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Department of Accountancy

University of Illinois
Memorandum

TO: Chief Scribe


FROM: Monica Chen, Xi Li, Yijing Ma, Bridget Ostojic, Joe Vladislav
DATE: June 28, 2015
SUBJECT: Amenhotep Empire - Farm Analysis of Sihathor and Pemsah
Introduction
As the harvest season comes to an end in the Amenhotep Empire, our team from Horus &
Sons scribes has reached an opinion regarding the farm production of Sihathor and Pemsah. The
purpose of this memorandum is to discuss the relevance of the measurements in the farms
statements of operations, corn flows, and position by relating them to the phenomena and
attributes of interest. We will also provide recommendations on which farmer to invest in.
Statement of Corn Flows/Operations Related to Phenomena and Attributes of Interest
The phenomena of interest would be Sihathor and Pemsahs farms. The attributes would
be each farms performance and the effectiveness of farm operations. We will assess these
attributes through ratios derived from the net corn increase, related to the statement of corn flows
(Exhibit 2), and net income, related to the statement of operations for each farm (Exhibit 1).
Ratios derived from the statement of operations reflect efficient management of revenues
and expenses. The ratio of the actual corn produced/possible corn production for Sihathor is
98.43% in comparison to Pemsahs 93.33%, indicating that Sihathor produced corn closer to the
projected yield. This ratio is a confirmatory value that the land west of the River is more fertile
than the eastern lands. The total expenses/arura ratio is .48 sacks/arura for Sihathor and .42
sack/arura for Pemsah, revealing that Sihathor spent an average of .06 sacks more than Pemsah
per arura. It is a predictive value that Pemsah may manage costs marginally better in the future.
Additionally, the statement of corn flows provides an indication of performance in the
context of the size of the farm. Sihathors ratio of net increase in corn/arura is 1.35 sacks/arura,
in contrast to Pemsahs 1.80 sacks/arura. This is a value that ensures faithful representation

Department of Accountancy
University of Illinois
Memorandum

through completeness because performance (the net gain in corn) is divided by the size of the
farm (aruras). The difference between the ratios can be attributed to Sihathor allocating 12,500
sacks of corn to renovate his palace. This is assumed to be a transitory cost and is not expected to
reoccur. Thus, if this expense is disregarded, Sihathors ratio is 1.97 sacks/arura, while Pemsahs
is still 1.80 sacks/arura, favoring Sihathor. Please refer to Exhibit 5 for calculations
Recommendations for Investment based on Statement of Corn Flows/Operations
Based on the previous ratios, we would recommend Sihathor as the better farmer. Under
the condition that he refrains from personal expenses in the future, Sihathors land is more
fertile, which results in a higher net increase in corn/arura. In addition, Sihathors expenses per
arura were only slightly higher than Pemsahs.
Statement of Position Related to Phenomena and Attributes of Interest
Efficiency can be measured from each individuals harvest with figures from the
statement of position (Exhibit 3). The current ratio of the two farms measures the current assets
against current liabilities. Comparison of current ratios of the two farms, Sihathors farm at 1.44
and Pemsahs farm at 2.00 (Exhibit 4) indicates that while Sihathor is in good position to pay off
obligations, Pemsah is in an even better position to do so. Additionally, measuring the farms
total liabilities against total shareholders equity calculates debt/equity ratio to be .078 and .062
for Sihathor and Pemsah, respectively. This tells us that Sihathor has been financing his company
with debt slightly more than Pemsah, revealing the better health of Pemsahs farm.
Impact of Mice Infestation
Damaged goods are a common issue among producers and manufacturers. As the
Pemsahs corn granary is infested with mice, the statement of position would be affected in a
number of ways. Due to the loss of stored corn, Pemsahs current assets would decline and some

Department of Accountancy
University of Illinois
Memorandum

of the stored corn would need to be written off. The purchase of cats would result in a decrease
in cash, but also a gain of cats as an asset. If the rodents are not controlled, future damage may
occur and cats are not a guaranteed solution to the problem. Therefore, Pemsah should take into
consideration that there may be future impacts to his farm. Mice infestation would impact the
image of Pemsahs farm and its riskiness as an investment. The statement of position is often
used as a snapshot of an individuals performance and a tool to judge how successful that
individual is at his operations. Through losing the stored corn, Pemsah ultimately does not have
as strong of financial standing as Sihathor.
Recommendations for Investments based on Statement of Position
In comparing the two farms, we found very few differences amongst their finances. Our
analysis points to Pemsah having a slightly stronger farm from a financial health position, but
Sihathor is in a good position financially as well. However, when considering the mice
infestation at Pemsahs farm, we can no longer assume Pemsah to be the safer investment. While
his farm can provide a greater potential return on investment, it also carries greater risk if the
infestation turns out to be long-term. Therefore, we maintain our position and recommend
investing in Sihathors farm, because it will provide a steady return on investment with less risk
as long as long as Sihathors personal expenses are monitored.
Conclusion
In conclusion, this memorandum analyzed the phenomena and attributes of interest in
relation to the statement of operations, corn flows, and position for each farm as they provide
relevant and faithfully representative quantifiable evidence. Based on ratios derived from these
financial statements, our team at Horus & Sons believes that Sihathor is the better investment in
the long-term as long as his personal expenses are closely monitored.

Department of Accountancy
University of Illinois
Memorandum

Exhibit 1:
Empire of Amenhotep
Income Statement
For the Period Ended the Fourth Month of Shomu
(in sacks of corn)
Sihathor
Production
50,200
Cost of Goods *note A
8,789
Gross Profit
41,411

Pemsah
34,300
5,680
28,620

Operating Expenses
Farm Manager Salary Expense *note B
Oxen Depreciation Expense
Farm Implement Depreciation Expense
Building Depreciation
Recondition Expenses
Building Expense *note C
Annuity Expense
Total Operating Expenses
Income from Continuing Operations Before Income Tax
Income Tax Expense
Income from Continuing Operations
*note D

168
247
67
160
25
100
2
769
40,742
0
40,742

630
28,090
0
28,090

Net Income

40,742

28,090

168
192
50
110
10
100

---------------------------------------------------------------------------------------------------------------------Note A: The expense for farm worker wages is included in Cost of Goods rather than as an
operating expense because it can be considered indirect labor under MOH.
Note B: Straight-line depreciation is used to account for the assets including the building, ox and
farm implements. A life span for the farm implements is 3 harvests, 10 harvests for the building,
and 6 harvests for the ox.
Note C: It is assumed that the building is completed in time for the harvest to provide space to
store the corn. Therefore, both Sihathor and Pemsah paid the initial amounts for building
construction, but have not yet paid the remaining amounts owed after their first harvest.
Note D: The money Sihathor spent to remodel his palace was not an operating expense that
contributed to the corporation. This was a personal expense that is not included in the land
income statement.

Department of Accountancy
University of Illinois
Memorandum

Exhibit 2:
Empire of Amenhotep
Statement of Corn Flows
For the Year of the Twelfth Flood
(in sacks of corn)
Sihathor

Pemsah

Corn Inflows
Collection of Corn Yield
Corn Inflows
Corn Outflows
Corn Planted
Payment to Manager
Payment to Worker *see note
Payment for Reconditioning
Payment to Worker's Wife
Purchase of Oxen
Purchase of Implements
Payment for Building Storage
Payment for Remodeling
Corn Outflows
Net Increase Corn
Beginning Corn
Ending Corn

50200

34300
50200

5500
168
3289
25
2
1500
200
100
12500

34300
3370
168
2310
10
1150
150
100

23284

7258

26916
10000
36916

27042
7000
34042

* note: Payment to workers: one of the worker fell into the river 2 lunar cycles before the
harvest, so Sihathor only needs to pay him 10 lunar cycle salaries

Department of Accountancy
University of Illinois
Memorandum

Exhibit 3:
Empire of Amenhotep
Statement of Position
As of the Fourth Moon of Shomu
(in sacks of corn)
Sihathor
Assets
Current Assets
Sacks of Corn
Total Current Assets
Property, Plant, and Equipment, less
depreciation
Eastern Lands
Farm Implements, less depreciation
Oxen, less depreciation* see note E
Buildings, less depreciation
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Salaries Payable
Income Taxes Payable
Offerings Payable
Total Current Liabilities
Long-Term Liabilities
Annuity Payable* see note F
Total Liabilities
Shareholders' Equity
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity

Pemsah

36916

34042
36916

352700
133
1166.67
1440

355439.67
392355.67

10000
0
12550
3000

34042
254200
100
958
990

256248
290290

7000
0
8510.5
1500
25550

93

17010.5
0

25645

17010.5

366712.67
392355.67

273279.5
290290

Note E: Two oxen fell into the river and were lost 10 lunar cycles into the year. We have written
off their valuations and their accumulated depreciation is not included in our books.
Note F: As the accident that took the workers life occurred 10 lunar cycles into the year, 2
sacks of corn have already been paid to the mans wife.
Exhibit 4:

Current Ratio
Debt/Equity Ratio

Sihathor
1.444853229
0.069844841

Pemsah
2.001234532
0.062165723

Department of Accountancy
University of Illinois
Memorandum

Exhibit 5:
Sihathor
20,000
2.55

Pemsah
15,000
2.45

Possible Corn Production (#


Aruras * Yield per Arura)

51000

36750

Actual Corn Produced/Possible


Corn Production

(50,100/51,000) or 98.43%

(34,300/36,750) or
93.33%

Total Expense/Arura

((8,789+769)/20,000) or .48
sacks/arura

((5,680+630)/15,000) or
.42 sacks/arura

Net Increase in Corn/Arura

(26,916/20,000) or 1.35
sacks/arura

(27,042/15,000) or 1.80
sacks/arura

Net Increase in Corn/Arura


(omitting palace expense)

(26,916+12,500/20,000) or
1.97 sacks/arura

(27,042/15,000) or 1.80
sacks/arura

Aruras of Land
Yield Per Arura