The Ostrich Farm

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The Ostrich Farm
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Basic Information

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

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Beginning-1

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

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Beginning-2

• In each piece of land there is one egg incubator
  that is expected to last eight years with good
  use, and a portable shelter for the animals which
  can usually be used for two years.
• Each egg incubator is worth two pairs of
  ostriches and the shelter about two eggs.
• The father also gave each daughter bird feed that
  would be enough for the first half of the year.
  1000 kg of feed is worth one egg.

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During the year- Older

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

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End of the year- Older

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

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During the year- Younger

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

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End of the year-Younger

• At the end of the year, she exchanged her
  remaining eggs for 18 pairs of ostriches of the
  same breed as hers

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Decision

• Which daughter is doing better?
• Criteria?

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What do we need to answer?

• performance
• ownership
• common denominator or measurement unit

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Solution

• Common denominator eggs or birds?
• Father or daughters?
• Wealth increase? How to measure?

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Measurement Unit -Eggs
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Older Sister
Capital whose?
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Younger sister
Capital whose?
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During the year Older

• 126 eggs plus 69.3 eggs

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During the year Older 2
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End of the year Older
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During the year Younger

• 63 eggs 56.7 eggs

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During the year Younger-2
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End of the year- Younger
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Comparison- Beginning of the year
total egs Older
Younger ostrich 80 40 land 60
30 incubator 16
16 feed 126 63 shelter 2
2 284 151
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Comparison End of the year

• Owes 2 eggs 1 egg

total eggs older
younger ostrich 269
180 feed 9.7
17.3 land 60 30 Incubator
16 16 Shelter
4 2 358.7
250.3
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Which one is doing better?

• What about the eggs given to the father?
• Which daughter is using the resources more
  efficiently?
• Who has increased the wealth more?

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Wealth

• Older Beginning 284 eggs End
  356.7 eggs (owe 2 eggs)
• Younger Beginning 151 eggs End
  249.3 eggs (owe 1 egg)
• How much is the net worth or capital or owners
  equity?

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Increase in wealth

• Difference between the beginning and the ending
  capital
• Older 72.7
• Younger 98.3
• Now lets see what caused the capital increase.

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Older Annual Performance
meat produced 81 eggs 300 total
revenue 381 eggs cost ostrich 9x4
36 feed 195.3 Cost
231.3 gross margin 149.7 help 45 vet
3 broke 2 fix 2 total expenses
52 income
97.7 gave to father 25 Increase
72.7 eggs
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Younger-Annual Performance
shelter eggs hatched eggs 20 5 25 meat
9 eggs
277 total revenue 311 ostrich
4 feed 119.7 hatched eggs 10 Cost
133.7 gross margin 177.3 help 2
5 vet 2 shelter unusable 2 total expenses
29 income 148.3 gave to
father 50 Increase 98.3
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Moral of the Story

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