Production animals definition
/What are Production Animals?
Production animals provide something that can be sold, other than their progeny. An example is sheep, which can be used to sell wool and meat.
Accounting for Production Animals
The accumulated cost of production animals begins to be charged to expense through depreciation once the animals reach maturity. The depreciation period is the estimated productive lives of the animals. When a production animal is eventually sold, the accountant compares the price received to the net book value of the animal, and recognizes a gain or loss on the sale. If a production animal dies before its estimated productive life has been completed, then the remaining carrying amount of the animal asset is charged to expense.
Example of the Accounting for Production Animals
An example of accounting for production animals involves a sheep farm that raises sheep for both wool and meat production. Suppose the farm purchases 50 young sheep at a cost of $500 each, totaling $25,000. These sheep are initially recorded as a capital asset under production animals. Once the sheep reach maturity, the farm begins depreciating them over their estimated productive life of 5 years. If the total accumulated depreciation after 3 years is $15,000, the net book value of the sheep would be $10,000. During their productive years, the wool harvested is recorded as revenue, and any related costs (such as feed and veterinary care) are expensed as incurred. After 3 years, the farm decides to sell the entire flock for $12,000. The accountant compares the sale proceeds to the net book value ($12,000 - $10,000) and records a gain on sale of $2,000. This approach ensures that the cost of production animals is systematically allocated over their useful life and any gains or losses are properly recognized upon sale.
Presentation of Production Animals
For accounting purposes, production animals are classified as non-current assets on the balance sheet.