(a) Explain why the following financial statements are generated:

(i) Production accounts [2 marks]

(ii) Income statement [2 marks]

(iii) Balance sheet [2 marks]

(b) A lead dairy farmer produces fresh milk and procures some milk from other farmers for sale to a processor. In one month, the management information from his books is summarized as follows:

(i) Opening stock of feed K80, Feed purchases K200, carriage inwards K10, returns outwards K30, unused feed K40

(ii) Milk sales K2,800, carriage outwards K50, opening stock of milk K100, milk procurement from other farmers K250, unsold milk on last day K80, General expenses 150.

(iii) Only 40% of profit can be re-invested, and the intention is to buy dipping sprayer worth K600; any excess money will be held as cash.

(iv) At start of month equity K22,000, Long term liabilities K4,000, Current liabilities K2,000, Current assets K8,000, Fixed assets K20,000.

You are required to undertake the following assignments for this farmer:

(i) Generate a production account [5 marks]

(ii) Generate an income statement [5 marks]

(iii) Explain how the final balance sheet may look. [4 marks]