Livestock definition
/What is Livestock?
Livestock is cattle, hogs, horses, poultry, sheep, and small animals bred and raised by an agricultural producer. A farm may raise livestock for sale. The concept is generally limited to domesticated animals.
Accounting for Livestock
When animals are available and held for sale, the farm accountant can value the livestock at their selling price, less any estimated costs of disposal. This net realizable value option is only available if all of the following conditions are present:
There are reliable and realizable market prices for the animals, which are readily determinable;
Disposal costs are insignificant and predictable; and
The animals are available for immediate delivery.
The livestock has a market value, which is assigned to the inventory and also recorded as a change in revenue in the income statement. This means that it is possible for a farm to recognize revenue due to changes in market value, even if it has not sold any livestock in the reporting period.
At the end of the reporting period, the amount of raised livestock is determined and valued based on the market price at the end of the period. This ending valuation is then compared to the valuation already in the relevant inventory account from the beginning of the reporting period; the difference is recorded in a revenue account.
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Example of the Accounting for Livestock
An example of livestock accounting can be seen in a cattle farm that raises beef cattle for sale. At the beginning of the year, the farm has 100 heads of cattle. Throughout the year, the farm incurs costs such as feed, veterinary services, and labor, which are capitalized as part of the livestock inventory. Additionally, the farm purchases 20 more cattle and raises calves born during the year. By the end of the year, the farm has 130 marketable cattle. Under generally accepted accounting principles, the farm can value the cattle using either the cost method or the net realizable value (NRV) method. Suppose the market price per head is estimated at $1,500, and the estimated cost of disposal, including transportation and commissions, is $100 per animal. The NRV per head would be $1,400 ($1,500 - $100). Therefore, the total livestock inventory would be valued at $182,000 (130 heads × $1,400). This value would be reported as inventory on the farm’s balance sheet until the cattle are sold.