Methods of valuation and accounting of fixed assets in agriculture

How to properly evaluate farm fixed assets

Competent economic accounting in agriculture begins with an accurate assessment of the material and technical base. To form a balance sheet, determine depreciation charges, or pledge assets for a loan, a special methodology is used for evaluating fixed assets. The objectivity of economic calculations and the efficiency indicator of the use of production funds depend on the accuracy of this assessment. Four basic types of valuation of fixed assets are applied:

• Initial (full book) value — the sum of money actually spent on the acquisition, construction, or installation of fixed assets (if no revaluation was carried out and depreciation was not written off).
• Initial replacement value — the cost of fixed assets based on the costs of their reproduction under modern conditions, obtained as a result of revaluation due to inflation and price increases.
• Residual value — initial value minus depreciation over the time of operation of the assets in production.
• Residual replacement value — the replacement value of fixed assets after revaluation minus the accrued depreciation.

Currently, due to the development of the real estate market, the methodological foundations for its valuation as part of fixed assets are based on three approaches: the cost of creating objects, profitability, and the ratio of supply and demand. Livestock acts as a specific means of production, serving as a source of valuable food products, protein, and raw materials. Animals utilize production waste and forage crops, turning them into marketable products and ensuring profit at a correct cost price. In addition, keeping livestock contributes to maintaining soil fertility through the application of manure, the volume of which depends on the land area, production specialization, and output per 1 ha of land and per 1 head.

Asset availability and capital-labor ratio: calculation and impact on cost price

The decline in the solvency of agricultural enterprises is caused by high prices for machinery, price disparity, and a lack of funds, which has led to a decrease in the inflow of fixed assets to farms. Under such conditions, along with direct purchase, alternative forms of using means of production are developing: leasing, rental, hire, and joint use on a cooperative basis. The development of this market depends on the supply of machinery, supplier competition, the freedom of commodity producers, the creation of infrastructure, and state support for price regulation. The equipment of the enterprise with funds largely depends on this.

• Average annual value of funds — (Value at the beginning + at the end of the year) / 2
• Number of tractors — per 100 ha of arable land
• Number of trucks — per 100 ha of agricultural land
• Number of combines — per 100 ha of grain crop sowing

The indicator of asset availability (capital availability) is calculated by dividing the average annual value of agricultural fixed production assets by the area of agricultural land. In livestock farming, asset availability is determined separately as the quotient of dividing the sum of the industry's fixed assets in average annual terms by the conditional livestock population. To calculate the average annual value, the value of funds at the beginning and end of the year under study is added up and the result is divided by 2. The level of asset availability is influenced by the enterprise's specialization, natural and climatic conditions, production technology, and financing opportunities.

The second key indicator of intensity is the capital-labor ratio at the enterprise. It is defined as the quotient of dividing the average annual sum of agricultural fixed production assets by the number of average annual employees. Thus, the capital-labor ratio depends directly on the total value of fixed assets and the number of people employed in production.

How to evaluate and increase the return on fixed assets

The growth of technical equipment and mechanization of production processes reduces the need for manual labor: the number of staff employees decreases, while the value of funds grows. This directly affects labor productivity. To evaluate how effectively investments in machinery, buildings, and infrastructure are paid back, economists use three key indicators.

• Asset turnover ratio — the ratio of the value of gross output to the average annual value of agricultural fixed production assets. It shows the return on assets: how many rubles of products are obtained for every 1, 100, or 1000 rubles of the value of fixed assets.
• Asset intensity — an indicator inverse to the asset turnover ratio. It is calculated as the ratio of the average annual value of fixed assets to the value of gross output.
• Profit rate (level of profitability of total funds) — an indicator of the efficiency of using the entire set of fixed and current assets of the farm.

• Profit margin — 18 %
• Total asset turnover — 18 kop. per 1 rub.

To increase the efficiency of fixed production asset utilization on a farm, a complex of practical measures is applied:

• Increasing the quality and reliability of purchased means of production.
• Improving technical maintenance: regular condition diagnostics and timely repair of machinery and equipment.
• Reducing construction costs by selecting contractors with more favorable contractual terms.
• Ensuring full capacity utilization of existing production facilities.
• Maintaining an optimal mix of fixed and working capital, as well as bringing capital equipment levels to an optimal state.
• Implementing progressive resource-saving technologies.
• Improving the structure of fixed assets by increasing the share of their active part (machines, equipment, machinery).
• Increasing gross output through growth in crop yield and livestock productivity.
• Material incentives for employees for the careful and efficient use of all types of fixed assets — buildings, structures, machinery, livestock, and perennial plantations.