Page 315 - Agriculture_Form_Three

Chapter

Fourteen

Inventory valuation in farming business

Introduction
Farm business refers to business of producing crops and/or livestock products by
using and managing farm resources such as land, labour, water, capital assets and
other related resources. Determining the value of farm business at a particular time
is very important in managing farming activities. Valuation of farm assets is derived
from inventory. Appropriate setting of values must also consider depreciation of
related assets. In this chapter, you will learn about inventory preparation, meaning
of depreciation, its causes and common methods of estimating depreciation of farm
assets and valuation of farm business. The competencies developed from this chapter
will enable you to know the fair values of farm assets for various purposes including
preparation of financial statements, business planning, reporting, selling an asset or
enterprise, rent fixation, insurance, loan securing on the assets and for partnerships.

Inventory of farm assets
An inventory of farm assets is a list of all possessions or assets item by item. When

an inventory is prepared, list of items of a similar nature are placed in one group. For
example, tractors, ploughs, harrows, and draught animal-equipment may be placed
under the group of machinery. Likewise, farm structures may include buildings,
fences and irrigation structures. Depending on the nature of the farm, you may have
groups of livestock, crop produce, perennial crops, seeds and manure, pesticides,
simple farm tools, and livestock feeds. The asset items which do not fit into main
groups may be listed under others. In the inventory, the actual number/quantity of

each of the assets that are present on the farm should be shown.

An inventory is usually prepared at the beginning or closing of a business accounting
period. It provides information which is used during preparation of net worth and
income statements. An inventory gives a financial picture of a farm business. All
appreciation and depreciation in asset values are clearly shown for particular assets
such as farm machinery, tools, farm buildings, and farm inputs. Figure 14.1 presents
hypothetical and simplified details of inventory of Juhudi Farm.

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