Inventory and Sales

[Nith Valley Organics]

On Mar 13, 2015, at 9:09 AM, Mike or Penny Novack <stepbystepfarm at mtdata.com> wrote:

> On 3/12/2015 9:38 PM, R. Victor Klassen wrote:
>> Actually it’s different in farming.  In our jurisdiction we have a fair amount of flexibility in how we value inventory - it’s supposed to be "fair market value” which can only be truly established at the time of sale.
> Yes, I did know that (the range of methods allowed for valuing inventory).
> 
> But check, because I think you are misinterpreting the "fair market value" method. I do not believe that requires you to treat every basket of peaches (or whatever) individually depending on what it eventually sells for (potentially different for every basket, etc.).  You presumably have "experience" as to the average price you might expect and that would be the initial estimate value. At the end of the selling season "sales" may be more than this or less than this leading to an adjustment entry.
> 

I never suggested that you would adjust inventory based on eventual sale value.  Only that inventory is often *not* calculated based on either the purchase price or the cost of production.  The flexibility in how inventory is valued allows some freedom in moving income from good tax years into bad.  Some might call that a subsidy.  If so, a very difficult one to pin a monetary value on.

> You shouldn't have to be adjusting every day. You don't report on a daily basis. Let alone every basket of peaches (or whatever).

Heavens no.  

> 
> Some people using gnucash (or whatever) and dealing with securities holdings are choosing to adjust "real time" for fluctuations in market value. Others (IMHO, more sensibly) doing so only monthly, quarterly, or annually. My 401K money makes available a daily quote (from THEIR books, not mine) which I can access, but also sends out a quarterly report. Quarterly reports make sense for those filing tax estimates quarterly. Similarly quarterly adjustments of inventory value.
> 
> Take a case like mine. IF I were filing "agricultural", in my case the biggie would be "wood inventory". But valuations of standing trees are only rough estimates in between cruising by the forester (and even that is an estimate, only a better one). Not going to be known for sure until there is a cut, and those could be many years apart.
> 

And yet another example of jurisdictional variation.  Here, forestry isn’t agriculture (for tax purposes), although there are exceptions.  Orchards, maple sugaring, and Christmas tree farming come to mind.  

> Michael D Novack
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