21 March 2011
suppose if one person owns a cow and it gives birth to a calf. What will be the effect on balance sheet and profit and loss account. Please respond. Thanks
23 March 2011
There is a monograph on livestock accounting issued by ICAI to deal with such valuations and accouting thereof. It is essential point here to know, whether the cow is valued in the balance sheet at an amount higher than zero. If yes, then a suitable deduction be made in the value of cow and the same amount be treated as additional fixed asset in the books. Thus for e.g. if the value of cow is say Rs. 10000/- then if it is decided to value the calf at 2000/- upon birth, then upon the birth of calf the cow's value should be reduced by 2K and calf should be valued in the book at 2K. Again if the business is that of milk supply, then it may not be feasible to value male calf at such a high value. Once this initial recognition is done, then after every period a suitable addition should be made to the value of calf for the feed consumed by the cow. If the value of feed consumed is treated as expense, then a suitable amount expensed out should be capitalised. Generally, it is assumed that around 1/3 of the feed consumed by the cow, can be used to capitalise the calf. Thus in a year, if the value of feed consumption is say Rs. 6K, then Rs. 2K should be capitalised to the calf and 4K should be shown as expense.
I recommend you read the monograph, which is available in ICAI's office.
24 March 2011
If we follow above formula No effect on the value of balance sheet only number of cattel increased.and same result on profit and loss a/c if calf took feeding that the amount of producton goes down and accordingly sales become decrase.
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