farm costing budgeting bool keeping
TRANSCRIPT
-
8/22/2019 Farm Costing Budgeting Bool Keeping
1/50
Charanya AroraB.B.A. Semester V For educational purposes only
Cost Analysis
Cost refers to the expenses incurred on productive services
There are two types of costs used in farming- Fixed costsand variable costs. The sum of these two costs gives thetotal cost
Fixed Costs: These costs are related to fixed resources and
are overhead costs. They remain constant irrespective ofthe yields obtained
Variable Costs: Change with the output level
In the beginning, as the production increases variablecosts rise quite rapidly but with further rise in
production, variable costs do not increaseproportionately with production due to economiesbrought about by mass production
Variable costs must be less than selling price for farmingto stay a going concern
-
8/22/2019 Farm Costing Budgeting Bool Keeping
2/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Costing
Total Cost The total cost stands even when production is zero Once the total costs are covered, the farmer remains
indifferent to the average cost of per unit cost ofproduction
Total Profit = Gross Income Total Cost (Fixed +Variable) Average Cost
Refers to cost per unit of output It is the resultant of total cost divided by output
Average Fixed Cost Average fixed cost is a fixed cost per unit of output The total fixed cost is the same of all the levels of
production. The average fixed cost falls continuously ata decreasing rate as core output is produced
-
8/22/2019 Farm Costing Budgeting Bool Keeping
3/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Costing
Average Variable Cost
Refers to total variable cost per unit of output-arrived at by dividing the total variable cost bynumber of output units
Average variable cost is reduced initially due toincreasing returns and increases in advance stagebecause of law of diminishing returns
The AVC has an inverse relationship with averageproduct (AP)
AP is at maximum the ATC must be at its minimum Marginal costs are related to the cost of
producing additional units of output, they areaffected only by the variable cost
-
8/22/2019 Farm Costing Budgeting Bool Keeping
4/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Costing
Average Total Cost
This cost is arrived at by adding together averagevariable cost and average fixed cost
This cost gives idea about total expenses incurred
for producing one unit of output For finding out profit from total return it is
necessary to know the total cost of production
Profit Maximization Maximisation of returns, minimisation of costs
Marginal Cost (MC) and Marginal Returns (MR) arethe indicators to show at what level profit will bemaximum. Profit will be maximum when marginalcost is equal to marginal return (MC=MR)
-
8/22/2019 Farm Costing Budgeting Bool Keeping
5/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Costing
TOTAL
OUTPUT
UNITS
VARIABLE
COSTS
FIXED
COSTS
TOTAL
COSTS
AVERAGE
VARIABLE
COST
AVERAGE
FIXED
COST
AVERAGE
TOTAL
COST
MARGINAL
COST
Y VC FC TC AVC AFC ATC MC
0 0 200 200 0 0 0
25 100 200 300 4 8 12 12
60 200 200 400 3.3 3.3 6.6 -5.4
100 300 200 500 3 2 5.5 -1.1
150 400 200 600 2.7 1.3 4 -1.5
200 500 200 700 2.5 1 3.5 -0.5
240 600 200 800 2.5 0.8 3.3 -0.2
270 700 200 900 2.6 0.7 3.3 0
290 800 200 1000 2.8 0.7 3.5 0.2
300 900 200 1100 3 0.7 3.7 0.2
300 950 200 1150 3.2 0.7 3.9 0.2
280 900 200 1100 3.2 0.7 3.9 0
250 800 200 1000 3.2 0.8 4 0.1
-
8/22/2019 Farm Costing Budgeting Bool Keeping
6/50
Charanya AroraB.B.A. Semester V For educational purposes only
Scientific costing
Cost A
Actual paid out costs for owner cultivator
This cost approximates the actual expenditureincurred in cash and kind
-
8/22/2019 Farm Costing Budgeting Bool Keeping
7/50
Charanya AroraB.B.A. Semester V For educational purposes only
Cost A Elements
1. Hired human labour : a) Male b) Female
2. Total bullock labour a) owned b) Hired
3. Seeds
4. Manures
5. Fertilizers
6. Insecticides and pesticides
7. Irrigation charges
8. Land revenue, cesses and other taxes
9. Depreciation on capital assets10.Transport and Marketing
11. Interest on working capital
-
8/22/2019 Farm Costing Budgeting Bool Keeping
8/50
Charanya AroraB.B.A. Semester V For educational purposes only
Cost A1 for Tenant Cultivators
The rent paid by tenant to the landlord is anotheritem of actual cost
Cost A1 is the actual cost incurred by a tenantcultivator
Cost A1 =All elements of Cost A except.. + rentpaid by tenant
-
8/22/2019 Farm Costing Budgeting Bool Keeping
9/50
Charanya AroraB.B.A. Semester V For educational purposes only
Cost Concepts
Cost A2 is defined as the sum of Cost & (or cost A1) and theimputed value of the farmers own labour
Cost B= Cost A + imputed rental value of owned land + imputedinterest on owned fixed capital
If the amount invested in purchase of land would have been
put in some other long-term enterprise or in a bank, it wouldhave yielded some returns or interest
But due to the investment of the amount in purchase of land,the farmer has to part with the returns or interest that hewould have otherwise gained
This loss is considered as a Cost. It is called rental value ofland
The hypothetical interest that the capital invested in farmbusiness would have earned, if invested alternatively is alsoconsidered as cost
-
8/22/2019 Farm Costing Budgeting Bool Keeping
10/50
Charanya AroraB.B.A. Semester V For educational purposes only
Cost Concepts
Cost C is the total cost of production, whichincludes all cost items, actual as well as imputed
Cost C : Cost B + imputed value of family humanlabour
-
8/22/2019 Farm Costing Budgeting Bool Keeping
11/50
Charanya AroraB.B.A. Semester V For educational purposes only
Measures of Farm Income
Profit at Cost A is known as Farm Business Income: Thedifference between gross return from sale of produce andcost A (cost A1 in case of tenant cultivator) represents thetotal return to the cultivator for his labour, investments andentrepreneurship effort
Farm business income= Gross returns Cost A
or Cost A1
Profit at Cost A2 is also called Farm Investment Income.
Cost A2 provides a measure of return for his investmentsand profit
Farm Investment Income = Gross returns - Cost A2
-
8/22/2019 Farm Costing Budgeting Bool Keeping
12/50
Charanya AroraB.B.A. Semester V For educational purposes only
Measures of Farm Income
Profit at Cost B is also called Family LabourIncome. Cost B provides an estimate of returnwhich correspond to the holdings own labour andprofit
Family labour income = Gross returns - Cost B
Profit at Cost C is also called Net Income. Anysurplus on the basis of cost C provides anestimate purely of profit for enterprise
Net Income = Gross returns Cost C
-
8/22/2019 Farm Costing Budgeting Bool Keeping
13/50
Charanya AroraB.B.A. Semester V For educational purposes only
Cost of Production
Cost of cultivation includes factor costs up to the stage ofgathering the harvest
Cost of production includes factor costs up to the stage ofmarketing the produce
Cost of production is to be worked out as cost per unit of area
and production i.e. per hectare and per quintal/ton
Per hectare cost of production = Total cost
-----------------------------
Area under the crop in ha.
Per quintal // tonne Cost of Production
= Total cost Value of by-produce
----------------------------------------
Quantity of main produce in quintals/tonnes
-
8/22/2019 Farm Costing Budgeting Bool Keeping
14/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Planning
Planning decisions are concerned with the overallorganization of the farm business
They are relatively long term decisions
Operational decisions are more day-to-day Farm planning is a process of making decisions
regarding the organization and operation of afarm business, so that it results in a continuousmaximization of net returns of a farm business
-
8/22/2019 Farm Costing Budgeting Bool Keeping
15/50
Charanya AroraB.B.A. Semester V For educational purposes only
Benefits of Farm Planning
It helps him to look at his situations and post experiencesas a basis to decide which of the improved ideas andmethods fit to this situations
It helps him take decisions in relation to the crops to begrown, the area to be bought under or the number oflivestock to be raised and how they are to be grown or
raised It helps him to identify the credit needs both short and long
term and its sources It helps him to identify clearly the various services and
supplies, needed for an improved plan If gives him an idea of the yield that can be reasonably
expected from each enterprise It gives him a clear idea about the returns that may be
obtained from each enterprise and from business as awhole
-
8/22/2019 Farm Costing Budgeting Bool Keeping
16/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Budgeting
Farm budgeting is a method of analyzing plansfor the use of agriculture resources at thecommand of the decision maker It evaluates the old plan and guides the farmer to
adopt a new farm plan. Leakage and wastage in farm business are made to
known to the farmer.
It gives a comparative study of receipts, expensesand net earnings on different farms in the locality.
It facilitates most efficient and economical use ofresources.
It serves as a valuable basis for improvements tothe farm management practices.
-
8/22/2019 Farm Costing Budgeting Bool Keeping
17/50
Charanya AroraB.B.A. Semester V For educational purposes only
Types of Farm Budgeting
Partial Budgeting Full or Complete Budgeting and Planning
Partial Budgeting Partial budgeting is a method of making a comparative
study of the cost-and-return analysis resulting from achange in a part of the business organisation This change may be made through a careful selection
from among alternative methods of production orpractices
This choice is based on the opportunity cost of relative
profitability & does not affect the total farm organisationvitally This technique helps to make decisions whenever small
changes in the existing farm organisations arecontemplated
-
8/22/2019 Farm Costing Budgeting Bool Keeping
18/50
Charanya AroraB.B.A. Semester V For educational purposes only
Partial Budgeting
The following four pointsare important in setting upa partial budget:
Additional returns fromchange
Reduction in unit cost Reduction in yield, if
any
Addition in cost incurred
Thus partial budgets deal
with such changes in thefarm organisation as canincrease farm incomeswithout changing the totalfarm organisation
Debit Credit
Rs Rs
(a)Increase incosts (a)Decrease in costs
(b)Decrease in
returns (b)Increase in
returns
Gain Loss
Total Total
-
8/22/2019 Farm Costing Budgeting Bool Keeping
19/50
Charanya AroraB.B.A. Semester V For educational purposes only
Full Budgeting
It refers to making out a plan for the farm as awhole or for all decision on one enterprise
In case budgeting analysis involves completereorganization of the farm business, it is calledcomplete budgeting
Complete budgeting considers all the crops,livestock, producing method and estimated costsand returns for the farm as a whole.
It requires more time and efforts and more basicdata for accurate forecasting
-
8/22/2019 Farm Costing Budgeting Bool Keeping
20/50
Charanya AroraB.B.A. Semester V For educational purposes only
Partial budgeting Vs. Full Budgeting
Partial budgeting considers a few alternatives which do notaffect the organisation vitally, but full budgeting takes careof all the alternatives
In full budgeting, the inventory of the farm, the resourcestructure, the existing resource use & such problems asoverstocking or understocking of resources,etc. areconsidered, but in partial budgeting information withrespect to a few alternatives is considered
Partial budgeting does not indicate the break-even point asto when to start one practice & abandon another, but fullbudgeting does
The best strategy is to make use of a partial budget atdifferent stages of full budgeting
-
8/22/2019 Farm Costing Budgeting Bool Keeping
21/50
Charanya AroraB.B.A. Semester V For educational purposes only
Full Budgeting
In preparing complete plans for the farm, all thecomprehensive analysis of studying an individualcultivator's opportunities, constraints & problems is done
Steps of Full/Total/Complete Budgeting1. FARM MAP. The farm is carefully mapped out, giving itssalient features, like soil type soil-fertility & rotationsfollowed. Low-lying areas or other such features are alsoshown in the map. Then based on the previous crophistory, land-capability classification is done & is also shownin the map2. INVENTORY OF FARM RESOURCES. Every asset on thefarm, ranging from hand-tools to sources of power, etc. is
inventoried. This does not provide us with the picture of theresources as owned by a farmer, but we can also work outtheir use-patterns & their condition, i.e. whether they willhave to be replaced or whether they will be sufficient forthe new plan or some augmentation will be needed
-
8/22/2019 Farm Costing Budgeting Bool Keeping
22/50
Charanya AroraB.B.A. Semester V For educational purposes only
Full Budgeting
3. EXAMINING THE EXISTING ORGANISATION. Havingprepared an inventory of the existing resources & theiravailability, what we are interested in is their use-patternwithin the framework of the existing crop mix, whether theresources are understocked or overstocked. A careful analysisof the restrictions & weaknesses of the farm organisation ismade
4. LAYING DOWN RESTRICTIONS & PLANNING.(a)Restrictions maybe with regard to bullock-poweravailability, or in respect of putting some area under cotton, orvegetables for home-consumption, though such a change inthe cropping pattern may not be profitable.
(b)Labour-requirements, power requirements, capital needs &new equipment needed are worked out & a suitable crop mix isadopted
-
8/22/2019 Farm Costing Budgeting Bool Keeping
23/50
Charanya AroraB.B.A. Semester V For educational purposes only
Business Transaction : It means transaction ordealing in money goods with persons, whereinsome benefit is given as well as taken
In other words, any event which involves thetransfer of money or moneys worth from oneperson to another
These transactions are cross-dealings involvingsimultaneously the receiving of a benefit by
someone and the giving of a benefit to someoneelse for an equal amount
-
8/22/2019 Farm Costing Budgeting Bool Keeping
24/50
Charanya AroraB.B.A. Semester V For educational purposes only
Book Keeping Systems
The system of book keeping means the procedureof recording transactions for the year in thebooks of accounts
There are two systems of Book-keeping ofAccountancy
Double Entry
Single Entry
Double Entry
Two entries or made for each transaction in thesame set of books
-
8/22/2019 Farm Costing Budgeting Bool Keeping
25/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Efficiency Measures
One method of production is said to be moreefficient than the other when it yields a greatervaluable output per unit of a valuable input
Efficiency Measures can be categorised into
Physical efficiency measures
Land Efficiency
Labour Efficiency
Value efficiency measures (Financial Efficiency)
Ratio measures
Absolute or aggregate measures
-
8/22/2019 Farm Costing Budgeting Bool Keeping
26/50
Charanya AroraB.B.A. Semester V For educational purposes only
Land Efficiency Measures
Yield per hectare (Production Efficiency) : Theproduction efficiency of the farm as whole should beexpressed in terms of yield per hectare.
Crop yield index : It is a measure of comparison of theyield of all crops on a given farm with the average yields ofthose crops in the locality. The relationship is expressed inpercentage terms
Intensity of cropping : measures the extent of the use ofland for cropping purposes during a given year
Cross cropped area------------------------ X 100
Sown area
-
8/22/2019 Farm Costing Budgeting Bool Keeping
27/50
Charanya AroraB.B.A. Semester V For educational purposes only
Labour Efficiency
Labour efficiency can be best judged by workingout the average and Marginal Productivity oflabour in man-hours
An average productivity of labour is the output
per unit of labour input
-
8/22/2019 Farm Costing Budgeting Bool Keeping
28/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Budgeting
Farm budgeting is a method of analyzing plansfor the use of agriculture resources at thecommand of the decision maker It evaluates the old plan and guides the farmer to
adopt a new farm plan. Leakage and wastage in farm business are made to
known to the farmer.
It gives a comparative study of receipts, expensesand net earnings on different farms in the locality.
It facilitates most efficient and economical use ofresources.
It serves as a valuable basis for improvements tothe farm management practices.
-
8/22/2019 Farm Costing Budgeting Bool Keeping
29/50
Charanya AroraB.B.A. Semester V For educational purposes only
Types of Farm Budgeting
Partial Budgeting Full or Complete Budgeting and Planning
Partial Budgeting Partial budgeting is a method of making a comparative
study of the cost-and-return analysis resulting from achange in a part of the business organisation This change may be made through a careful selection
from among alternative methods of production orpractices
This choice is based on the opportunity cost of relative
profitability & does not affect the total farm organisationvitally This technique helps to make decisions whenever small
changes in the existing farm organisations arecontemplated
-
8/22/2019 Farm Costing Budgeting Bool Keeping
30/50
Charanya AroraB.B.A. Semester V For educational purposes only
Partial Budgeting
The following four pointsare important in setting upa partial budget:
Additional returns fromchange
Reduction in unit cost Reduction in yield, if
any
Addition in cost incurred
Thus partial budgets deal
with such changes in thefarm organisation as canincrease farm incomeswithout changing the totalfarm organisation
Debit Credit
Rs Rs
(a)Increase incosts (a)Decrease in costs
(b)Decrease inreturns (b)Increase inreturns
Gain Loss
Total Total
-
8/22/2019 Farm Costing Budgeting Bool Keeping
31/50
Charanya AroraB.B.A. Semester V For educational purposes only
Full Budgeting
It refers to making out a plan for the farm as awhole or for all decision on one enterprise
In case budgeting analysis involves completereorganization of the farm business, it is called
complete budgeting
Complete budgeting considers all the crops,livestock, producing method and estimated costsand returns for the farm as a whole.
It requires more time and efforts and more basicdata for accurate forecasting
-
8/22/2019 Farm Costing Budgeting Bool Keeping
32/50
Charanya AroraB.B.A. Semester V For educational purposes only
Partial budgeting Vs. Full Budgeting
Partial budgeting considers a few alternatives which do notaffect the organisation vitally, but full budgeting takes careof all the alternatives
In full budgeting, the inventory of the farm, the resourcestructure, the existing resource use & such problems asoverstocking or understocking of resources,etc. areconsidered, but in partial budgeting information withrespect to a few alternatives is considered
Partial budgeting does not indicate the break-even point asto when to start one practice & abandon another, but fullbudgeting does
The best strategy is to make use of a partial budget atdifferent stages of full budgeting
-
8/22/2019 Farm Costing Budgeting Bool Keeping
33/50
Charanya AroraB.B.A. Semester V For educational purposes only
Full Budgeting
In preparing complete plans for the farm, all thecomprehensive analysis of studying an individualcultivator's opportunities, constraints & problems is done
Steps of Full/Total/Complete Budgeting1. FARM MAP. The farm is carefully mapped out, giving itssalient features, like soil type soil-fertility & rotationsfollowed. Low-lying areas or other such features are alsoshown in the map. Then based on the previous crophistory, land-capability classification is done & is also shownin the map2. INVENTORY OF FARM RESOURCES. Every asset on thefarm, ranging from hand-tools to sources of power, etc. is
inventoried. This does not provide us with the picture of theresources as owned by a farmer, but we can also work outtheir use-patterns & their condition, i.e. whether they willhave to be replaced or whether they will be sufficient forthe new plan or some augmentation will be needed
-
8/22/2019 Farm Costing Budgeting Bool Keeping
34/50
Charanya AroraB.B.A. Semester V For educational purposes only
Full Budgeting
3. EXAMINING THE EXISTING ORGANISATION. Havingprepared an inventory of the existing resources & theiravailability, what we are interested in is their use-patternwithin the framework of the existing crop mix, whether theresources are understocked or overstocked. A careful analysisof the restrictions & weaknesses of the farm organisation ismade
4. LAYING DOWN RESTRICTIONS & PLANNING.(a)Restrictions maybe with regard to bullock-poweravailability, or in respect of putting some area under cotton, orvegetables for home-consumption, though such a change inthe cropping pattern may not be profitable.
(b)Labour-requirements, power requirements, capital needs &new equipment needed are worked out & a suitable crop mix isadopted
-
8/22/2019 Farm Costing Budgeting Bool Keeping
35/50
Charanya AroraB.B.A. Semester V For educational purposes only
Business Transaction
Business Transaction : It means transaction ordealing in money goods with persons, whereinsome benefit is given as well as taken
In other words, any event which involves the
transfer of money or moneys worth from oneperson to another
These transactions are cross-dealings involvingsimultaneously the receiving of a benefit by
someone and the giving of a benefit to someoneelse for an equal amount
-
8/22/2019 Farm Costing Budgeting Bool Keeping
36/50
Charanya AroraB.B.A. Semester V For educational purposes only
Book Keeping Systems
The system of book keeping means the procedureof recording transactions for the year in thebooks of accounts
There are two systems of Book-keeping of
Accountancy
Double Entry
Single Entry
Double Entry
Two entries or made for each transaction in thesame set of books
-
8/22/2019 Farm Costing Budgeting Bool Keeping
37/50
Charanya AroraB.B.A. Semester V For educational purposes only
Book Keeping Systems
There are certain events or financial changes involvingeither increase or decrease in value where no such businessis transacted. Even they are recorded in the books of thebusiness
Machinery, implements, livestock and buildings decrease in
value due to their use during the year. These are allrecorded in the books of business of the end of the year
The term entry means the act of writing a transaction inbooks of accounts
-
8/22/2019 Farm Costing Budgeting Bool Keeping
38/50
Charanya AroraB.B.A. Semester V For educational purposes only
Double Entry Book Keeping
Two fold aspect of a transaction Every businesstransaction necessarily involves two parties or two sides one for the giving of a benefit and the other for thereceiving of that benefit
Debit and Credit
The amount of the debit entry is equal to the amount of thecorresponding credit entry
The receiving and giving are between accounts in the sameset of books
-
8/22/2019 Farm Costing Budgeting Bool Keeping
39/50
Charanya AroraB.B.A. Semester V For educational purposes only
Single Entry System
This name is given to a system where only thepersonal Accounts of debtors and creditors arekept and impersonal accounts are ignoredaltogether
Any method of accounting which falls short ofDouble entry, whether it be a combination of noentry single entry and double entry, may becalled as the Single Entry System
-
8/22/2019 Farm Costing Budgeting Bool Keeping
40/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Records
The farmer can avoid mistakes, misunderstandings and losses which willoccur, if he only depends upon his memory
He will get details of receipts and expenditure, the quantity of seed fed tothe livestock, the effect of prices on the farm produce etc.
He will assess the results of his years farming and to know the nature andextent of the profit he has to make and the losses he has sustained
Cultivator will know the actual financial position of the business at the end
of the year i.e. assets possessed, liabilities incurred & the net worth of hisbusiness He can compare his financial position with that of the neighbouring and
competing farms and with that of his own in previous years He will have a better insight into the working of the business Cultivator will acquire business habits which will help him in taking
advantage of any rise or fall in the disposal of his products
The account books can be produced in support of any legal claims i.e. theincrease of decrease of land rent, income-tax, litigations etc. The date on cost of production will be helpful for the purpose of obtaining
loans
-
8/22/2019 Farm Costing Budgeting Bool Keeping
41/50
Charanya AroraB.B.A. Semester V For educational purposes only
Types of Farm Records
Physical Farm Records These records related to the physical aspects of the operation
of farm business They do not indicate financial position or the outcome of the
farm business but simply record the physical efficiency orperformance of the farm
Farm Map, soil map and contour map Charts on physical efficiency Land utilization record Crop production and disposal record Livestock production and disposal record Labour records, daily work diary Machinery use records
Feed records Stock / Store register Poultry records
-
8/22/2019 Farm Costing Budgeting Bool Keeping
42/50
Charanya AroraB.B.A. Semester V For educational purposes only
Types of Farm Records
Financial Farm Records These records are mainly related to the financial aspects
of the operation of farm business Farm inventory Farm cash accounts Classified farm cash accounts & annual farm business
analysis Supplementary financial records
Capital assets register Cash sale register Credit sale / purchase register Wage register Funds borrowed, repayment register Farm expenses Non farm income record
-
8/22/2019 Farm Costing Budgeting Bool Keeping
43/50
Charanya AroraB.B.A. Semester V For educational purposes only
Farm Inventory
An inventory is a list of assets and liabilities, which areclaims or debts against the business
It includes item by item all the property or assets owned orpossessed for the field operations and all other cultivationaccounts, receivable as well as all payable with their
valuation on that date
Process of taking farm inventory
1.Physical counting
2.Valuation of physical assets
-
8/22/2019 Farm Costing Budgeting Bool Keeping
44/50
Charanya AroraB.B.A. Semester V For educational purposes only
Purpose of Farm Inventory
A complete farm inventory taken at the beginning of each season,will give a list of all the assets with their values it shows whatamount of capital goes back into the business. Farm inventory is anecessary step in complete farm accounting
It reveals the changes in net worth through comparison of a farminventories taken at the beginning of the year with anotherassembled at the end of the year. The inventory provide a basis
for computing growth in net worth It enables to work out the measures of income It enables assessment of depreciation costs It helps to work out the value of last years takeover of stock and
this years left over Basis of income statement net firm income cannot be calculated
without inventories
-
8/22/2019 Farm Costing Budgeting Bool Keeping
45/50
Charanya AroraB.B.A. Semester V For educational purposes only
Valuation of Physical Assets
Methods of Valuation
Valuation of cost minus depreciation.
Valuation at cost or market price which ever islower.
Valuation at net selling price
Valuation by Replacement cost minus depreciation
Valuation by income capitalization method
-
8/22/2019 Farm Costing Budgeting Bool Keeping
46/50
Charanya AroraB.B.A. Semester V For educational purposes only
Valuation at cost minus depreciation
This method is commonly used for such workingassets such as machinery and breeding livestock
This method assumes that the purchase pricewas an appreciation of the value of the assets
and its value in subsequent years can bedetermined by subtracting a depreciationallowance from cost
-
8/22/2019 Farm Costing Budgeting Bool Keeping
47/50
Charanya AroraB.B.A. Semester V For educational purposes only
Valuation at cost or market price
Valuation is estimated at the cost or the marketprice whichever is lower
This method is commonly used for valuingpurchased farm supplies
No proper profits accrue and losses due to fallingprices are absorbed immediately
-
8/22/2019 Farm Costing Budgeting Bool Keeping
48/50
Charanya AroraB.B.A. Semester V For educational purposes only
Valuation at net selling price
This means the price which could probably beobtained for the asset, if marketed, less the costof marketing
This confirms most closely to the assets present
worth
This method represents the market price,provides a reasonably accurate measure of thecurrent value of the asset
-
8/22/2019 Farm Costing Budgeting Bool Keeping
49/50
Charanya AroraB.B.A. Semester V For educational purposes only
Valuation by replacement cost minusdepreciation
This method assesses value of assets at what it would costto reproduce them at present prices and under presentmethods of production
This method is best suited for long lived assets such asbuildings, particularly where wide changes in the price level
occur
This method will guard against undervaluation, but may notensure against over valuation
-
8/22/2019 Farm Costing Budgeting Bool Keeping
50/50
Valuation by income capitalization method
This method is appropriate for farm assets whosecontribution to the income of the farm businesscan be measured and which have a long life
Value + Future Income