Lecture 14 Farm Inventory

For undergraduate agricultural students of the course ‘Ag. Econ. 6.4 Farm Management, Production, and Resource Economics (2+1)’ of Junagadh Agricultural University, Gujarat and other State Agricultural Universities in India.

1. Lecture 14: Farm Inventory 1

2. Farm Inventory It is a complete list of all the physical property of a business or a firm along with their values at a specific date . JAU FARM: Cotton – 200 kg – Rs. 10,000 – February 29, 2016. Tractor ? Power tiller ? Groundnut ? Cattle? Land? First step in farm financial accounting . Forms the basis for the preparation of financial statements. 2

3. Use of a farm inventory Comparing the inventory at the beginning of the year with the end of the year ??? Appreciation or Depreciation Profit or Loss 3

4. Procedure : Step 1: Beginning of the year - Prepare the list of all assets of your farm - Current assets  Cash in hand, time deposits, etc. - Fixed assets or Depreciable assets  Tractor, land - Non-depreciable assets  Seeds, fertilizers, etc. How to prepare? Through physical counting on a specific date 4

5. Procedure (Contd.) Step 2: Valuation of each item using an appropriate valuation method. Step 3: Repeat Steps 1 and 2 at the end of the year. Step 4: Measure the difference at the inventory (opening inventory) and at the end of the year (Closing inventory). 5

6. Methods of Valuation Net Selling Price Method Market Price Method Cost Method (Original) Cost Less Depreciation Method Replacement Cost Less Depreciation Method Income Capitalization Method 6

7. When to use? Net Selling Price Method : For those assets which are primarily meant for sale and are sold within the year. NSP = Selling Price – Marketing Cost E.g : Crop produce, livestock products 7

8. 2. Market Price Method: For valuing farm supplies that are purcahsed E.g : Seed, fertilizer, pesticides. 3. Cost Method: To estimate current value of farm produced inputs. E.g : Compost, FYM and standing crop 8

9. 4. Cost minus depreciation method: For working cspital assets – e.g. machinery , new farm buildings, farm equipments , livestock How? Estimate depreciation amount and deduct it from the purchase price or original cost 9

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11. 5. Replacement Cost Minus Depreciation: E.g : Old farm buildings What is replacement cost? Cost of constructing the same type of building at the present price with the present technology What is the difference b/w ‘original cost’ and ‘replacement cost’? 11

12. 6. Income Capitalization Method: For valuing those assets which yield income over an infinite period of time. E.g : Land V = I/ r Where, I = Average annual income for a number of years; r = Rate of interest 12