Non-Current Assets

1. Non-Current Assets Chapter 8

2. Non-Current Assets • Raised breeding stock • Full cost absorption: all expenses associated with raising animal are capitalized and depreciated • Requires cost accounting which is typically used only by larger firms

3. Non-Current Assets • Raised breeding stock • Base value method (recommended by FFCS) • 1. Base value is assigned when animal enters breeding herd (could be based upon estimate of cost to raise) • Base values are recorded on the balance sheet

4. Non-Current Assets • Raised breeding stock • Base value method (recommended by FFCS) • 2. Value is increased as animal moves past transfer points that are based upon age • Increased values are recorded on balance sheet

5. Non-Current Assets • Raised breeding stock • Base value method (recommended by FFCS) • 3. Changes in base values may be due to movements past transfer points or changes in the number of animals • Both types of changes are reported on the income statement

6. Non-Current Assets • Raised breeding stock • Base value method (recommended by FFCS) • 4. When animal is sold or otherwise disposed of, a gain or loss is calculated • The gains and losses are reported on the income statement

7. Non-Current Assets • Acquired assets • Breeding livestock • Machinery & equipment • Buildings & improvements • Land • Note: the list above can include inherited assets and assets received as gifts

8. Non-Current Assets • Acquired assets • Each asset is assigned a basis • Cost to purchase • Other basis, which may be based upon market value

9. Non-Current Assets • Acquired assets • Basis of each acquired asset (with the exception of land) is expensed (depreciated) over time

10. Non-Current Assets • Acquired assets • The basis adjusted for depreciation (book value) is recorded on the balance sheet • The depreciation expense is recorded on the income statement

11. Non-Current Assets • Acquired assets • On disposition, a gain or loss is calculated • gain (loss) = sales proceeds less book value

12. Non-Current Assets • Capital lease vs. operating lease • Operating lease: lease payment and related expenses are expenses on the income statement

13. Non-Current Assets • Capital lease vs. operating lease • Capital lease: financing expense and depreciation expense are recorded on the income statement • Remaining financial obligation and undepreciated basis (book value) are recorded on the balance sheet

14. Non-Current Assets • Capital lease: A lease that "in substance" is a purchase and financing arrangement. When a lease meets certain criteria, the asset being "rented" is recorded as an asset and a liability is also recorded. A lease that is truly a rental arrangement is known as an operating lease. (Accounting Coach)

15. Non-Current Assets • Fulfillment of any one of the following conditions indicates a material ownership interest: • 1. The lease agreement transfers title to the lessee at the end of the lease term. • 2. The lessee has the option of buying the asset at a bargain price (bargain purchase option) at the end of the lease term. • 3. The present value of the annual annuity of rentals is greater than, or equal to, 90% of the fair market value of the asset at the lease inception date. • 4. The lease term is equal to 75% or more of the asset’s life.

16. Non-Current Assets • Investments • Farmer-owned cooperative • Other entities • Life insurance policies • Retirement accounts • Any of the last three investment may be treated as a non-farm asset