Whose financial statements should we prepare (e. g. , the baron, vassals, farms, etc..? ) In this case I believe the financial statements should be prepared for each Farm (Piece of Land). My reasoning for this is that each section of land is the entity that is generating the ‘product’. The Vassal is acting as the resource that is managing it. In a current context, one would produce financial statements for a company (the Farm in our case) and not the individual resource or resources in control of the company. 2. What financial statements should we prepare?
a. Balance Sheets for both before and after the ‘growing season’ – This will allow us to determine the assets provided to each farm and how the assets have been utilised. b. Income statement – We use this to see what assets have been used, what revenue has been received and how any withdrawals affect retained earnings. We have assumed for this case that all bushels produced are converted into revenue for each farm. c. Return on Investment Analysis – This allows us to analyse how productive each farm was. 3. What period do these statements cover and why (e.
g. , year, quarter, month, etc..? ) Given the two time periods provided, ‘Spring’ and ‘End of Summer’. Normally we could assume this to mean a period of six months and therefore produce financial statements for the half year. Given this is an assumption I have described the statement period as the ‘Growing Season’, in case this assumption proves not to be fully accurate. 4. What currency are these financial statements going to use? All values have been expressed in Bushels of Wheat and therefore this will be used to calculate the profitability of each farm.
5. Who/ What would be the modern day equivalent of the Baron? Given the Baron is the sole contributor, providing all equity such as the land, raw materials and other assets, I would describe him in modern terms as the Sole Stockholder. There are potential arguments to describe him as a ‘Sole Proprietor’, and despite no statement being provided around stocks or shares being issue, a sole proprietor tends to run the business directly which is not the case here. 6. Who/ What would be the modern day equivalent of the vassals?
The Vassal could be considered the CEO of each farm (Company). They are in charge of the strategy and to some degree the execution of how the farm is managed and this strategy will determine its profitability. 7. Who/ What would be the modern day equivalent of the ox? The ox can be seen as Equipment within Fixed Assets. Given the ox depreciates over time, this would indicate that it would not be seen as the workforce. 8. Please try, based on your answers to questions 1-4, to prepare the related financial statements.
Please do not use journal entries or T accounts as it will not add any new information. 9. How should we measure the performance of the vassals in this case? What can we use this information for? We can evaluate the performance of the managers (Vassals) by calculating the profit margin, profit per acre and the ROI they provided to the Baron. This information will allows us not only to see how productive the land was under their management, but how they managed the raw materials and other assets provided to them.
10. Using your answer to the previous question analyze the performance of Ivan and Frederick. Who was the better manager of the two? We must assume that the land they were given was identical in its ability to produce and therefore the determining factors in who was the better manager would be based on how they utilised the equipment and resources provided to them. There are three indicators that I have focused on to determine the better manager; 1.
The wheat produced per acre is a good initial indicator as to what they were able to produce off the land, but it doesn’t take into account how they managed all of the other assets and raw materials required to create this production. 2. The ROI calculated after the use of the resources, which shows a marginal better ROI for Frederick. 3. If we make an assumption that Frederick could have produced this same return with half of the fixed asset he would show an even higher ROI compared to Ivan.
This of course would not be physically possible given the ox in this case is a live entity, but it helps to demonstrate how much more productive he actually was. Given the assumptions and their ability to provide a return on investment based on the resources utilised I have determined Frederick was the better manager. 11. How will the answer to question 10 affect our strategy in the future two years? In the following year I would suggest that Ivan be given some lessons on how to use a plow so that he is able to depreciate this asset over a longer period of time.
I would also split the land, giving each Vassal 15 acres and see if Frederick is able to continue to produce the same or better ROI and if a reduction in acreage for Ivan has a positive effect on his ability to manage the land and thus provide an improved ROI. If similar results are experienced after year 1 I would continue to allocate Frederick a larger proportion of the land, increasing his stake to 20 acres and reducing Ivan’s further to 10 acres.
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