACCUMULATED C C A . TOTAL UNDEPRECIATED CAPITAL COST OTHER ASSETS TOTAL ASSETS 2 2 , 6 8 0 5 6 9 , 0 0 0 2 4 5 , 4 7 6 7 9 , 3 0 7 1976 1 8 5 , 1 8 2 22,680 $2071882 7 3 5 , 1 6 7 0 $ 9 4 3 , 0 2 9 1975 3 9 , 8 5 4 8 , 4 0 0 7 3 9 , 2 2 4 0 $ 7 8 7 , 4 7 8 REF NO. L I A B I L I T I E S TOTAL L I A B I L I T I E S 1976 $0 * * * OWNERS EQUITY * * * OWNERS EQUITY JAN 1 7 8 7 , 4 7 8 OWNERS CONTRIBUTIONS 0 OWNERS WITHDRAWALS 0 NET FARM INCOME 1 5 5 , 5 5 1 OWNERS EQUITY DEC 31 9 4 3 , 0 2 9 1975 $0 7 8 7 , 4 7 8 REF NO. TOTAL L I A B I L I T I E S & OWNERS EQUITY $ 9 4 3 , 0 2 9 $ 7 8 7 , 4 7 8 Figure 5.16 V a l i d a t i o n Statement of Assets, L i a b i l i t i e s , and Owners Equity VALIDATION RUN CASH FLOW STATEMENT JAN 1 , 1976 TO DEC 3 1 , 1976 732271 9 PRODUCED ON 15/11/78 1ST QTR. 2ND QTR. 3RD QTR. DESCRIPTION OCTOBER NOVEMBER DECEMBER YEAR-TO-DATE 3 9 , 8 5 4 1 6 , 8 0 0 3 , 0 0 0 CASH - 5 , 1 3 7 9 2 , 6 8 8 INFLOW BEGINNING CASH BALANCE INCOME 7 2 , 5 3 8 3 6 , 2 9 9 1 0 8 , 2 6 5 1 4 , 1 1 0 1 1 3 , 2 0 8 8 9 , 0 7 4 3 9 , 8 5 4 2 3 5 , 1 7 1 3 9 , 8 5 4 1 9 , 8 0 0 8 7 , 5 5 1 TOTAL CASH INFLOW 1 0 8 , 8 3 7 1 2 2 , 3 7 6 2 0 2 , 2 8 2 2 7 5 , 0 2 5 2 3 , 0 5 4 2 4 , 9 3 7 CASH OUTFLOW 1 5 , 0 1 2 EXPENSES FIXED ASSET PURCHASES 572 9 , 1 6 8 1 , 1 3 8 1 5 , 9 6 2 7 3 , 8 8 1 1 5 , 9 6 2 2 3 , 0 5 4 2 4 , 9 3 7 1 5 , 0 1 2 TOTAL CASH OUTFLOW 572 9 , 1 6 8 1 7 , 1 0 0 8 9 , 8 4 3 1 6 , 8 0 0 - 5 . 1 3 7 7 2 , 5 3 8 ENDING CASH BALANCE 1 0 8 , 2 6 5 1 1 3 , 2 0 8 1 8 5 , 1 8 2 1 8 5 , 1 8 2 Figure 5.17 V a l i d a t i o n Cash Flow Statement a v a i l a b l e f o r comparison, the r e s u l t s of t h i s run merely i n d i c a t e the f e a s i b i l i t y of i n t e g r a t i o n with a small model and also i n d i c a t e s that the f u l l range of Canfarm items codes can be used (see Figure 5.5). The t h i r d t e s t was a d u p l i c a t i o n by the Canfarm Farm Record System of the model's r e s u l t s taken from the.output produced when integrated with Short's model. This t e s t was designed as a further check of the v a l i d i t y of the f i n a n c i a l submatrix, and proved to be successful. This chapter has demonstrated that the i n t e g r a t i o n of a record system and a farm planning system i s indeed f e a s i b l e . The r e s u l t i n g integrated model incorporates the elements of the Managerial Information and Decision System discussed i n e a r l i e r chapters. I t i s not yet at the stage where i t could be u s e f u l at the f i e l d l e v e l , r e q u i r i n g considerable refinement, p a r t i c u l a r l y i n the area of system design with respect to computer operation, an area that i s beyond the scope of the study. One f i n a l objective remains, that of the proposed standardization scheme. This w i l l be discussed i n Chapter Six. 118 CHAPTER SIX RECOMMENDATIONS FOR A STANDARDIZATION BASE The t h i r d objective of t h i s t hesis i s to put forward reccmmendations as to how a form of standardization of output reports from components of Management Information and Decision Systems could be achieved, i n order to obtain greater acceptance of t h e i r use by producers and t h e i r extension advisors. In order for the scheme to have any general a p p l i c a b i l i t y , i t must apply to a wider range of planning s i t u a t i o n s than has been demonstrated thus f a r i n the study. In other words, to propose a standardization base f o r a Managerial Information and Decision System, one must f i r s t consider some of the possible planning a p p l i c a t i o n s that would f i t i n t o the scheme. Sections 6.1 and 6.2 of t h i s chapter discuss the need f o r further a p p l i c a -tions of the model p r i o r to o u t l i n i n g the proposed standardization scheme. F i n a l l y , the implications f o r d e l i v e r i n g the scheme at the extension l e v e l are discussed. In Chapter Four, a method and procedure was developed to generate selected f i n a n c i a l statements and i n Chapter Five , t h i s model was i n t e g r a -ted with an LP farm planning model. The r e s u l t s i n d i c a t e that a standard set of f i n a n c i a l reports can be accurately produced for a projected plan. Further, i t was argued i n Chapters One and Two that acceptance of farm planning techniques among farmers, extension workers and the business community would be greater i f there were some consistency of output. I t , t h e r e f o r e , makes sense to examine other p o s s i b l e a p p l i c a t i o n s f o r the concepts developed thus f a r , i n order t o d e f i n e the l i m i t s of the scheme. This i s broken down i n t o two areas, a p p l i c a t i o n s r e l a t e d t o l i n e a r programming and a p p l i c a t i o n s r e l a t e d t o non-optimizing techniques. 120 6.1 LINEAR PROGRAMMING APPLICATIONS The use and app l i c a t i o n s of l i n e a r programming has been reviewed i n Chapters One and Two. The i n t e g r a t i o n of t h i s model with any LP structure should leave these concepts unaltered. 6.1.1 Objective Function Considerations The a p p l i c a t i o n s of the model shown here have involved the maximiza-t i o n of Excess of Income Over Expenses. The model could be developed further to maximize Net Farm Income (as defined i n Chapter Four). The bene f i t i n maximizing Net Farm Income, rather than Excess of Income Over Expenses, i s that the model w i l l not tend to draw down inventories to make a paper p r o f i t i n the current year. The i n c l u s i o n of depreciation a c t i v i t i e s i n the objective function w i l l have implications f o r c a p i t a l budgeting s t r a t e g i e s . I f the goal of theproducer i s to maximize owners equity, then the equation f o r owners equity shown i n Chapter Three, Section 2, would become the objective function. This method would be p a r t i c u l a r l y relevant i n comparing farm growth st r a t e g i e s . A l t e r n a t e l y , the goal might be the maximization of some other function, subject to an acceptable l e v e l or l e v e l s of owners equity. High p r i o r i t y should be given to including tax implications i n the model. In the sole p r o p r i e t o r s h i p instance, tax i s a personal expense. Consequently, the Canfarm Farm Record System does not consider owners equity on an a f t e r tax basis unless owners withdrawals i s used as a means of tax payment. However, the Record System framework c a l c u l a t e s taxable income and incorporation of t h i s i n t o the model would not be d i f f i c u l t . 121 The incorporation of tax minimization s t r a t e g i e s would be more complex. This would l i k e l y require a sub-routine l i n k e d to the condi-t i o n a l r e v i s e MPSX o p t i o n 1 . For farm s i t u a t i o n s i n v o l v i n g external or i n t e r n a l c a p i t a l r a t i o n i n g , the model could be used with constraints on loans ( i . e . loan l i m i t s ) or debt-equity r a t i o s . In t h i s context, the model would be very u s e f u l f o r planning low equity farms. While the l i s t i s not exhaustive, t h i s section has outlined some ways i n which the model could use various objective functions to determine d i f f e r e n t f i n a n c i a l parameters i n the farm plan. 6.1.2 Time Periods As i t stands, the model covers t h i r t e e n time periods (.12 months plus an annual t o t a l ) , i n order to generate monthly d e t a i l f o r the f i n a n c i a l reports. In the a p p l i c a t i o n with Short's model, some d e t a i l was l o s t , as the c r i t i c a l p l anting and harvesting periods of Short's model were divided i n t o weeks. However, for forward planning over several years, even monthly d e t a i l may not be necessary and quarterly reports might be s u f f i c i e n t . Whatever the requirement, the only l i m i t a t i o n i n expanding the time horizon, on a multiple period basis, i s i n the ensuing matrix s i z e . A l t e r n a t e l y , the model could be converted i n t o a recursive model with l i t t l e m odification. In t h i s way, monthly d e t a i l f o r a p o t e n t i a l l y i n f i n i t e time period could be kept. The pros and cons of multi-period and 1. See the MPSX Manual, (IBM, 1972) or Batterham (1972). 122 recursive l i n e a r programing were outlined i n Section 1.1.4. Whatever the de c i s i o n as to the appropriateness of the s o l u t i o n method f o r a dynamic problem, the model's framework w i l l be applicable. 6.1.3 C a p i t a l Budgeting The model c a l c u l a t e s depreciation using the C a p i t a l Cost Allowance rates on a diminishing balance basis, as required f o r taxation purposes i n Canada. Computation of management depreciation rates requires only the modification of those c o e f f i c i e n t s i n the C C A . a c t i v i t i e s . Integra-ted with a c a p i t a l budgeting model using a mixed integer algorithm"'", the e f f e c t s on Owners Equity or Net Farm Income of f i x e d asset a c q u i s i t i o n s t r a t e g i e s could be determined. 6.1.4 Risk Programming The model, as a system of l i n e a r equations, i s also consistent with the s p e c i f i c a t i o n of r i s k planning models using e i t h e r quadratic or l i n e a r programming. Given the r i s k i n p r i c e s , y i e l d s and i n s t i t u t i o n s relevant to most of primary a g r i c u l t u r a l production, the extension i n t o t h i s area of research i s seen as most important. 1. See f o r example Lee (1976, pp. 350-352). 123 6. 2 APPLICATION WITH NON-OPTIMIZING MODELS In mathematical s p e c i f i c a t i o n , the model i s compatible with a v a r i e t y of LP planning models. As indicated i n Chapter Two, l i n e a r programming was adopted as a method of sol u t i o n , i n part, because of i t s optimization feature. However, the c e n t r a l concept of producing standard, e a s i l y interpreted output from a farm planning model i s not l i m i t e d to l i n e a r programming. In Figure 4.1, one has only to substitute matrix generation and solut i o n (stages three and four) for some other s o l u t i o n procedure, to convert the framework to a simulation or budgeting model. From a pro-gramming standpoint, the adaptation i s t r i v i a l . Provided the online sol u t i o n f i l e shown i n Figure 5.5 i s i n the same format as the MPS output and the same a c t i v i t y codes are used, the e x i s t i n g report writer would s u f f i c e . A l t e r n a t e l y , a conversion program could perform the i n t e r f a c e between s o l u t i o n and report writer, or the report writer could be modified to pick up from another format. There would appear to be no conceptual or t e c h n i c a l d i f f i c u l t y i n having farm planning programs, no matter what the so l u t i o n method, produce standardized f i n a n c i a l output. AH that seems to be needed i s an agreement as to what standard to use. 124 6.3 STANDARDIZATION OF OUTPUT The purpose of the standardization scheme i s to propose a means of standardizing steps 1, 2, 4, 5, 6 and 7 of the Managerial Information and Decision System framework as depicted i n Figure 6 . l \ while enabling step 3, the p r o j e c t i o n or s o l u t i o n mechanism, to cover many types of pro-cedures for almost any type of Canadian a g r i c u l t u r e . The proposed system i s modular i n form and stage 3 i s a s e r i e s of p l u g - i n , plug-out interchange-able modules. The module demonstrated i n t h i s t h e s i s i s an LP model maximizing Excess of Income over Expenses. The f i r s t two sections of t h i s chapter i n d i c a t e that there does not appear to be any b a r r i e r to developing other modules to plug i n t o the framework. The argument has been presented i n Chapters One and Two that farm managers and extension s t a f f would more r e a d i l y adopt management to o l s i f they d i d not have to learn new concepts, terminology and procedures each time a new program i s introduced. The countervailing argument to t h i s i s that i t i s preferable to design enterprise s p e c i f i c , or problem s p e c i f i c models. However, t h i s can be done within the proposed framework by creating the step 3 s o l u t i o n modules as required, but s t i l l t i e i n g the f i n a n c i a l segment in t o the framework. Chapters Four and Five have shown that with very l i m i t e d resources, a model can be b u i l t within t h i s framework. There are innumerable manual recording systems or account books across Canada; most of which, l i k e New Year's r e s o l u t i o n s , are r a r e l y kept past 1. Figure 6.1 i s the same as Figure 2.1 and i s repeated here f o r the reader's convenience. 125 Comparison planned vs actual H i s t o r i c a l records year t >> 6 H i s t o r i c a l records year t+n Modif i c a t i o n s to previous production plan Interchangeable modular p r o j e c t i o n mechanism Subjective evaluation Projected f i n a n c i a l statements year t+n Figure 6.1 Framework of the Proposed Managerial Information and Decision System 126 the end of January. The majority of these are sing l e entry, hence unauditable, yet new ones are proposed r e g u l a r l y . The Canfarm Farm Record System, as outlined i n Chapter Three, i s the a g r i c u l t u r a l record keeping system i n Canada that i s c l o s e s t to being National i n scope. This may not have great consequence to the farmer, but does have an impact on the research and data r e t r i e v a l aspects of the system. Moreover, farmers have shown that, given reasonable se r v i c e , they l i k e and w i l l use the system. The Canfarm Farm Record System, then, appears to provide an excel l e n t basis f o r the Managerial Information and Decision System and, as nothing better seems to e x i s t at the moment, i t i s proposed that i t be used as the basis f o r the f i n a n c i a l format f o r the framework. However, as the Canfarm Farm Record System was designed to produce h i s t o r i c a l f i n a n c i a l records, step 1 of Figure 6.1, some modification may be required to ensure i t s a p p l i c a b i l i t y f o r step 4, the projected f i n a n c i a l statements and step 7, the planned versus actual c o n t r o l l i n k . Neverthe-l e s s , i t would appear that three of the four f i n a n c i a l planning statements used i n the model developed here can be used with minimal modification. The statement of Assets, L i a b i l i t i e s and Owners Equity, or Balance Sheet, i s completely useable as a planning t o o l i n i t s present format. The user has the option of u t i l i z i n g the management depreciation option, i n place of the C a p i t a l Cost Allowance. This enables the projected depreciation rates to be inserted as deemed appropriate. 127 The projected Balance Sheet w i l l show at a glance, the e f f e c t s of a farm plan on Owners Equity, L i a b i l i t i e s , C a p i t a l Assets and various f i n a n c i a l r a t i o s . The Income Statement, s i m i l a r l y , requires l i t t l e or no modification. The farm plan can be evaluated i n terms of Net Farm Income i n a concise, one-page format. The Farm Operating Statement, providing the supportive d e t a i l f or the income and expense segment of the Income Statement, may be as d e t a i l e d or aggregated as the user wishes, depending on the s e l e c t i o n of item codes. This statement also could be used with l i t t l e m odification. For projected plans over several years, the monthly d e t a i l provided by t h i s statement might not be necessary. In place of monthly l i s t i n g s , q u a r t e r l y data might be s u f f i c i e n t , with the addition of a column or columns to provide planned-versus-actual data, i n order to eliminate the need to compare two separate statements. The Cash Flow Statement could use some improvement, to make i t more useful on a projected basis. The accrual adjustments could be eliminated and, i n t h e i r place, the top d o l l a r value income and expense items could be l i s t e d i n the manner of the summary Income Statement. Also, l i s t i n g the a c t u a l beside the planned value would a s s i s t i n the c o n t r o l function. To achieve t h i s , and to maintain the one-page format of the report, the monthly d e t a i l would have to be dropped i n favour of quarterly aggregation. This step would require only changes to the report writers for the Canfarm Farm Record System and the planning model. 128 Thus, the Canfarm Farm Record System could serve as the base format f o r the planning process without s i g n i f i c a n t m odification to e i t h e r the Record System, or the model developed i n t h i s t h e s i s . Other statements from the Record System could be u t i l i z e d i n a s i m i l a r manner to serve as background information or to key on s p e c i f i c planning a p p l i c a t i o n s . 129 6.4 IMPLICATIONS FOR THE DELIVERY SYSTEM In order f o r any farm management t o o l to achieve i t s intended e f f e c t i v e n e s s , i t has to be deli v e r e d or extended to the end user, the a g r i c u l t u r a l producer. The two s i g n i f i c a n t segments of a d e l i v e r y system consist of people and the technology required to get the program to the c l i e n t and to ensure i t s appropriate use. The nature and t r a i n i n g of the people involved i n a d e l i v e r y system, be they government extension s t a f f or p r i v a t e consultants, i s that they are not research and development s p e c i a l i s t s and are, therefore, u n l i k e l y to be motivated to extend a model or package to the c l i e n t unless i t s meaning and use i s quickly understood. The advantages of an integrated approach should, therefore, be obvious. Once a record system i s learned, the use and i n t e r p r e t a t i o n of projected statements, that are consistent with that record system, would require a minimal amount of further t r a i n i n g . The extension agent would be able to spend more time with the c l i e n t and more time devising better ways to use the program, rather than having to learn new concepts and techniques f o r each i n d i v i d u a l package. From a technological standpoint, i f the Record System and planning mechanism are integrated, the data that i s already stored i n the Record System f o r a p a r t i c u l a r farm can be used as a portion of the input f o r the planning process, thus, eliminating some of the data input required for the planning stage. 130 Technological advancements i n the area of data transmission networks, i n t e l l i g e n t terminals, mini and micro computers, are being announced almost d a i l y - Combined with a c o n t i n u a l l y d e t e r i o r a t i n g p o s t a l service and the increased need f or immediate management information on the part of the user, the day of remote data entry f o r both record and planning systems cannot be f a r o f f . Consequently, an integrated Management Informa-t i o n and Decision System, as proposed here, would seem to be the l o g i c a l next step i n farm management. 131 CHAPTER SEVEN SUMMARY AND CONCLUSIONS 7.1 SUMMARY OF THE THESIS The major objective of the the s i s was to integrate a farm planning model with the Canfarm Farm Record System i n order to f a c i l i t a t e a Managerial Information and Decision System that could be accepted by the farm manager. In order to achieve t h i s o bjective, a necessary p r i o r objective was to i d e n t i f y the accounting framework of the Record System. The subsequent objective, once the previous two were achieved, was to develop a recommendation f o r a standardization base so that records and planning models could be brought together i n t o one framework. The underlying hypothesis i s that the user of the system, the farm manager, i n conjunction with an extension advisor, would be more l i k e l y to adopt a Managerial Information and Decision System that does not require the learning of new concepts f o r each component or stage of the planning process and at the same time produces reports that are consistent i n format between stages. While t h i s hypothesis can not be tested d i r e c t l y u n t i l an integrated system i s a v a i l a b l e , i t i s r a t i o n a l to assume that f o r a system to be used, i t s b e n e f i t s must be perceived to outweigh i t s costs. As a s i g n i f i c a n t 132 cost of using any system i s the investment i n time required to become acquainted with that system, the fewer the concepts to be learned, the lower would be the cost of learning. On the b e n e f i t side, i n t e g r a t i n g records with the planning function, provides the c o n t r o l l i n k through the comparison of planned versus actual values that i s not a v a i l a b l e with fragmented packages. In ad d i t i o n to the fragmentation problem, farm planning programs tend to be developed from a research point of view, wherein the researcher wishes to examine a v a r i e t y of model structures using a p a r t i c u l a r set of data. Extension-oriented models, i n a d d i t i o n to r e q u i r i n g streamlined operating procedures, generally require a f i x e d structure with v a r i a t i o n of the input data. These considerations, i n conjunction with theories of the f i r m pertaining to the planning process of the farm firm, formed the t h e o r e t i -c a l background to t h i s study. Farm planning methods were reviewed and while l i n e a r programming was found to have i t s l i m i t a t i o n s as a s o l u t i o n method, t h i s method was chosen f o r the model due to i t s lack of conceptual complexity, the a v a i l a b i l i t y of a s u i t a b l e algorithm, and i t s maximizing c a p a b i l i t i e s . The Canfarm Farm Record System was described i n terms of i t s account-ing concepts. The flow of data was followed from the farmer's journal e n t r i e s , through the various d e t a i l e d reports, to the summary f i n a n c i a l statements, and to the Balance Sheet. The i n t e r - r e l a t i o n s h i p of these f i n a n c i a l statements was determined with the a i d of diagrams and the expansion of the Balance Sheet equation. F i n a l l y , four reports, the Farm Operating Statement, the Income Statement, the Statement of Assets, 133 L i a b i l i t i e s and Owners Equity, plus the Cash Flow Statement, were chosen as the basic reports to be generated by the model. The empirical model was shown to c o n s i s t of seven stages. These range from the capturing of the h i s t o r i c a l records of the farm, the formulation of the farm plan, the generation of the LP matrix, to the solu t i o n of the projected farm plan. Next, the report writer takes the LP s o l u t i o n and produces the four f i n a n c i a l statements. The f i n a l stage i s the co n t r o l l i n k , i n which the projected reports are compared to the f i n a n c i a l records as they become a v a i l a b l e . As the model was designed to be applicable to a v a r i e t y of farm planning s i t u a t i o n s , i n add i t i o n to being able to l i n k up with other models, i t was run through several t e s t s . The f i r s t , a simulation run to t e s t the model structure, used the data from a case farm on the Canfarm Farm Record System. A comparison of the reports showed the model to be functioning c o r r e c t l y . Next, the model was integrated with two d i f f e r e n t farm planning models to demonstrate i t s c a p a b i l i t i e s . F i n a l l y , the output from one of these runs was input to the Canfarm Farm Record System as a further v a l i d a t i o n . Having thus shown that the i n t e g r a t i o n of a farm planning model with the Record System was po s s i b l e and that comparable reports could be produced; a scheme f o r a standardization base was proposed, both in: terms of the model as developed and i n terms of wider a p p l i c a t i o n s . 134 7.2 LIMITATION OF THE MODEL AND RECOMMENDATIONS FOR FURTHER STUDY Chapter Six contains a discu s s i o n of p o t e n t i a l l y broader a p p l i c a t i o n s of the model, p a r t i c u l a r l y with respect to alternate s o l u t i o n methods. The purpose of t h i s section i s to discuss further opportunities to develop components of the Managerial Information and Decision System. As an extension t o o l , the model lacks a useable input mechanism. Data input for the Canfarm Farm Record System i s established, but the planning phase requires input forms, or worksheets, a user manual, plus data-capturing software. Emphasis was not placed on t h i s aspect of the system as these c a p a b i l i t i e s e x i s t and are well-documented within Canfarm Service Agency. In a l l l i k e l i h o o d , t h i s information would be made a v a i l -able to interested agencies. Considerable savings i n operator and computer time could be effected by streamlining the computer operations of the model. As the model now stands, the job! c o n t r o l language i s cumbersome and requires the att e n t i o n of a competent systems analyst. No attempt was made to have the model produce production-related reports. I t was f e l t that emphasis should be placed on the v e r t i c a l i n t e g r a t i o n of f i n a n c i a l reports. Production reports such as machinery usage, feed r a t i o n s , or labour a l l o c a t i o n need to be studied and f i e l d tested to see i f they can be systematized i n a manner s i m i l a r to the f i n a n c i a l statements. Chapter Six outlined several p o t e n t i a l f u r t h e r a p p l i c a t i o n s of the model. In the area of l i n e a r programming, alternate objective functions were considered, d i f f e r e n t approaches to time periods were c i t e d and some i m p l i c a t i o n s f o r c a p i t a l budgeting were put forward. Each of these areas c o n s t i t u t e needs f o r f u r t h e r research. S i m i l a r l y , n o n - l i n e a r programming methods need t o be explored. Combinations of LP and s i m u l a -t i o n might achieve even g r e a t e r f l e x i b i l i t y i n terms of handling m u l t i p l e time p e r i o d s and r i s k and u n c e r t a i n t y , w h i l e reducing the s i z e of computer core r e q u i r e d as w e l l as the c o s t . 136 7.3 CONCLUSIONS The conclusions to be drawn from t h i s study are that the i n t e g r a t i o n of an h i s t o r i c a l record system with a forward planning mechanism i s c e r t a i n l y p o s s i b l e . In terms of the objectives of the study, the i d e n t i -f i c a t i o n of the Canfarm Farm Record System and the l i n k i n g of a farm planning model with t h i s system have been met. The standardization proposal i s a rather more amorphous concept. Within the scope of t h i s study such a proposal i s p o s s i b l e and has been accomplished. Within the framework of the d i s c i p l i n e of Farm Management, the d i v e r s i t y of i n s t i t u -t i ons and approaches to the problem make i t impossible to p r e d i c t whether such a scheme, even i n a modified form, could be agreed upon. Canfarm as a Federal, P r o v i n c i a l , U n i v e r s i t y Program was the one program which p o t e n t i a l l y could have u n i f i e d the farm record and farm planning aspects of Farm Business Management. Hopefully, the organization taking over Canfarm w i l l recognize and act upon t h i s problem. I f not, opportunities f o r t h i s i n t e g r a t i o n and the development of a Managerial Information and Decision System w i l l be reduced or may even disappear. However, the f i n a n c i a l management problems of the Canadian farm manager w i l l increase. The need f o r a comprehensive Managerial Information and Decision System could prove to be even more acute i n the near future. Rising food costs create consumer pressure on demand, and p o l i t i c a l pressure to keep p r i c e s down. At the same time, the producer i s squeezed by i n f l a -tionary pressures on farm input p r i c e s combined with a high cost of c a p i t a l . The competitive edge that the farm entrepreneur needs, has to come i n the form of t i g h t e r f i n a n c i a l c o n t r o l and more sophisticated planning. 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APPENDIX A EXAMPLES OF SELECTED CANFARM FARM RECORD SYSTEM REPORTS p| MARTIN FARMS ^ ^ ^ 2 FA RK REPORT INDEX ' C d N M M ] DEC 1977 1 731981. 3 i ] PROOUCED ON 08/11/76 FORMS REC'O 08/11/76 TOTAL PAGES - 90 731984 5 009 301 ROBERT MARTIN MARTIN FARMS RR #5 ANYWHERE CANAOA XIX 1Z1 PAGE MORRISON B CANFARM BOX 1021, GUELPH NIH 6N1 PAGE STATEMENT OF ASSETS, LIABILITIES ANC OWNERS EQUITY 2 1 LOT REPORTS | 2 06 FEEDER LOT 41 FARM INCOME STATEMENT FARM OPERATING STATEMENT 4 5 1 COST ACCOUNT REPORTS | 10 MACHINERY EXPENSES 43 FARM CREATING STATEMENT WITH PHYSICAL QUANTITIES 11 1 OVERHEAD ACCOUNT REPORTS | 20 OVERHEAD . 45 FARM INVENTORY REPORT 14 1 INCOME FOR TAX PURPOSES (CASH METHOD) 47 STATEMENT OF CHANGES IN FINANCIAL POSITION ', 16 1 INCOME FOR TAX PURPOSES (ACCRUAL METHOD) 51 CASH FLOW STATEMENT 17 1 SUMMARY OF INCOME AND EXPENSES FOR TAX 55 BANK ACCOUNT REPORT 18 1 INCOME FOR TAX MANAGEMENT (CASH METHOO) 56 CREDIT ACCCUNT REPORT 25 1 INCOME FOR TAX MANAGEMENT (ACCRUAL METHOD) 57 SUMMARY CREOIT ACCOUNT REPORT 27 1 -SCHEDULE OF FIXED ASSETS AND C C A . 58 STATEMENT OF OWNERS CONTRIBUTIONS S. WITHDRAWALS 31 1 -SCHEOULE OF FIXED ASSETS AND DEPRECIATION 65 SUMMARY OF FARM INCOME BY ENTERPRISE 32 1 -TRANSACTION LISTINGS 71 ENTERPRISE REPORTS 1 CROPS 2 BEEF 3 GENERAL FARM 33 36 40 1 -TRANSACTION LISTINGS 65 Figure A-1 Example of Farm Report Index Wr.wu.arww> M A R T I N F A R M S , , : TMmSSSm S T A T E M E N T O F A S S E T S , L I A B I L I T I E S A N D OWNERS E Q U I T Y I 7 3 1 9 8 1 , fe«f i I L V S I M W M I AS A T D E C 3 1 , 1 9 7 7 ( F I X E O A S S E T S 8, I N T A N G I B L E S S T A T E D AT E S T I M A T E D V A L U E S ) P R O O U C E D ON 0 8 / 1 1 / 7 6 » » » A S S E T S * * * 1 REF 1 • • * LIABILITIES * »• * REF 1977 1976 INO.I 1977 1976 1 NO. CURRENT ASSETS 1 1 CURRENT LIABILITIES FARM BANK 4, 0 32 6,3691 1 CHARGE ACCOUNTS 189 CURRENT RECEIVABLES 2 , 024 1,6551 1 CAN WHEAT 80 ADVANCE 0 INVENTORIES 1 1 BANK DEMAND NOTES 18,100 WHEAT 18,711 1 1 TOTAL CURRENT LIABILITIES 18,289 18,462 BARLEY 14,90', 1 1 HAY 10,000 1 1 TERM LIABILITIES STRAW 1,200 1 1 FARM IMP LOANS 6,300 TOTAL CROPS INVENTORY 44,815 57,1241 1 BANK-NON FIL 19,000 BEEF COWS 25,200 1 1 CREDIT UNION 1,000 BEEF BREEDING HEIFER 9,200 1 1 FA KM CREOIT CORP 58,000 BEEF HEIFER CALVES 5,600 1 1 TOTAL TERM LIABILITIES 84,300 75, 50 0 FEEDER CATTLE 5,100 1 1 $93,962 OTHER LIVESTOCK 3,725 1 1 TOTAL LIABILITIES $102,589 TOTAL LIVESTOCK INVENTGRY 48,825 40,8001 1 TOTAL SUFPLIES INVENTORY 1, 100 2,3661 1 * • « OWNERS EQUITY (SEE NOTE) * • , 1 1 OWNERS EOUITY JAN 1 (ADJUSTED) 240,652 TOTAL CURRENT ASSETS $100, 796 $108,3141 1 OWNERS CONTRIBUTIONS 299 1 1 OWNERS WITHDRAWALS -16,273 FIXED ASSETS (ESTIM4TED VALUES) I t NET FARM INCOME 29,835 LAND S. IMPROVEMENTS 137,000 1 1 GA IN ON ASSET DISPOSAL 2,340 BUILDINGS 8. STRUCTURES 41,050 1 1 FIXEO ASSET ADJUSTMENT 2,947 MACHINERY 8. EQUIPMENT 62,844 1 OWNERS EQUITY DEC 31 259,801 240,652 TOTAL ESTIMATED VALUE 260,894 225,6 001 1 1 1 OTHER ASSETS 1 1 INVES TMENTS 7 0 0 1 1 TOTAL OTHER ASSETS 700 700 1 1 TOTAL ASSETS $362,390 1 1 1334,6141 TOTAL LIABILITIES Si OWNERS EQUITY $362,390 S334, 614 NOTE : FIXED ASSET ADJUSTMENT - 1 TOTAL ESTIMATED VALUES "$260, 894 '$225,6 001 TOTAL U . C . C . 175,601 143,2541 EST. VALUES MINUS U.C.C. - 8 5,293' 82,3461 ADJUSTMENT IS THE CHANGE IN T H E 1 E S T . VALUES MINUS U.C.C. 2 , 947 1 Figure A-2 Example of Statement of Assets, L i a b i l i t i e s and Owners Equity (Fixed Assets and Intangibles Stated at Estimated Values) MARTIN FARMS FARM OPERATING STATEMENT WITH PHYSICAL QUANTITIES JAN 1, 1977 TO DEC 31, 1977 731984 IP, 11 PRODUCED ON 08/11/76 THIS MONTH DESCRIPTION YEAR TO - OATE QUANTITY $ AMOUNT QUANTITY $ AMOUNT ITEM NUMBER INCOME 2 HD 5 HD 4,980 LBS HD 100 500 LBS LBS WHEAT 10,285 BUS 35,919 111 BARLEY 1,778 BUS 4,361 112 TOTAL CROPS 40,280 BEEF BULL 3 HO 1,665 311 534 BEEF COWS 3 HD 766 312 2,380 BEEF BREEDING HEIFER 20 HO 8,0 46 314 1,250 . FEEDER CATTLE 23,330 LBS 26 HD 9,321 316 TOTAL LIVESTOCK 19,797 PATRONAGE PAYMENTS 505 817 CWB PYMT 7,131 841 TOTAL SUPPLIES I SERVICES 7,636 4,164 TOTAL INCOME 67,713 EXPENSES HAY 6 TON 150 141 TOTAL CROPS 150 BEEF BULL 1 HO 875 311 BEEF COHS 2 HD 840 312 FEEDER CATTLE 7,500 LBS 15 HO 2,625 316 TOTAL LIVESTOCK 4,340 750 COMMERCIAL FEEOS 760 51 19 RAPESEED MEAL 131 5133 3 SALT 400 LBS 13 51 41 31 COMMERL MINERAL SUPP 2,800 LBS 1 66 5146 17 VITAMINS 17 5148 98 VFTERINARY SERVICES 309 521 200 GENERAL LVSTK SS.S 200 53 STABLE SUPPLIES 50 53 4 LVSTK REGISTRATION 75 53 63 FEED TESTING 33 53 64 INSECTICIDES 19 541 HERBICIOES 674 54 2 CHEMICAL FERTILIZER 11 TONS 2, 179 551 GENERAL CROP SIS 20 56 SEED CLEANING n o •;6?i OALER TWINE 783 5645 CROP TOOLS 8, EQUIP. 72 565 GASOLINE 1, 982 GAL 925 611 CAR GAS 273 6114 Figure A-3 Example of Farm Operating Statement with Physical Quantities 5B _ MARTIN FARMS FARM OPERATING STATEMENT WITH PHYSICAL QUANTITIES (CONT'O) JAN 1, 1977 TO DEC 31, 1977 731984 12 PRODUCED ON 08/11/76 THIS MONTH QUANTITY $ AMOUNT DESCRIPTION YEAR - TO - OATE 15 19 HRS 190 9 3 8 145 800 EXPENSES (CONT'D) OIESEL FUEL HEATING FUELS MOTOR OIL EQUIPMENT RIM TRACTOR RiM TRUCK R&M AUTOMOBILE RiM HARVEST EQUIP R8.M ,. BUILDING RS.M HOUSE R8.M FENCE RS.M RtM HARDWARE TOOLS HIRED LABOUR HIRED LABOUR CUSTOM HAULING CUSTOM HARVESTING ADVERTISING INTEREST SERVICE CHARGE BL DG/FIRE INSURANCE EQUIP 8. MACH INSUR CAR INSURANCE CROP INSURANCE HAIL INSURANCE TELEPHONE HYDRO/ELECTRICITY PROPERTY TAX TRUCK LICENCE ORIVERS LICENCE FEES 8. SUBSCRIPTIONS OFFICE SUPPLIES TOTAL SUPPLIES & SERVICES QUANTITY 455 GAL 440 84 HRS HRS ITEM $ AMOUNT NUMBER 2,325 TOTAL EXPENSES $1,840 EXCESS OF INCOME OVER EXPENSES 205 612 162 614 144 61 61 7 63 62 309 621 57 62 2 45 623 258 62 5 125 631 2 58 6311 370 63 3 42 642 131 643 992 651 250 651 155 671 240 675 43 711 8,137 721 22 72 3 438 731 25 732 160 7321 4 89 733 200 7331 66 741 2 96 74 2 8 97 751 45 762 14 764 17 781 158 78 5 22,450 26,940 $40,773 Figure A-3 (Continued). Example of Farm Operating Statement with Physical Quantities H MARTIN FARMS INVENTORY REPORT-FARM JAN It 1977 TO DEC 31, 1977 7319 84 14 PRODUCED ON 08/11/76 NUMBER ITEM DESCRIPTION $ AMOUNT JAN 1, 19 77 DEC 31, 1977 QUANTITY NOTES 111 112 141 291 WHEAT REPORTED INVENTORY 23,324 PLUSJ HARVESTED LESS! SALES SEEOEO OESTROYED EQUALS!CALCULATED INVENTORY REPORTED INVENTORY UNRECONCILED DIFFERENCE BARLEY REFCRTEO INVENTORY 23,820 LESS! SALES USED EQUALStCALCULATEO INVENTORY REPORTED INVENTORY UNRECONCILED DIFFERENCE HAY 42,000 35,919 4,200 3,500 21, 705 2,994 4,361 5,360 14,099 -805 18,711 311 312 STRAW TOTAL CROPS BEEF BULL 8,880 1,100 57,124 3,000 14,904 10,000 1,200 44,815 875 BEEF COWS REPORTED INVENTORY 24,000 PLUSJ PURCHASES CONVERTEC ( T O LESS I SALES OIED EQUALS ICALCULA TED INVENTORY REPORTED INVENTORY UNRECONCILEO DIFFERENCE 3132 BEEF BULL CALVES 840 2,095 766 400 25 , 770 570 25,200 2,850 5,831 12,000 10,285 1, 200 1,000 5,3 46 5,346 0 11,910 1,778 2,680 7,452 7,452 0 8,880 10,000 55 60 60 2 5 3 1 63 63 0 19 BUS BUS BUS BUS BUS BUS BUS BUS BUS BUS BUS eus BUS BUS BALE BALE TON TON HD HO HO HO HO HD HD HD HD HD HO 220 250 $4.00/BUS $3 .50/BUS $3.49/BUS $3.50/BUS $3.50/BUS $3.50/BUS J2.00/BUS J2.45/BUS $2.00/BUS S2.00/BUS TON S1.00/3ALE S40.36/TON TON $1.00/BALE $40.00/TON S20.00/TON S20.00/TON $1,000/HD S875/HO $400/H0 S420/HD S419/HD S255/HD S400/HO $400/H0 S150/H0 Figure A-4 Example of Inventory Report Farm Ln o MARTIN FARMS INVENTORY REPORT-FARM (CONT'D) JAN 1, 1977 TO OEC 31, 1977 731984 _15_ PRODUCED ON 08/11/76 ITEM NUMBER DESCRIPTION $ AMOUNT JAN 1, 1977 DEC 31, 1977 QUANTITY NOTES 3133 BEEF HEIFER CALVES 6,400 5,6 00 314 BEEF BREEDING HEIFER 4,400 9,2 00 316 FEEDER CATTLE REPORTED INVENTORY . 3,000 PL US J PURCHASES 2,625 CONVERTED (TO) 3,717 PRODUCED 5,000 LESS! SALES 9,321 OIED 150 EQUALSSCALCULATED INVENTORY 4,872 REPORTED INVENTORY 5,100 UNRECONCILED DIFFERENCE -228 TOTAL LIVESTOCK 40,800 " 48,825 511 COMPLETE FEEDS 581 542 HERBICIDES 510 551 CHEMICAL FERTILIZER 1,100 1,100 611 GASOLINE 65 612 DIESEL FUEL 110 TOTAL SUPPLIES 2,366 1,100 TOTAL FARM INVENTORY . . 100,290 94,740 32 HO S200/HD 28 HD S200/HO 11 HD J400/HD 23 HD S400/HD 9,000 LBS 20 HD 33.334/LBS $150/HD 450 LBS/HD 7,500 LBS 15 HD 35.OOe/LBS S175/H0 500 LBS/HO 8,270 LBS 9 HO 44.95C/LBS S413/HD 919 L3S/HD 9,000 LBS 0 HO 55.56C/L9S 23,330 LBS 26 HO 39.954/LBS $358/HO 897 LBS/HO 450 LBS 1 HO 33.334/LBS $150/HD 450 LB3/HO 9,990 LBS 17 HO 10,200 LBS 17 HD 50.004/L3S $300/HD 600 LBS/HO -210 LBS 0 HO 3.5 TON , S166/TON 15 GAL S34. 00/GAL 5 TONS S220/TONS 5 TONS S220/TONS 100 GAL 65.00*/GAL 250 GAL 44.OOC/GAL Figure A-4 Example of Inventory Report - Farm (Continued). on MARTIN FARMS STATEMENT OF CHANGES IN FINANCIAL POSITION JAN 1, 1977 TO DEC 31, 1977 731984 16 PRODUCED ON 08/11/76 1977 SOURCE OF WORKING CAPITAL NET FARM INCOME BEFORE DEPRECIATION CAPITAL DISPOSITIONS (FIXED ASSETS, INTANGIBLE ASSETS, INVESTMENTS) INCREASE-TERM LOANS OWNERS CONTRIBUTIONS TOTAL SOURCES APPLICATION OF WORKING CAPITAL CAPITAL PURCHASES (FIXED ASSETS, INTANGIBLE ASSETS, INVESTMENTS) PAYMENTS CN TERM LOANS OWNERS WITHDRAWALS TOTAL APPLICATIONS NET CHANGE IN WORKING CAPITAL CHANGES IN WORKING CAPITAL BEGINNING CASH E, CURRENT RECEIVABLES BEGINNING CURRENT INVENTORIES 3EGINNING CURRENT ASSETS LESStBEGINNING CURRENT LIABILITIES-BEGINNING WORKING CAPITAL ENDING CASH i CURRENT RECEIVABLES ENDING CURRENT INVENTORIES ENOING CURRENT ASSETS LESSJ END ING CURRENT LIABILITIES ENOING WORKING CAPITAL DECREASE IN WORKING CAPITAL 8,024 100, 290 6,0 56 94,740 108, 314 18,462 100,796 18,289 35,223 4,800 19,000 299 59,321 40,194 10,200 16,273 66,666 -7,345 89,852 82,507 7,345 REF} NO. Figure A-5 Example of Statement of Changes i n F i n a n c i a l Position Ln MARTIN FARMS BANK ACCOUNT REPORT AS AT DEC 31, 1977 - tJ (CONT* D) - FARM BANK ACCOUNT 1 731984 UGE 23 1 CAM AMI PRODUCED ON 08/11/76 r SYSTEM NUMBER 1 CHEQUE 1 REF N O DESCRIPTION ITEM 1 NUMBER 1 CHEQUES & WITHDRAWALS OEPOSITS BALANCE 1 FARMER'S WORKSHEET IBANK TRANSACTIONS IN RECOROS 1 BUT NOT RECORDED BY BANK — 1 CHEQUES OEPOSITS OCT013 1 SERVICE CHARGE 723 1 1.35 1 IBALANCE PER FARM RECORDS E N O O F OCT 1977 9, 192.46 J NOV001 1 1 129 AUTOMOBILE RS.M 623 1 135.14 1  TRUCK R&M 622 1 1 I EQUIPMENT R8.M 62 1 1 1 EQUIPMENT RS.M 62 1 1 EQUIPMENT R8.M 62 1 I NOV002 1 130 HOUSE RS.M 6311 1 45.12 1 NOV003 1 131 GENERAL CROP S5.S . 56 1 20.00 1 NOV004 1 132 OFFICE SUPPLIES 785 1 11.50 1 NOV005 1 133 CHEMICAL FERTILIZER 551 1 878.85 1 NOV006 1 134 INVESTMENT PURCHASES 9452 8 1 3, 000. 00 1 NOV0Q7 1 135 TELEPHONE 741 1 .  11.31 1 NOV008 1 136 CUSTOM HARVESTING 675 1 240.00 NOV 0 09 1 137 FCC LAND P04 1 7,855.40 I INTEREST 721 1 NOV010 1 138 R5.M H CROW ARE 642 1 12.15 . • NOV Oi l 1 139 PERSONAL EXPENDITURE 93 1 400. 00 1 NOV012 i 140 INSECTICIDES 541 1 18.50 1 NOV013 1 BEEF BREEOING HEIFER 314 1 1,518.04 ' NOV 014 1 WHEAT 111 1 4, 500.00 1 NOV015 1 SERVICE CHARGE 723 1 1.95 1 NOV 016 1 BANK CEMAND NOTE P10 1 5,0 00.00 1 1 IBALANCE PER FARM RECORDS ENO O F NOV 1977 7,580.58 ; OEC001 1 1 141 TRACTCR LOAN P05 1 4, 00 0. 00 i INTEREST 721 1 DEC002 1 142 HOME MAINT SUPPLY 934 1 901. 32 • DEC003 1 143 FUEL COMPANY P03 1 244.20 • DEC004 1 144 FENCE RS.M 633 1 190.00 OEC005 1 145 GENERAL LVSTK SS.S 53 1 200.00 • OEC006 1 146 VETERINARY SERVICES 521 1 98.00 • OEC007 1 147 HIRED LABOUR 651 1 38.00 • DEC008 1 148 CUSTOM HAULING 671 1 145.00 • OEC009 1 149 COMMEEL MINERAL SUPP 5146 1 829.50 • 1 RAPE SEED MEAL . 5133 1 1 SALT 5141 1 • 1 VTTAMTNS 5148 1 — i Figure A-6 Example of Bank Account Report MARTIN FARMS BANK ACCOUNT REPORT - tj (CONT'O) AS AT DEC 31, 1977 FARM BANK ACCOUNT 731984 24 PRODUCED ON 08/11/76 SYSTEM I CHEQUE ITEM NUMBER 1 REF NO DESCRIPTION NUMBER 1 WITHDRAWALS DEPOSITS 1 COMMERCIAL FEEDS 51 1 OEC010 1 150 EQUIPMENT RS.M 62 I 15.00 DEC011 1 151 FOOO 931 1 102.56 DEC012 1 152 PERSONAL EXPENDITURE 93 1 500.00 OEC013 1 BEEF COWS 312 1 534.00 DEC 014 1 BEEF BREEDING HEIFER 314 1 2,300.00 1 891 J 1 DEC017 1 OWNERS CONTRIBUTION 971 1 50.00 DEC018 1 891 / 1 2 5.00 OEC019 1 FEEDER CATTLE 316 ] 1,250.00 OEC020 1 1 BUNK CATTLE FEEOER M4 3 1 393.56 1 IBALANCE PER FARM RECORDS END OF DEC 1977 CHEQUES 8. 8ALANCE ITEMS RECORDED BY BANK BUT NOT IN THE REC CROS OEOUCTI CHEQUES AND CHARGES ' ADD « OEPOSITS TRUE BALANCE BANK TRANSACTIONS IN RECORDS BUT NOT RECORDED BY BANK AOOl CHEQUES OEDUCTI DEPOSITS BALANCE PER BANK STATEMENT 4,032.42 FARMER'S WORKSHEET BANK TRANSACTIONS IN RECORDS BUT NOT RECOROEO BY BANK CHEQUES DEPOSITS TOTAL ITEMS RECORDEO BY BANK BUT NOT IN THE RECORDS CHEQUES DEPOSITS TOTAL Figure A-6 (Continued) Example of Bank Account Report MARTIN FARMS CREDIT ACCOUNT REPORT JAN 1, 1977 TO DEC 31, 1977 731964 25 PRODUCED ON 08/11/76 LIABILITIES CREDIT ACCT NO CLASS REPORTS 0 BAL JAN 1 AMOUNT CHARGED AND/OR BORROWEO AMOUNT PAID OFF BALANCE OEC 31 CURRENT FEEO MILL FUEL COMPANY POZ 11 AODED(BEG020) P03 11 AOOEO(BEG021> WHT BOARD ADVANCE BANK DEMAND NOTE TOTAL CURRENT LIABILITIES POl 12 ADOED(BEG022) P10 14 ADOEOIBEG023) TERM TRACTOR LOAN TRUCK LOAN COMBINE LOAN CREDIT UNION CATTLE P05 21 AD0EO(BEG024) P07 P08 22 22 P06 23 ADOED(BE G025) FCC LAND TOTAL TERM LIABILITIES TOTAL LIABILITIES P04 27 AOOED(BEG026> 0.00 5 02 . 0 0 0.00 460.00 0.00 2,500.00 0.00 15,0 00. 0 0 18,462.00 0.00 9,500.0 0 0.00 0.00 0.00 6,000.00 0.00 60,000.00 75,500.00 93,962.00 30.80 (MAY006) 37.44 (JAN002) 129.44 (JAN004) 5 4.14 (JAN006) 23.40 (APR006) 412.35 (SEP005) 366.78 (OCT006) 7,500.00 (MAY019) 5, 000.0 0 CNOV016) 13,554.35 3,0 0 0. 00 (APR015) 16, 0 00. 00 (SEP021) 19, 0 0 0. 00 32,554.35 460. 00 (FEB017) 502. 00 (FEB0 08) 221. 02 (APR0 08) 400. 00 (OCT010) 244. 20 (DEC003) 2, 500. 00 (MAR003) 9,400.00 (SEP017) 13,727.22 3,200. 00 (OEC001) 2,000.00 (JAN017) 3, 000. 00 (MAY016) 2, 000. 00 (NOV009) 10,200.00 23,927. 22 72.80 116.33 0.00 18,100.00 18,289.13 6,3 00 .00 3, 000 .00 16, 0 00 .00 1,0 00 .00 5 8,000 .00 84,300.00 102,589.13 Figure A-7 Example of Credit Account Report cn Ln MARTIN FARMS CREDIT ACCOUNT REPORT (CONT'D) JAN 1, 1977 TO DEC 31, 1977 731984 26 PRODUCED ON 08/11/76 ACCOUNTS RECEIVABLE CREOIT ACCT NO CLASS REPORTED BAL JAN 1 A MT LOANEO OUT AND/OR SOLO ON CREOIT AMOUNT REC ON ACCOUNT BALANCE DEC 31 CURRENT JOE NEIGHBOR R01 51 ACOEO(BEG002) 0.00 1, 090. 00 1,090.00 COOP R02 52 ACOED(BEG003) 0.00 5 65 . 0 0 444.22 (APR001) 75.21 (APR001) 934.01 TOTAL CURRENT RECEIVABLES 1', 655 . 0 0 444.22 75.21 2,024.01 TOTAL RECEIVABLES 1,655.0 0 444.22 75. 21 2,024.01 Figure A-7 (Continued) Example of Credit Account Report MARTIN FARMS SUMMARY CREOIT ACCOUNT REPORT JAN 1, 1977 TO DEC 31, 1977 731984 _23_ PRODUCED ON 08/11/76 LIABILITIES CREOIT ACCT NO CLASS REPORTEO BAL JAN 1 AMOUNT CHARGED AND/OR BORROWED AMOUNT PAID BALANCE PEC 31 ADJUSTMENTS FOR TAX CASH METHOO-CURRENT EXPENSES NOT PAID CURRENT FEED MILL P02 11 502.00 30.80 460.00 72.80 72.80 FUEL COMPANY P03 11 460.00 1, 023.55 1,367.22 116.33 116.33 CHARGE ACCOUNTS 962.00 189.13 WHT BOARD AOVANCE P01 12 2,500.0 0 2,500.00 0.00 CAN WHEAT BO ADVANCE 2,500.00 0.00 BANK DEMAND NOTE P10 14 15, 0 00.0 0 12,500.00 9,400.00 18,100.00 BANK DEMAND NOTES 15,000.00 18,100.00 TOTAL CURRENT LIABILITIES 18,462.00 13,554.35 13,727.22 18,289.13 189.13 7ERH TRACTCR LOAN P05 21 9,500.00 3,200.00 6,300.00 FARM IMP LOANS 9,5 00.00 6,300.00 TRUCK LOAN P07 22 0. 00 3, 00 0.00 3,000.00 COMBINE LOAN P08 22 0.00 16,000.00 16,000.00 BANK-NON FIL 0.00 19,000.00 CREOIT UNION CATTLE P06 23 6,000.00 5,000.00 1,000.00 CREOIT UNION 6,000.00 1,000.00 Figure A-8 Example of Summary C r e d i t Account Report MARTIN FARMS SUMMARY CREOIT ACCOUNT REPORT (CONT'D) JAN 1, 1977 TO DEC 31, 1977 30 .731984 1 PRODUCED ON 08/11/76 LIABILITIES CREOIT ACCT NO CLASS REPORTED 8AL AMOUNT CHARGEO JAN 1 AND/OR BORROWED ADJUSTMENTS FOR TAX AMOUNT PAID BALANCE OEC 31 CASH METHOD-CURRENT EXPENSES NOT PAID TERM (CONT'D) FCC LAND FARM CREOIT CCRP TOTAL TERM LIABILITIES TCTAL LIABILITIES P04 27 60,000.00 60,000.00 75,500.0 0 93,962.00 19, 00 0.00 32,554.35 2,0 00. 00 10,2 00, 00 23,927.22 58,000.00 58,000.00 84,300.00 102,589.13 0. 00 189.13 RECEIVABLES AMOUNT LOANEO AMOUNT CREDIT ACCT REPORTED BAL AND/OR RECEIVED NO CLASS JAN 1 SOLD ON CREDIT ON ACCOUNT BALANCE OEC 31 ADJUSTMENTS FOR TAX CASH METHOD-CURRENT INCOME NOT RECEIVEO CURRENT JOE NEIGHBOR COOP TOTAL CURRENT RECEIVABLES. TOTAL RECEIVABLES ROl 51 R02 52 1,090.00 5 65.0 0 1,655.00 1,655.00 444.22 444.22 444.22 75.21 75.21 75.21 1,090.00 934.01 2,024.01 2,024.01 1, 090.00 1, 090. 00 1, 090. 00 Figure A-8 (Continued) Example of Summary Credit Account Report ST ATE HENT^OF OWNERS CONTRIBUTIONS & WITHDRAWALS JAN 1, 1977 TO OEC 31, 1977 _31_ PROOUCEO ON 08/11/76 1ST QUARTER 2ND QUARTER 3R0 QUARTER DESCRIPTION OCTOBER NOVEMBER DECEMBER YEAR TO DATE 102 27 12 102 27 12 200 390 916 202 190 75 70 800 200 48 4 0 80 75 50 2,741 - 360 48 4, 0 00 230 5,765 3,666 1.283 CONTRIBUTIONS PERSONAL INCOME OWNERS CONTRIBUTION PD IN CURRENCY PERS TOTAL CONTRIBUTIONS WITHDRAWALS PERSONAL EXPENDITURE FOOD CLOTHING HOME MA IN T SUPPLY FAMILY MEOICAL EXP ENTERTAINMENT PERS . . PERSONAL INCOME TAX EDUCATION INVESTMENT PURCHASES INVESTMENT PURCHASES CURRENCY REC 'O PERS T O T A L W I T H D R A W A L S 45 0 400 3,000 450 3,400 100 50 9 159 100 50 149 299 ITEM REF NO NO 91 971 500 2, 856 93 103 495 931 145 933 901 1,901 934 88 936 205 937 2, 741 938 408 941 3, 000 9452 4, 000 9452 205 435 ,709 16,273 Figure A-9 Example of Statement of Owners Contributions and Withdrawals _ _ _ _ _ MARTIN FARMS __f_S_ INCOME FOR TAX PURPOSES (CASH METHOD) _„l\IF„Fl/D JAN 1, 1977 TO OEC 31, 1977 ADJUSTMENTS TO INCOME SUBTOTALS ADDITIONS I DEDUCTIONS I EXCESS OF INCOME OVER EXPENSES 40,773 AOOX ACCTS RECEIVABLE CURRENT FARM INCOME(J AN 1, 1977) 1,090 OEOUCTt ACCTS RECEIVABLE CURRENT FARM INCOMEtOEC 31, 1977) - 1,090 AODI ACCTS PAYABLE CURRENT FARM EXPENSESIOEC 31, 1977) 189 OEOUCTI ACCTS PAYABLE CURRENT FARM EXPENSESUAN 1, 1977) 562 ADDt CANADIAN WHEAT BOARD CASH ADVANCES 0 DEDUCT « REPAYMENT ON CANADIAN WHEAT BOARD CASH ADVANCES . 2,500 SUBTOTAL ADOITIONSJ 1,279 +1,279 SUBTOTAL DEDUCTIONS! 4,152 -4,152 SUBTOTAL' 37,900 DEDUCTI CAPITAL COST ALLOWANCE 20,121 ADO I LIVESTOCK INVENTORY FOR TAX PURPOSES (OEC 31, 1977) DEDUCTi LIVESTOCK INVENTORY FOR TAX PURPOSESUAN 1, 1977) ADOJ NON-ALLOWABLE FARM EXPENSES OEDUCTJ OTHER NON-TAXABLE INCOME INCLUDED ABOVE ADD I FARM INCOME NOT ACCOUNTED FOR ABOVE OEOUCTJ FARM EXPENSES NOT ACCOUNTEO FOR ABOVE SUBTOTAL ADDITIONSI • SUBTOTAL OEOUCTIONSi -FARM INCOME FOR TAX PURPOSES Figure A-10 Example of Income f o r Tax Purposes (Cash Method). Report I CMfAM MARTIN FARMS SCHEOULE OF FIXEO ASSETS AND CAPITAL COST ALLOWANCE AS AT OEC 31, 1977 ^ ^ — Y ~ ^S51 12/77 731984 61 i L A N O HOME FARM 100 ACRES 01 NORTH PASTURE FASH 101 ,2671 SMITH FARM 100 ACRE S O I |3|75| ITOTAL LANO [BUILDINGS, MACHINERY ANO EQUIPMENT I TAX CLASS 06 ROUNO GRANARY GAL MACHINE SHEO FENCING MATERIAL ROUNO GRANARY GAL HOUSE tOOITION F l l ,1721 G21 ,173 G31 ,173 F l l ,273 G i l ,27* BUSINESS 25% PERSONAL 75Z TOTAL TAX CLASS 06 PUS I NESS PERSONAL TAX CLASS 08 PLATFORM SCALES MOWER " C A T T L E R U B - O I L E R T06 J41 it72j L21 MI3 ,%7'a E N D O F L A S T Y E A R 17 , on oi 25. 0001 6 0 . 000| 102.OOO s i d 6,000 61.9 2 , o o q A C C U M . C . C . A . 17, 000] 9,159; ?3 339 729 25, 000| 60,0 00 8 ,400 A C T I V I T Y D U R I N G T H E Y E A R sou, ADJUSTEO „™SE°„ MNOEPREC BALANCE 3, 00 01 150 450 150 450 8,5501 C . C . A . jAMOUNTl 10 GAIN OR LOSS i-| ON SALE 28 OJ PPODUCEO ON 08/11/76 E N D O F T H I S Y E A R 16,8 001 25, OGOl 0 6 8551 60 . 0001 1 0 1, 8001 5101 6, 0001 6491 ACCUM. C . C . A . 2, 0001 1501 16 . S 0 0| 25,000 60,000 4501 9, 3091 450 3 351 725 170' 1.614 7,695 4501 AUGER 45 FEET J U ,273) 68 0 HARROW DRAW BAR K 2 2 1*731 25d 250 Figure A - l l Example of Schedule of Fixed Assets and Ca p i t a l Cost Allowance ] p S t g g ? g i & SCHFOULC OF FIXED ASSETS AND CAPITAL COST ALLOWANCE (CONT'D) *S51 13/77 | 73A9PJ. : hiSi &J i C„A)F„B/I) AS AT OEC 3 1 , 1977 PRODUCED ON " « ' 1 1 " 6 c n lo ro END OF LAST YEAR V | ACTIVITY DURING THE YEAR END OF THIS YEAR ^ PEr PURCHASE (•((ICf: ACCUM. C C A . UNDEPRECIATED BALANCE ADDITIONS d SOLD TRADED SC'IAPPED HOJUSTEO JNOEPRF.C • BALANCE RATE % •} 2» C A • 9MOUNT GAIN OR ON SALE PURCHASE PI'iCE ACCUM. C C A . UNOEP^ r^ i-TED _*L*!.f.i>. STRAIGHT LINE ASSETS I CONT 0^ ) i F R A M E HOUSE G i l 11 70 BUSINESS 25X i 2, 000 1,850 5.0 SL 100 ?, 000 1,950 50 PERSONAL 75Z i 6, 0001 tS.OQO 6.000 1 6.0(10 1 I TOTsi ni r e s . Minn. AND. E Q U I P 79, 20 3 iTOTAL LAND,3LDGS,MACH JAND 50 U l PMENT l<»7f 506 50.732 165tJt6<t iTOTAL C . C . A . FOR YEAS t 20121 iTOTAL GA INS OR LOSSES r i 2683 i BPCKEN DOWN OS FOLLOWS^ | POSSIBLE CAPITAL GAINS 1 2800 1 POSSIBLE CAPITAL LOSSES -10 56 NON TAXAPLE GAINS ICR LOS SE S (-) 1 ^ T R A T K H T L I N F fi^ETSi 939 1 i i I • i •1 ! | 1 1 — 1 | | 1 • | f t i | | | | | | 1 1 | 1 t | 1 | i 1 to F i g u r e A - l l ( C o n t i n u e d ) Example o f Sch e d u l e o f F i x e d A s s e t s and C a p i t a l C o s t A l l o w a n c e M A R T I N F A R M S S C H E D U L E OF F I X F O A S S E T S ANO D E P R E C I A T I O N ( C O N T ' O ) AS AT OEC 3 1 , 1 9 7 7 — $ T Y • S 5 0 1 2 / 7 7 7 3 1 9 8 4 UCE 68 [ M A C H I N E R Y ANO E Q U I P M E N T (CONT'ET B U N K S AND F E E O E R S IM". GRAIH BOX AND WAGON IH14 i l i 6 3 J O C U L T 1 V A 1 P _R_ !K2 3 . l l 6 3 R A C K AND WAGON C O M B I N E 4 3 0 S I D E D E L I V F R Y R A K E 1 6 1 H 1 4 | 2 6 A l i L l l i1j64l L 2 2 11641 B L A O E FOR TRACTOR IK12 i l J66 | SWATHER MANURE S P R E A D E R L 1 2 t ! 6 6 l _L_L M 2 6 2 11661 CAR H l l i ) ,67 | B U S I N E S S 67'/. P E R S O N A L 337. A I R C O M P R E S S O R G R A I N D R I L L HAY C O N D I T I O N E R T R U C K 3 TON P O S T D R I V E R J 5 2 ,11671 K T l i l | 6 7 l IL21 |H 12 i l j68 J J55 116 D I S C E R AND ATT |K2 4 i l l&S ROO WEEPER HAY B A L E R K 2 I L 2 3 11|69: 11169 END OF LAST YEAR 750 A C C U M . O E P R E C 47 p! 800 420! 8,7001 675< 30O 1 . 5 6 7j 1 , 088| 611 3 63 6 1 7 313) 7 , 6 4 8] 50_3 2 0 6 139 ! JJLZ 183! 107 1 , 0 5 2 172^ 9 M 1 ,0 75| 7471 3 , 3 5 1 , 6 5 2 , 6 901 6 5 9 4 9 3 ACTIVITY DURING THE YEAR 3 4 1 660 1 , 6 so! 1 , 890! 45 Ol 6 , 0 0 0 165' 3 , 0 0 0 65 0 42 9 1,2311 2 9 3 4 . 6 1 0 1 0 1 1 , 8 3 8 370 1 , 5 0 0 9 5 4 230 6 5 9 1571 1 . 3 9 0 64 1 , 1 6 2 260 6 4 6 SOLO TRAC1EO SCRAPPED 1, 2061 5 9 4 10 tea to 10 10 D E P R E C AMOUNT CQ ba PB 10 OR 10 10 10 1 5 10 l4 J U ! 11 1 6 8 GAIN OR Lcr-s i - ) ON SALE OB PB! 10 DB 10 D6 15 b n 10 10 10 4 9. 34! 4<* 5 96' 2 3 6 r i 1 6 P S b e PB 2 0 8 l i fe 2 8 PRODUCED ON 0 8 / 1 1 / 7 6 — ^ • END OF THIS YEAR A C C U M . O E P R E C 750 470 8 0.0 420 8 , 7 00 675 625 E S T I M A T E D ' - ' V A L U E A25 _37_3i _97J __I5l J I M 324! 9 6 7 , 806; 894 521 3 00 1 , 5 6 7 1 ,0 8»l SOLO 659 1 , 3 9 0 450! 215 1 5 4 85 ! 1 . 1 2 4 4 4 3 781! 452! 1.2971 309 30 A ?07 59 3 141 6 . 0 0 0 165 3 . 0 0 0 650 4 , 8 1 9 107 1 . 9 5 4 398 9 1 9 1 , 1 8 1 5 9 1 , 0 4 6 2 5 2 581 6 001 700 A - 1 2 Example of Schedule of Fixed Assets and Depreciation BASIC FARM 11 CURRENCY REPORT - *1 - CURRENCY AS AT OEC 31, 1975 732446 'PAGE 3 5 PROOUCEO ON 0 2 / 11 / 7 5 SYSTEM NUMBER 1 1 REF NO DESCRIPTION ITEM 1 . NUMBER 1 """.*""PAIO RECEIVED IT .J.. BALANCE IBALANCE AT JAN 1, 1975 • 0.00 BEG002 1 (•CORRECTIONS TO PREVIOUS MONTHS 1 1 IADJUSTEO BALANCE JAN 1, 1975 ... CURRENCY INFORMATION --«~-r— ".' 150.00 150.00 JAN002 JAN005 JANOlO 1 1 AUTOMOBILE RS.M , . j GEN FARM EQUIP RS, M ... 1 VETERINARY SERVICES . 1 623 .62 6 .521 .. '. ' .15.53 . .4.49 . 2 0. 00. - - — 1 BALANCE PER FARM RECORDS ENO OF JAN 1975 — ; • • - 110.01 FEB005 FEB007 FEBOIO FE3014 FEB018 1 1 GEN FARM EQUIP R8.M 1 GEN FARM EQUIP R8.M .. 1 MINERAL S, VITAMINS . 1 PROTEIN SUPPLEMENTS 1 TREAS. 3RANCH . 626 .. 62 6 514..V. 513 . 892 1 . . . . . . , q ^ k 7 . ..1 5 . 5 1 . . . . 35.00 37.40 100.00 . -. — • - -I IBALANCE PER FARM RECORDS END OF FEB 1975 MARO 07 MAR011 MAR013 MAR014 PROTEIN SUPPLEMENTS 513 BUILOING RUM '. . . 631 G TELEPHONE . 741 ... TREAS. BRANCH 892 1 IBALANCE PER FARM RECORDS END OF MAR 1975 I APR015 I TELEPHONE APR018 I NATURAL GAS I IBALANCE PER FARM RECOROS END OF APR 1975 I MAY012 I TELEPHONE MAY013 I NATURAL GAS MAY014 I TSEAS. BRANCH I . . . . . . . . IBALANCE PER FARM RECOROS ENO OF MAY 1975 I 741 6144 741 6144 892 1 122.63. 39.00 15.00 -14.00 13.00 16.50 75.00 15.00 12.00 50.00 129.63. 100.13 123.13 Figure A-13 Example of Currency Report BASIC FARM 11 TRANSACTION LISTING (CONT'D) • T13 12/75 IID.NO. 73?446 _ S 5 _ J PROOUCED ON 02/11/75 8 IOEC0031 IDEC004! IDEC005 JJ2EC0JL6J IOEC007 I IDEC008 I DEC009! IDECOIO OM B A N K A N D C U R R E N C Y Y C R E D I T I N F O R M A T I O N i - Q A I E Y •••\ 'KUEX pA!p JOURNAL J12-1 100.DO i j 2 0JL SC 203 0~ i ir 2 04 i 205 100.00 7»75 JL1>75. (COKTfO) 924.001 PT8I' IV 157.00 21.00 19.90 660.00 D E S C R I P T I V E N O T E S BRIiGS_ SERVICE CHARGE PROTEIN SHPPLFMFNTS INTEREST HYDRO/ELECTRICITY TELEPHONE I T E M I N F O R M A T I O N 7 2 3 5 J - 3 _ 721 7 4 2 741 6144-I I I I I I ,AC(U_EjmiJlI PHYSICAL AMOUNTS OI IA M TT TY Ut NT T _ 5 _ D J 1 $ A H Q I I N T 7.75, 137.0 0 2 i . n o lOECOll D 500.00 IOEC012 IDEC013 IOEC014 1DEC015' i DEC016 JDEC017 IOEC018I I IOEC019 I 500.00 i V i V ! 90.00 itO.OO 122.00 18.00 200.00 40.00 20.00 75.00 FOOD Cl OTHING HOME MAINT SUPPLY FAMILY MEDICAL EXP ENTERTAINMENT PERS DONATIONS EDUCATION INVESTMENT EXPNDTURE 9 3 1 9 3 4 936 937 939 .941 945 30. 00. 40. 0 0 122. 00 18. 001 200.00 40. 00 20. 00 75. 0 0 Figure Example of Transaction L i s t i n g Ln L,,. B A S I C FARM 11 i I I ' W&T^Fmm T R A N S A C T I O N L I S T I N G ( C O N T ' O ) • T 1 3 1 2 / 7 5 I.P. 7 3 ? 4 4 6 57_ | ; C_9fUF^ 3Pl/IJ P R O D U C E D ON 0 2 / 1 1 / 7 5 8 ! f c C-ECL E R A N K A N D C U R R E N C Y ^ R CREDIT INFORMATION ' r \ ' I T E M INFORMATION % 1 I D E P R ' K I COA 1 1 COST 1 1 R A T E 1 C L A S S 1 1 OF $ IPEP.I AND 1 AND I A D I P A R T AMOUNT 1 7. I M F T H O O I R A T F I T O I S O L D BANK k . = „ , s t SAL* TO NCE BE AMOUNT S I DESCRIPTIVE NOTES DATE ITEM NUMBER M IS. 1 c 0 w E E p E N ! 1 I 1 NC DEC < O' LINES O'T 2 - F I X E O p A S S E T S J O U R N A L J 2 0 ^1 2 1 2 j M M 1 1 F E B 0 Z 9 1 2 3 i 11 1 j 2 7 3 . 9 5 1 H E L O E R J 5 1 i 8 J 4 9 8 . 9 5 1 1 1 1 8 I I '• \! P 1' 1 1 WELDER i 1 2 1 1 1 1 I I M M i 1 1 I I I I | 4 " S U S P C c i f l L I N E 02 -NOT E : ri 2 3 I T WFLOER J 5 1 i A J 2 2 5 . 0 0 1 I I I I I i T R A N S A C T I O I N C E THE CA AL COST A L L O W A N C E INFOF MAl n o M I S NOT % J I R E D FOR T H I S T R A N S A C T I O N . I T H A S NOT 1 ! 1 i B E E N KE =>T BY T H E S r s T E M . 9 5 5 l 1 1 i 1 1 1 1 I I ! M A R 0 2 6 ' l ! J P i4 2 , 5 0 0 . 0 0 1 2 1 F E E D M I L L M 4 2 i B V 2 2 , 5 0 0 . 0 01 1 I I I I M i l i 1 1 1 1 I I ; : A R O 2 7 1 2 9 i ! l ! 4 7 5 . 0 0 1 DUAL ViHL K I T K 2 4 I F <f 4 7 5 . 0 0 1 I 1 1 8 1 1 i p 2 |3 J 2 O I S C E R 1 2 I 1 f t I I i j i i 1 1 1 1 I I I O C T 0 2 2 i 1 1 1 T R A C T O R S X O A O E R 5 5 H P H i ? I E • 7 5 0 . 0 0 1 I I I I I 5 0 0 1 1 j2 p 1 2 1 2 1 1 1 1 I I 1 9 2 1 1 3 4 5 . 0 0 2 FT END L O A D E R H 1 6 iA / 1 . 0 9 5 . 0 0 1 1 1 1 8 I I i A C C E S S O R I E S t i l l I I ' 1 ' • ' 2 , \ 2 1 1 1 1 I I O C T 0 2 3 1 9 3 1 1 4 4 7 . 7 5 1 C O R R A L F 3 5 i G y 4 4 7 . 7 5 1 1 1 1 6 I I 1 i i 1 C O R R A L i 1 1 1 1 I I I 1' l ! I3 • 2 I 1 2 t i l l I I 1 I I I ' i 1 1 1 1 I I 1 i 1 i 1 1 I f I I 2 ' i ' 1 2 i 1 2 1 1 I I I I -1 i I I 1 1 1 1 I I 1 M i l i 1 1 1 1 I I - i i l _ f 2 _ i ! _ i i _ ] a -I T i 1 2 1 M M C R E D ACCOUNT F A R M E R ' S D E S C R I P T I O N i ; M i l NO I M C L A S S I i 1 2 I 3 - R E G I S T R A T I O N OF NEW D R E D I T A C C O U N T S J 2 0 - •2 i i 1 , jREG08<t 1 2 1 < P T N 1 2 14 TR BR O P E R A T I N G I 1 2 1 1 | R E G 0 8 5 P U G 11 U . G . G . I I 1 • 2 3 1 2 i 1 2 | R E G Q 3 6 P F E 10 L O C A L FARM Et} I 1 i 1 > 2 3 1 2 I 1 2 I Figure A-14 (Continued! Example of Transaction L i s t i n g 

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