QN. 1a) What is farm inventory?

Farm inventory is a list of commodities held for sale, commodities in the process of
production and inputs to be used in production showing their quantities and attached monetary
value. They include the assets of a business but exclude land and depreciable assets such as
buildings, farm structures, farm machinery and furniture. The assets may be categorized into
tangible and intangible and the list of assets in an inventory include animals for sale, breeding
stock, purchased feed, stored crops, growing crops, fertilizers, pesticides and other supplies.

1b) Discuss the various techniques used in valuing assets.

Assets can be counted, weighed or measured before attaching the value. There are many
methods of valuing assets and include the following.

 Farm production cost method. Bases on the cost of producing commodity on the
farm. It’s useful for valuing farm produced commodities that in turn will be used in
other farm enterprises e.g. farm made compost, farm produced feed for livestock.
 Market cost.Values assets at their purchase price. Use this method for recently
purchased assets that will be used in a relatively short time e.g.
feed,feeders,drinkers, fertilizers,seeds, knapsack sprayers etc.
 Net market price. Uses market cost less transportation and marketing charges. Use
this method for valuing livestock and its products and farm produced crops.
 Standard cost method. This uses expected cost instead of actual costs, often based
on company past experience. The costs are obtained by recording the differences
between expected and actual costs.
 Comparison method. Is used to value most common type type of property such as
houses, shops, offices and standard ware houses. Ideally the market should be
stable and their shall be multiple, comparable properties (same size, location,
condition, etc.) the best comparable factors should be selected and analyzed and
there after adjustments can be made for their differences.
 Profit method. The profit method could be applied when no comparable
rentals/sales transaction available and it’s often used for pubs, hotels.
 Investment method. It can be applied to determine the market value of afree hold
or least hold interest in property from its potential to generate future income.
 Base stock method. It requires acompany to keep a certain level of stocks whose
value is assessed based on a value of abase stock.