Chapter Nine
Non-Current Farm Assets
Learning Objectives
Upon successful completion of this chapter participants will be
able to:
Identify the investments that are considered to be permanent
land developments.
Recognize the costs incurred in the development of non-
current assets.
Specify the different types of intermediate-life plants and
how their costs are classified.
Introduction
• Non-current assets are assets that will be retained for
more than one year.
• Given the expected length of usage, these assets are not
recorded as inventory, but rather within a different class
of long-term assets.
• Unless animals have such short productive lives that they
are classified as inventory, they should be classified as
non-current assets. This includes breeding animals,
breeding livestock, and production animals (or dairy
livestock).
Land Development Costs
• Land development costs are incurred in order to bring land into a
suitable condition for agricultural use, as well as to maintain its
productive condition. Examples of permanent land developments
are clearing, initial leveling, and terracing.
• A land development asset should have an indefinite life if properly
maintained. There are also limited-life developments, which may
include ditches, fencing, levees, ponds, and wells.
• Permanent land development costs should be capitalized. These
costs are not depreciated, since the asset is considered to have an
indefinite useful life. Limited-life development costs should be
depreciated over the estimated useful life of the land development.
Trees and Vines
• It can take a number of years before orchards, vineyards
and groves mature enough to begin commercial
production, which may then continue for a number of
years. During the development period, it may be
necessary to engage in grafting, pruning, spraying,
cultivation, and other activities.
• Cultural costs during the development period should be
accumulated. These costs include stakes and wires,
grafting, and the labor associated with pruning and
forming. If any products are sold before commercial
production begins, the net proceeds should be applied
to the capitalized cost of the trees or vines.
• All limited-life land development costs associated with
orchards, vineyards, and groves should be capitalized
during the development period.
Trees and Vines (Cont.)
• Once production begins in commercial quantities, the
accumulated costs are depreciated over the estimated useful life
of the orchard, vineyard, or grove. During this time, the
accumulated costs are reported on the balance sheet as a non-
current asset.
Example:
• Any costs incurred once the commercial product phase is
reached are to be charged to expense as incurred.
• In essence, the accounting for trees and vines matches what
would be used for a constructed asset. Costs are accumulated
during the “construction” phase, and charged to expense
through depreciation once the asset has been put into service.
Intermediate-Life Plants
• Intermediate-life plants are plants that have a growth and production
cycle exceeding one year, but less than those of trees and vines.
Examples are artichokes, asparagus, and grazing grasses. During their
development, a farmer may engage in land preparation, plant
purchases, and cultural care. Development costs should be
accumulated until production begins in commercial quantities. At that
point, depreciate the costs over the estimated useful life of the
plantings. The useful life chosen for depreciation may vary, depending
on regional differences and other factors.
• The cost of intermediate-life plants are reported on the balance sheet
as a non-current asset. A farm should disclose in the footnotes
attached to the financial statements the accumulated costs for
intermediate-life plants, as well as their estimated useful lives.
Valuation of Raised Breeding Livestock
• Raised breeding livestock are considered non-current assets, since
the expectation is that they will be retained for a protracted
period of time. This type of livestock should be valued at the full
cost of raising the animals in order to be in compliance with
GAAP.
• In short, all costs of developing animals, both direct and indirect,
are to be accumulated until the animals reach their maturity and
are then reclassified to a productive function. Consequently, the
following costs must be tracked for raised breeding livestock:
• Breeding fees • Cost of raised feed • Cost of purchased feed
• Veterinarian services • Farm labor • Other related costs • Fuel
• Supplies
• The most GAAP-compliant way to track these costs is to use the
full absorption method. This is a comprehensive cost tracking
methodology under which the farm accountant compiles all costs
incurred that relate to the raised breeding livestock.
• These costs are stored in the Breeding Livestock non-current
asset account. The capitalized cost of the animals is then
depreciated over their useful lives.
• Depreciation begins when the animals reach maturity and are
reclassified as production animals. The amount depreciated is the
costs that have been accumulated up until that point.
Depreciation is based on the following:
• Accumulated costs
• Less any estimated salvage value
• Spread over the estimated productive lives of the animals
Thus, the depreciation used for raised breeding livestock
matches what is used for other fixed assets.
• When an animal is eventually sold, the farm accountant
compares the price received to the book value of the animal, and
recognizes a gain or loss on the sale, as would be the case for any
other fixed asset disposition.
• If an animal dies, the same accounting applies as though the
animal had been sold at a price of zero. In this situation, the book
value of the animal is written off and the farm recognizes a loss
for the entire net book value of the animal.
The End