Thesis 1.0.001

AN EXTENSIVE ANALYSIS OF IMPLEMENTED INVENTORY SYSTEMS OF THE PHILIPPINE FARMING INDUSTRY IN SAN MIGUEL, BULACAN

Polytechnic University of the Philippines College of Accountancy and Finance

Apaya Kris Angela Arazo John Patrick Arboleda Abby Joy Maraceas Formaran John Patrick Mañalac Katherine R. Llorca Vincent Joel C. Tero John Kenneth R. B.S. Accountancy

2017

AN EXTENSIVE ANALYSIS OF IMPLEMENTED INVENTORY SYSTEMS OF THE PHILIPPINE FARMING INDUSTRY IN SAN MIGUEL, BULACAN

An Undergraduate Thesis Presented to the College of Accountancy and Finance Polytechnic University of the Philippines Sta. Mesa, Manila

In Partial Fulfillment of the Requirements for the Degree Bachelor of Science in Accountancy

by Apaya Kris Angela Arazo John Patrick Arboleda Abby Joy Maraceas V. Formaran John Patrick Mañalac Katherine R. Llorca Vincent Joel Tero John Kenneth R. B.S. Accountancy August, 2017

Chapter 1 THE PROBLEM AND ITS BACKGROUND

INTRODUCTION An

inventory

system

is

an

integrated

system

of

processes designed to track inventory as product flows through a warehouse environment (ASAP Systems, n.d.). It is an integral part of both the production and costing processes, aimed at tracing record counts and quotation of

prices.

As

a

general

standard,

these

systems

are

intended to follow the accrual basis of accounting. IAS 41 Agriculture sets out the accounting guidelines for

agricultural

Limited,

n.d.).

activity

(Deloitte

Agricultural

produce

Global at

the

Services point

of

harvest, however is ruled by IAS 16 Property, Plant, and Equipment. These two standards allow uniformity in the presentation and reporting of financial statements in the agricultural industry. Sub-divided into 4 different sectors, the Philippine agricultural sector employs 27.0 percent of the total Philippine workforce, responsible for 10.27 percent of

the country’s Gross Domestic Product in 2015 (Philippine Statistics Authority, 2016). The country’s agriculture sector is made up of 4 sub-sectors: farming, fisheries, livestock, and forestry (Nations Encyclopedia, n.d.)

BACKGROUND OF THE STUDY The rapid and hasty efforts of the government to shift the Philippine economy towards an industrialized economy has instigated a major backlog of unrepressed and undealt issues in the agricultural industry. This dilemma is

reflected

interest

further

regarding

with

the

agricultural

continuously opportunities

dropping in

the

country. Stigma of poverty relation with this industry does

not

help

in

inviting

people,

either.

In

effect,

altogether these issues have led to a shortage of agribusiness researches and studies. With the aforementioned, the researchers, hereafter are dedicated to providing a research to provide a detail and insight on the methodologies and policies currently being

implemented

in

the

management of inventories.

region,

specifically

in

the

The researchers perceive the handling and management of

inventory

agricultural

as

a

highly

industry.

It

crucial

element

encompasses

the

in

the

production,

storage, and delivery stages. As a whole, the inventory system

technically

industry

in

reflects

numbers.

Still,

the the

whole

agricultural

accounting

standards

still have a general rule over the use and implementation of these inventory systems. IAS 41 Agriculture provides general guidelines for agricultural

related

activities,

however

there

are

exceptions and clarifications with the classification of certain

items.

different.

PAS

In

the 41

Philippines, Agriculture

this

matter

sets

the

is

no

general

measurement of biological assets and agricultural produce, with exceptions which should be ruled instead by PAS 16 Property,

Plant

and

Equipment.

This

matter

has

been

settled with amendments to PAS 16 and PAS 41 in 2014. The amendment between upon

is

primarily

bearer

amendment,

plants was

focused and

split

on

the

agricultural into

two

classification produce,

units

of

which

account.

Bearer plants will be presented as non-current assets, while agricultural produce will usually be a current asset,

unless it takes more than a year to mature (Calundan, 2014). The

researchers

aim

to

discover

the

effects

and

changes of this amendment in the industry after three years of its implementation. Moreover, the researchers are interested with the overall effect of this amendment with the inventory management.

THEORETICAL FRAMEWORK Handling Agricultural Inventories has been since modified and changed from the traditional agricultural financial reporting towards the updated statements, which follow the Generally Accepted Accounting Principles. The application of GAAP to production agricultural relies heavily

on

the

similarities

manufacturing-sector

for

in

the

guidance.

features This

of

the

primarily

classifies inventories into three classifications: Direct Materials, Work in Process, Finished Goods. Still, the differences which are unaccounted for has led to farming operations to deviate from reporting true WIP, instead rely on “quick and dirty” surrogates (Dixon, 2012).

…Inventory

Management

Practices

and

Organizational

Productivity …Lean Theory …Activity Based Costing Practices …Just-In-Time Management Practices …Economic Order Quantity Practices …Materials and Requirements Planning Practices …Vendor Managed Inventory …Distributions Requirements Planning

CONCEPTUAL FRAMEWORK

Indepdendent: Inventory Management Practices

Dependent: Firm's Productivity

Activity Based Costing Just-in-time EOQ MRP VMI DRP

Number of Stock Outs Rate of Stock Turn Inventory Costs Return on Investment Lead Time

…Identified Variables

STATEMENT OF THE PROBLEM With

the

limited

supply

and

fluctuating

demands

for

agricultural products, an effective inventory system is highly necessary for the seamless delivery of products to the consumers. The fact that these goods are perishable only adds to the necessity of an operative and working management system. This study therefore seeks to answer the

following

management

research

practices

are

questions:

what

being

in

used

inventory

agricultural

farming industries in San Miguel, Bulacan? Is there any relationship between inventory management practices and

productivity of agricultural farming industries in San Miguel, Bulacan?

SCOPE AND LIMITATIONS 

…this study is limited only to agricultural services related to farming of crops and rice grains, which does not involve fruit bearing plants or livestock.



…the study would focus more on the inventory system, which includes inventory classification rather than costing methods of the inventory stocks



…the researchers are also limiting the study with medium to small size farms



…the study relates the importance of inventory but does not necessarily relate of the farm’s storage procedures

SIGNIFICANCE OF THE STUDY The researchers aim to introduce inventory systems of agricultural products more extensively to the accounting literature.

The

unique

economic

features

provided

by

agricultural products such as limited and unpredictable supply calls for a better understanding and approach.

This study will enable policy makers obtain k nowledge of agricultural industry dynamics and the most appropriate inventory management practices to be implemented. Stockholders: … Farmers: …

Chapter 2 REVIEW OF RELATED LITERATURE AND STUDIES

LOCAL STUDIES 

       



Inventory Procedures for Smallholder and Community Woodlots in the Philippines: Methods, Initial Findings and Insights. https://www.researchgate.net. 2014. Adoption and Uptake Pathways of GM/Biotech Crops by Small-Scale, Resource-Poor Filipino Farmers. http://www.isaaa.org. 2013. Reliability of the Barangay-based Smallholder Tree Farm Inventory: Research and Policy Implications. https://espace.library.uq.edu.au. Economic Status of Farmers on Disaster Prone Community: A Case Study. https://www.gsb.stanford.edu. 2015. Traditional Rice in Central Cordillera, Philippines: Dynamics of On-Farm Management of Varietal Diversity. https://www.jstage.jst.go.jp. 2007. Food Loss in the Food Value Chain: The Philippine Agriculture Scenario. https://www.jstage.jst.go.jp. 2016. Agricultural Biodiversity Conservation Toward Sustainable Rice-based Farming Systems. https://www.jstage.jst.go.jp. 2007. Organic Farming: The Future of Philippine Agriculture. http://www.fareasternagriculture.com. 2012. Rice Farmers’ Concept and Awareness of Organic agriculture: Implications for Sustainability of Philippine Organic Agriculture Program. http://www.issaas.org. 2014. Institutional Perspective in Supply Chain Management: The Cases of Abaca, Vegetable and Bamboo Supply Chains in the Philippines. http://ap.fftc.agnet.org. 2015.

    

Rice and Vegetable Value Chains Affecting SmallScale Farmers in the Philippines. https://www.vsu.edu.ph. 2016. NSO Takes Nationwide Census of Farms and Fisheries. https://psa.gov.ph. 2003. A Review of the Agriculture Sector in Central Luzon. https://psa.gov.ph. 2004. 2002 SCENARIO of the AGRICULTURE SECTOR IN THE PHILIPPINES. https://psa.gov.ph. 2005. Philippines – Agriculture. http://www.nationsencyclopedia.com.

FOREIGN STUDIES        





Applicable Inventory Control Models for Agricultural Business Managers: Issues and Concerns. http://scialert.net. 2014. What Difference Does Inventory Control Make In Typical Small – Scale Farms’ Profitability? http://www.ijmsbr.com. 2014. Managing Inventories for Agricultural Products: The Optimal Selling Policies. https://papers.ssrn.com. 2014. Supply Chain Analysis of Contract Farming. http://www.utdallas.edu. An Android-Arduino System to Assist Farmers in Agricultural Operations. http://www.digitalxplore.org. 2015. Supply Chain Management of Rice in India: A Rice Processing Company’s Perspective. http://www.airccse.org. 2013. Cost Accounting Applied to Farming in Southwest Michigan. http://scholarworks.wmich.edu. 2012. An Overview to Accounting Applications on Agricultural Activities in Turkey Within Historical Progress. http://www.academicjournals.org. 2009. Inventory Management and Supply Chain Performance of Non- Governmental Organizations in the Agricultural Sector, Kenya. http://chss.uonbi.ac.ke. 2013. The Impact of Uncertain Environment on Rice Supply Chain Performance in Northeast Thailand.

http://ro.uow.edu.au. 2008.

FOREIGN LITERATURE   

       

Inventory Control for Farm Supply Cooperatives. http://articles.extension.org. 2015. Inventory and Analysis of Exchange Schemes for Young Farmers. https://ec.europa.eu. 2015. Historical Development of Agricultural Accounting and Difficulties Encountered in the Implementation of Agricultural Accounting. http://ageconsearch.umn.edu. 2013. The Importance of Farm Records and Accounting In Agricultural Production. http://kamjournal.org. 2014. A Review of Agricultural Accounting Education and Literature in Turkey. http://journal-archieves25.webs.com. 2012. Traceability in Agriculture and Food Supply Chain: A Review of Basic Concepts, Technological Implications, and Future Prospects. https://www.researchgate.net. 2003. Accounting Methods Available to Farmers. https://farmers.uslegal.com. Farm Business and Financial Planning. https://www.gov.uk. 2012. Farmers. https://farmers.uslegal.com. Agriproduct Supply-Chain Management in Developing Countries. http://aciar.gov.au. 2003.

Chapter 3 RESEARCH METHODOLOGY

METHOD OF RESEARCH The research will adopt a descriptive survey research design, as it will allow an extensive investigation of the

problem

under

study

(Yount,

2006).

Descriptive

studies provide simple summaries about the sample and the observations that have been made (Prem, 1995).

POPULATION, SAMPLE SIZE & TECHNIQUE Population: Medium to small agricultural farms in San Miguel, Bulacan Sample Size:

DESCRIPTION OF RESPONDENTS *Tentative* 3 Angels Farm | 0917-8032039 Eljaro Farm | 0917-5538739 Nixin & Jary Farm | 0917-8065122 V.C. Meneses Farm | 0927-7974834 BMJ Industrial & Farm Supply | 0922-8227932

DATA-GATHERING PROCEDURE Questionnaire