Double entry to account for increase in farm stock

Double entry to account for increase in farm stock

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A client who deals in agricultural machinery had a spare field and bought a dozen ewes and a ram last year. These were entered into his accounts as stock at cost.

His ram had an interesting time last year and my client now has a dozen ewes, a tired ram and two dozen lambs.

Obviously the value of stock in hand has increased but I am having one of those moments and cannot think what to do with the credit side of the double entry

Any advice would be welcome

Thanks

Replies (9)

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By martin.curtis
08th Apr 2013 11:15

Thanks for you reply, but...

 

Thanks for your reply royogston. If I understand correctly you are suggesting having a negative 'cost of sales' figure in the P&L.

This was where I had got to but although it did lead to the right profit figure to be honest it didn't feel or look right to me

 

 

 Sales                       -   Op stock   1,000.00  Purch                -    Cl sock   1,600.00  COS  (  600.00) Feed               200.00 Admin              200.00 Profit              200.00

 

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By mwngiol
08th Apr 2013 11:47

Correct

Negative cost of sales looks wrong but is correct. It's what happens when you have a type of stock that can make more of itself!

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By Richard Willis
08th Apr 2013 12:40

Personally (and I am no expert!)

I would put this nowhere near COS!  I would open an 'Income from Breeding Activities' a/c and credit that.  Otherwise your COS is going to be distorted and the true cost of each beast soled will be diluted.

 

The COS shouldonly, then, be debited when the beasts are sold.

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By patvanaalst
08th Apr 2013 12:57

For Management Accounts

...I probably would have a separate line for it, not so sure for financial.

Also, there shouldn't be a negative cost as the balance sheet should just be absorbing the 'cost'.  i.e. if you're showing a negative cost then surely you're trying to capitalise more costs than you've incurred!  The caveat being that numbers could look skewed if you're absorbing overheads etc. but just posting the gain to CofS.

 

Cheers

Pat

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Glenn Martin
By Glenn Martin
08th Apr 2013 13:05

Does Herd Basis not apply

Its 15 years since I did a set of Farming accounts but I seem to remeber most used the herd basis for accounting whereby your core stock "herd" was capitalised and a valuation was carried out of animals held at the year end. The increase/decrease (animals bred) in herd value was shown in P & L.

Would have to read up on it again to comment further but I am sure there are AWEB members in rural communites that do this all the time.

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Replying to MJShone:
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By newport daz
08th Apr 2013 15:07

IAS 41?

Glennzy wrote:

Its 15 years since I did a set of Farming accounts but I seem to remeber most used the herd basis for accounting whereby your core stock "herd" was capitalised and a valuation was carried out of animals held at the year end. The increase/decrease (animals bred) in herd value was shown in P & L.

Would have to read up on it again to comment further but I am sure there are AWEB members in rural communites that do this all the time.

 

This is also what I was taught - the farm animals captilised as biological assets and increases/decreases in fair value recognised in profit or loss. IAS 41 was the standard I was taught (don't know what the UK equivalent is as we changed part way through the course due to international convergance)

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By pjd17mini
08th Apr 2013 13:26

Other direct costs

It hasn't cost you nothing to get from opening to closing stock - where's all the direct costs like feed, bedding, etc that you've "invested" into the animals.

 You may still have a negative cos, but maybe to not quite so drastic looking - I suppose the negative cos would represent other (indirect) costs that are being capitalised in its value.

P

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By Jacko
08th Apr 2013 14:29

Herd Basis

 

The herd basis treats animals (dairy herd, sheep flock, pigs, poultry & even some horses) that are kept for production & reproduction as an 'Asset of Trade' like plant or machinery.The farmer must elect for this basis to be used and when it is first applied, the initial cost of the animals becoming the 'Herd' is not deductible in arriving at that years profits, it is instead used to form the value of the 'Herd' asset.When the herd is sold, any profit or loss is not included in the P & L account because the original cost was not claimed as a deduction there.Adjustments are made on an annual basis to reflect any additions or disposals in the value of the 'Herd' and that change in valuation is what is reflected through the P & L for that year.

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By Corinius
12th Jun 2015 10:16

This is an old discussion but it seems worth adding a comment since Google found it while I was looking for something else.

 

Farm accounts are different.  The convention is that livestock valuations form part of your "Gross Output" (equivalent of "sales") which is made up of:-

Opening valuation of livestock (minus)

Sales of livestock (plus)

Relevant subsidies (plus) Now often inapplicable.

Purchases of livestock (minus)

Closing valuation of livestock (plus)

Unless the difference is minimal, both opening and closing valuations would be shown at full market value.  The movement in this uplift (known as "Unrealised profit") is then removed further down the P&L to return the result to a GAAP value.

The objective is that the Livestock Gross Output figure should reflect the sale and increase in value of animals in the period, generated by the farming operation. Even if you had no off-farm sales or purchases of livestock in the year, you would still have a realistic "Gross output" figure, based on growth, and birth, of animals, and hence increase in the valuation.

Because the closing valuation is at market value, sales before or after the balance sheet date don't distort the figures.

Agreed with others that "herd basis" is not a decision to be taken casually, but its main purpose was to stop inflationary gains in production animals held for the longer term, such as dairy cows, from being taxed. 

 

 

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