By Stephanie Elsen
Professionals from the Farm Financial Standards Council are answering questions about ag financial matters (non-tax related). Here is a question that was recently submitted.
“My question pertains to death loss at a cattle feed yard. Cattle are purchased by lots and accounted for by lots. There is a typical amount of death loss, of course, in each lot. In general, no adjustment is made for normal death loss. In other words, the cost of those cattle and the feed they consumed up to death remains in the lot until sales occur. In a year where death losses are extraordinary (say 20% rather than the normal 2-7%), does an adjustment to inventory need to be made when there is still significant equity in each individual lot? When doing a lower of cost or market analysis (with the cost of the deads still included in the inventory cost), the market value still exceeds the cost. ”
The Guidelines don’t specifically speak to this issue, but Steve Severe the CFO of Padlock Ranch in Ranchester, WY and a member of the Farm Financial Standards Council Technical Committee, provides the following guidance.
"In my experience, I have always left the death loss with the lot until the lot is closed out (even if that closeout crosses over year-end). The decision to treat them on a lot basis conforms with GAAP. Where the cost for the lot, including the deads, is less than market value, that would give me comfort to leave it unadjusted.”
Farm Financial Standards Council
Click Here to Email Your Questions or email FFSC@redwingsoftware.com with a subject line of “Questions for the FFSC”. The FFSC will select questions to answer on this blog.