The document discusses the importance and procedures of farm inventory, which includes a complete list of all physical property and their values at a specific date, serving as the basis for financial statements. It outlines the step-by-step process for preparing and valuing the inventory, as well as various valuation methods such as net selling price and cost methods. Additionally, it emphasizes the significance of comparing inventories at the beginning and end of the year to determine appreciation, depreciation, profit, or loss.

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
1. Net Selling Price Method
2. Market Price Method
3. Cost Method
4. (Original) Cost Less Depreciation Method
5. Replacement Cost Less Depreciation Method
6. Income Capitalization Method
6

7. When to use?
1. 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

10. 10

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