What is farm accounting?

what are the objectives of maintaing

farm account?what are the differnt famr account ?
Farm accounting is not just accounting, but an example of a management
information system.
Which means that a farmer chooses a package designed to maintain all the
management information that will allow all the decisions of the operation to
be based on good historic information.
The normal standards of accounting will still be visible, so it might have
been derived from GNUCASH, but it will be tailored to tell us what results
came about as a result of various choices made, under what conditions.

For instance, if a farm is into raising cattle, it wants to know what happened
with a given cow, her ROP and feeding history, her calves identity, their
ROP, their feeding history, the cow's history of illness, her calves history.
What sires were used to produce the calves she produced. The sires used to
breed her heifer calves throughout the whole herd life.

Farmers often keep that herd information separately from their accounting
records. And they keep crop records separately from accounting records.
There are good reasons for that, in that they want to use a simple accounting
package to do all of the accounting required by government and the banks.
They are not into recoding software packages to provide the extra
information they need to manage the farm.
The packages that are available almost always start from a core of standard
accounting, such as GNUCASH, with open source programs, and then add
in many of the features a farmer is likely to need to use.

Many farmers however do not go even as far as using a basic accounting

package, let alone doing herd or crop records.
For many, accounting involves keeping a box of receipts and contracts and
taking them to an accountant to get tax records prepared, get ready for a visit
to the banker.
 Limitations Of Historical Cost Accounting

Limitations of historical cost accounting

Financial statements prepared on the historical cost basis do not necessarily

lead to a true and fair presentation of an entity’s performance or future
potential if capital is not being maintained. Furthermore, actual assessment
of performance through ratios such as return on capital are meaningless if
profit are overstated, capital undervalued, and assets are valued under a
mixture of conventions.

Limitations of historical cost accounting include :

• Depreciation charged on historically costed assets is only an arbitrary

amount based on out-of-date values and estimated useful economic lives.

• Depreciation charges do not take into account actual replacement cost of

assets at current prices.

• Profit will not reflect the actual ‘costs’ of trading, which include the
replacement of assets at some point in time.

• By not accounting for inflation, there is no assurance that the entity is

maintaining its capital base.

• Overstating profits by undercharging depreciation based on historical cost,

and charging cost of sales at historical cost of inventories (and not current
cost) can lead to the depletion of an entity’s capital through high tas charges
and distributions.

• While historical cost accounting provides a consistent basis for entities to

prepare accounts, inflation affects different products and markets, and hence
entities, to different degree.

• Historical cost accounting makes it difficult for shareholders and analysis

to assess the real performance and abiliry of mamagement because changes
to current market conditions are not accounted for in the historical valuation
basis.
• The true valuation of entities is difficult to assess under historical cost
rules.

• Interpretation of accounts over a period of time is difficult because each

year relates to different purchasing powers.

• Key ratios (such as return on total assets) are inflated under historical rules
because profit is overstated (as outlined..

1. Define and explain replacement cost method.

2. What is the use of replacement cost method while cost by-
products?

Replacement cost method ordinarily is applied by firms whose by-products

are used within the plant, thereby avoiding the necessity of purchasing
materials and supplies from outside suppliers. The production cost of the
main product is credited for such materials, and the offsetting debit is to the
department that uses the by product. The cost assigned to the by product is
the purchase or replacement cost existing in the market. This method is
common in the steel industry. Although many by-products are sold in the
open market, other products, such as blast furnace gas and coke oven gas,
are mixed and used for heating in open hearth furnaces. The waste heat from
open hearths is used again in the generation of steam needed by the various
producing departments. The resourceful use of these by-products and their
accounting treatment are indicated by the following procedure used by a
steel company:

1. Coke oven by-products are credited to the cost of coke at the average
sales price per unit for the month.
2. Coke oven and blast furnace gas are credited respectively to the cost
of coke and the cost of big iron at a computed value based on the cost
of fuel oil yielding equivalent heat units.
3. Tar and pitch used as fuel are credited respectively to the cost of coke
at a computed value based on the cost of fuel oil yielding equivalent
heat units.
4. Scrape steel remelted is credited to the cost of finished steel at market
cost of equivalent grades purchased.
 5. Waste heat from furnaces used to generate steam is credited to the
steel ingot cost at a computed value based on the cost of coal yielding
equivalent heat units.

Opportunity cost method

Method in which the concept of Opportunity Cost is applied to solve a short-term,
nonroutine decision problem. Opportunity cost represents the net benefit lost by rejecting
some alternative course of action. Its significance in decision making is that the best
decision is always sought, since it considers the cost of the best available alternative not
taken. The opportunity cost does not appear on formal accounting statements

“Human Resource Accounting” is the offshoot of various research studies conducted in

the areas of accounting and finance. Human resource is an asset whose value gets
appreciated over the period of time provided placed, applied and developed in the right
direction.
Human Resource Accounting is the measurement of the cost and value of people to the
organization. It involves measuring costs incurred by the organizations to recruit, select,
hire, train and develop employees and judge their economic value to the organization.

Human resources acoounting

“Human Resource Accounting is the process of identifying and measuring
data about human resources and communicating this information to
interested parties.” In simple terms, it is an extension of the accounting
principles of matching costs and revenues and of organizing data to
communicate relevant information in financial terms.

Historical Score Card of Human Resource Accounting:

The concept of considering the human beings as an asset is an old one. The
importance which Emperor Akbar gave to the nine jewels (courtiers) is a
strong evidence for the same. The history of our freedom movement will not
be complete without mentioning the names of distinguished freedom fighters
such as Shri Motilal Nehru, Mahatma Gandhi, Sardar Vallabh Bhai Patel
and several others but no effort was made to assign any monetary value to
such individuals in the Balance Sheet of the Nation.
Objectives of Hunan Resources Accounting
•Improve management by analyzing investment in HR
•Consider people as its asset
•Attract and retain qualified people
•Profile the organization in financial terms.

There are many limitations which make the management reluctant to

introduce HRA. Some of the attributes are:
•There is no proper clear-cut and specific procedure or guidelines for finding
cost and value of human resources of an organization. The systems which
are being adopted have certain drawbacks.
•The period of existence of human resource is uncertain and hence valuing
them under uncertainty in future seems to be unrealistic.
•There is a fear that HRA may dehumanize and manipulate employees.
•The much needed empirical evidence is yet to be found to support the
hypothesis that HRA as a tool of the management facilitates better and
effective management of human resources.
•In what form and manner, their value to be included in the financial
statement is the question yet to be classified on which there is no consensus
in the accounting profession.
•As human resources are not capable of being owned, retained and utilized,
unlike the physical assets, there is problem for the management to treat them
as assets in the strict sense.

Human Resource Accounting Disclosures:

Public Sector Enterprises

1. Bharat Heavy Electricals Limited (BHEL)
2. Steel Authority of India Limited (SAIL)
3. Cement Corporation of India Limited (CCI)
4. Oil and Natural Gas Commission (ONGC)
5. Electronics India Limited
6. Engineers India Limited
7. Hindustan Shipyard
8. National Thermal Power Corporation Limited (NTPC)

Private Sector Enterprise

1. Infosys
 SINGLE AND DOUBLE ACCOUNT SYSTEM

1. Single Entry Accounting System

Single entry system of book keeping may be described as a loose and
defective way of recording transactions, wherein some transactions are
recorded in their two fold aspect, some are recorded in so far as they effect
one aspect only, and few other are completely omitted to be recorded. Thus
it can be seen that there is no system or method about single entry. Under
this system a cash book and other ledger are maintained.
Disadvantages of Single Entry System.
Ø Since every debit does not have a corresponding credit, a Trial Balance
cannot be extracted to test the arithmetical accuracy of the entries.
Ø In absence of proper records of any assets and of any allowances for
depreciation or other losses of value, it is not possible to prepare a Balance
Sheet.
Ø It is too easy to perpetrate the errors and frauds and too difficult to detect
them.
2. The book Keeping and Accounting Process
In accountancy the Double Entry Bookkeeping (or double entry accounting)
is the basis of the standard system used by businesses and other
organizations to record financial transactions. The system is called ‘double
entry’ because each transaction is recorded in at least two accounts. Each
transaction results in at least one account being debited and at least one
account being credited with the total debits of the transaction equal to the
total credits.
For example: - If Company A sell an item to Company B and Company B
pay Company A by cheque then the book keeper of Company A credits the
“Sales” and debits the “Bank”. Conversely the bookkeeper of Company B
debits the account “Purchases” and credits the account “Bank”.

Double entry accounting system

The system of double entry may be well compared to a scale
which must have equal weight on both sides in order that
the scale is balanced. Thus if the weight of one side of the
scale is increased or decreased the same weight must be
correspondingly added to or removed from, the other side. A
more common expression of double entry book keeping
system is the accounting equation.
The total assets of a firm/ institution are equal of the
equities. This reflects the fundamental equation of
A= E,
Where A denotes Assets and E denotes equity.
Assets are the goods and properties which the institute
owns as well as claims against outsiders which the institute
has not yet collected.

Equities are the claims against the assets and indicate the source of assets.
The source may be owners themselves or outsiders, e.g. owners invest funds
in Organization and Creditors lend money in the Organization.
Advantage of Double Entry System:-
Ø It is possible to keep a full record of dual aspect of each transaction.
Ø Transactions are recorded in a scientific and systematic manner and thus
the books of accounts provide the most reliable information for controlling
the Organization efficiently and effectively.
Ø Since the total debit under this system be equal to total Credit,
arithmetical accuracy of the books can be tested by means of a trial balance.
Ø An income and expenditure accounts can be prepared to know the excess
income/ expenditure during a particular period and to know how such
excess income/ expenditure has arisen
Ø The financial position of the Organization can be readily ascertained by
preparing a Balance Sheet.
Ø Frauds are prevented, because alteration in accounts becomes difficult and
discovery of irregularities is facilitated.

HISTORICAL COST ACCOUNTING

Historical cost accounting is an approach to accounting using asset values
based on the actual amount on money paid for assets with no inflation
adjustment. This approach is said to use the accounting principle of
historical cost. It contrasts with approaches such as current cost accounting.

The term historical cost may also be used to refer to a particular cost
calculated in this way.

Although the use of historical cost accounting excludes routine adjustments

for inflation, the cost still needs several adjustments when calculating the
book value. The most important of these are depreciation, depletion and
impairment.

In addition, although current accounting standards are largely based on

historical cost accounting, there are exceptions such as the use of fair value,
net realisable value, and other revaluations.

There are also some complications associated with calculating the value of
stocks, because they are essentially fungible and individual items are not
tracked from purchase to sale. The most popular methods for calculating
costs are FIFO, LIFO and average costing, with other methods such as
replacement cost being used in some industries.

The main advantages of using historical costs is simplicity and certainty.

The biggest disadvantage is that book values may be based on badly out of
date costs. This becomes more of a problem during periods of high inflation.

Human resource accounting is recording and identification of human cost . It

includes calculation and recording the cost of recruiting , selection , training
and developments of employees .

Explanation of human resource accounting :-

Under HRA , organization deals with employees as assets and shows in

balance sheet .
Method of calculating the value of human assets

There are many method for maintaining accounting under this system and
also calculate human resource value with following ways .:-

I ) Historical cost method

Under this method , we calculate the value of human assets on the basis of
historical transaction with employees on the basis of wages and salaries . His
value is directly charges on the total cost of finished product and all
managerial staff salaries are shown in profit and loss account only. There is
no extra account is made under this method .

2. Present value method of future earning

Under this method , we can calculate the value of employee with following
formula

Value of employee =

Employee’s annual earning up to retirement / ( retirement age +

discount ) power( t+r )

= $ 1000000 / (60+10) power 60 age+10rate

3. Cost benefit method

Under this method we can calculate total estimated benefit which is given by
employee to organization and then we calculate the total value of benefits
which is give by co. to employee and its difference is surplus which is real
value of human resource asset .
4. Way of showing HR in balance sheet under total cost method

Balance sheet

Liability side

HR capital $ 4000000

Assets side

HR asset $ 4000000

☼ Benefits of HRA

There are many benefits of HRA accounting which can be explain in

following way.

1. HRA provides the information of total cost of human assets which can
use for calculating their benefits for business by comparing it with the
benefits provided by employees.

2. HRA is top work in the field of accounting because in accounting , we

includes all physical assets and intangible assets but before making of
HRA accounting we are ignoring a very important asset and its name
is human being who works in any company or industry.

3. Human resource accounting is very important where human element

is more important than any other factor of production or services. For
 instance education sector is top sector who human resource
accounting must be used for maintaining the accounts of education
department .

Demerits of Human resource accounting

1. Calculation the value of human resources is not so easy because it is

most difficult to calculate the value of the quality of any person. What
worth will be of honesty, morality, benevolence and generosity? But
these moral values are so important for developing any company from
bottom point.

2. Jealousy to see the high value of other employee can decrease the
efficiency of any employee because he can think why my price is sow
low and other employee’s price is so high.

3. From human resource accounting, we can not get short period benefits
like general historical accounting system.

4. Indian company law 1956 , Indian Income tax law 1961 and other
legal laws are no rule for showing human resource assets in the
balance sheet .