The ways of production processes’ accounting in horticulture

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Uman National University Of Horticulture

The ways of production processes' accounting in horticulture

V. Bobko, Ph.D. in economics

G. Anischenko, Ph.D. in economics

In connection with the introduction to the Ukraine's accounting practice the accounting standard 30 "Biological Assets" (hereinafter - AS 30 "Biological Assets") and corresponding methodological recommendations [1, 2] there appeared such accounting categories as "fair value", "biological assets", "biological conversion's expanses", "active market", "the initial recognition".

With their introduction, there was a lot of discussion in the scientific community, regarding the current accounting provisions of the biological assets that are actively exploring by S. Golov, V. Zhuk, T. Kucherenko, P. Suk and others.

Modern problems of the Fruit and Berry production's accounting among domestic scholars are researched by V. Zhuk [3], V. Komirenko [4] and A. Kharitonova [5].

At the same time, there are a number of urgent issues requiring solutions. Such as: proper accounting costs of biological transformation, a review of their composition; the display of the information about the long-term changes in the value of biological assets (Revaluation); the application of fair evaluation as relatively plantations themselves, and capitalized on these products; selection of the most appropriate method of accounting and costing. All this of course should contribute to the formation of accounting information on the manufacturing processes.

Despite the fact that in Ukraine's AS 30 "Biological assets" was initiated at the end of 2005 year and put into effect from 2007 year, there are still outstanding issues in some parts of the industry accounting. Among the remaining biological assets, productive perennial plants are distinguished by the fact that in conjunction with a non-replaceable resource - land, plantations form a special type of agricultural land, which requires accuracy and proper assessment of the accounting category. At the same time we deal with assets which are capable to produce agricultural products (fruits, berries, nuts), additional biological assets (seedlings, cuttings) and bring other economic benefits.

To reflect the cost of production (on biological conversion) companies choose a simple single-stage method of accounting for expenses, due to the production of one product (or set of homogeneous products, which differ among themselves on the grounds of varietal) and there is no production in progress. This method of accounting management is characterized by the fact that all costs incurred are direct objects relatively to the calculation.

The research of the commercial agricultural enterprises' cost accounting features such in Cherkassy region has pointed out that in all of them, without exception, there used for gardening is the only one self-titled analytical account in the composition of plant costs. This is due to the low level of specialization respectively to the fruit and berry production. In addition, companies are free to choose calculation costs articles.

Typical list includes:

Labor costs and deductions for social events;

Cost of the used fertilizers, plants protection products;

Expenses for fixed assets' maintenance (pruning, crown formation, fuel);

Distribution of work costs and the consumption of auxiliary production services (water supply, machines and tractors, commercial vehicles, repair of production);

Depreciation (garden machinery and garden, if it is accounted at cost) - article exists only to commercial enterprises;

The organization and the management costs of production (part of the distribution of overhead expenses) and other expenses.

In some enterprises there are articles intended to take account of the garden security costs, soil structure and the value of its cultural sod, lease payments for land and property shares, if they are directly related to gardening. When using the fruit storage, all accumulated costs, anyway, are expensed at production that is motivated by their only purpose with respectively to the ready product.

However, we can not fully agree with this way and believe that even for non- specialized farms it is advisable to establish clearly the point of production distribution and other expenses for the quality maintenance that should be assigned to separate analytical accounts, followed by write-off the cost of sales, not the production costs. This also connected with that the use in the process of production and sales of specialized storage facilities helps to improve the competitiveness of the product itself and production competitiveness, what is determined by production technology and the selection of varieties.

For the purposes of the financial statements there is a need in the formation of the information by cost components, but large-sized agricultural enterprises do not use a separate class of Accounts 8 "Elements of costs" by testifying their choice in the accounting policies order, and immediately assign all the expenses to the account "Production" and 9th class of accounts' plan. Therefore, expenditures regrouping are usually carried out in a non-system order. For the horticultural enterprises farmers, registered as small businesses, accounting is simplified, and therefore all the production costs directly recorded on the elements of costs (material costs, labor costs, deductions for social activities, amortization and other operating expenses), followed by their write-off to a reduction of financial results.

Under the current legislation [1] capitalized horticultural products, or additional biological assets must be measured at fair (market prices), and in the future this assessment will be considered as initial and is not subject to revaluation when changing market conditions. Formed this way, the difference between the actual production costs and the fair value is the result of initial recognition of products, which, in fact, allows you to set the level of production efficiency. Thus, the accounts closure procedure for calculation replaced with the write-off and distribution of the calculation to establish the difference results from the initial recognition, but in terms of determining the actual cost of the priority was to assess at fair prices.

On the one hand, the accounting production reforming is connected with the IAS 41 "Agriculture" requirements, but we believe that in any case it is impossible to abandon the calculation of the actual cost. This figure is very important in management accounting to compare to its planned level, for deviations' analysis, their causes and predictive calculations drawing, and the most importantly - for the determination of pricing and competitiveness [7]. Besides the use for their own needs or fruits and berries (for processing) and planting material (for new plants) not at cost, but at market prices, leads to an overestimation of the processing industries' cost and the historical cost of capital investments, respectively. As a result - calculated level of profitability requires adjustment.

Thus, if the company will grow, but will not sell its products to the end of the year, the financial results of economic activity may be charged by the difference between the market and the actual product' assessment (the result of initial recognition - gains or losses). In addition, the revaluation can be applied in relation to the actual biological assets, if they are evaluated for fair assessment. The financial result in horticulture consists of the result from the production and sales from its initial recognition and revaluation of biological assets themselves. Applying fair assessment in horticulture should be noted that the market estimate (excluding windfalls) can apply for the fruit and berry products, but the perennial plants to assess in such a way is very hard, because the plants themselves active sales market does not yet exist.

Under the new rules in the production accounting there is missing article "depreciation deductions", if fruit and berry plantings are estimated at fair value. This is due to the fact that the aging of long-term biological asset changes its market value to decrease, and the resulting difference, like markdown, to be written off in expenses from changing the value of the respective assets, as a group of other operating expenses of the agricultural enterprise. It is worth noting that in this approach the actual cost of production and cost of production is down, and non-production costs are too high.

It should be noted that at the end of the industrial garden fruiting period in parallel with the reduction of its effect, it affects the decrease in economic efficiency, it is necessary to deduct more expenses for revaluation. Thus, through the accounting problems distorted the actual economic results of the sector functioning. So horticultural farms are to practice using the primary pricing method in the evaluation of the cost of plantings.

In addition, there is unresolved question in the accounting of the planting costs elimination in connection with the expiration of their term industrial use. In the domestic Chart of accounts they are using a special sub-account "Write-off of fixed assets" in other expenses. Experience shows that the cost of uprooting trees, soil treatment is substantial and counts for a one third part of the cost of the making the garden of the same area. According to the Chart of Accounts' instructions, such costs are expensed and are subject to write-off on financial results. Since all this can automatically be reflected in a decrease in the net profit or loss in general, most of the older plants can still be unconquered (have low productivity, unsuitable for industrial use). To do this, in our opinion, while transferring them into the category of mature plants is expedient to provide for automatic creation of a reserve for the future to meet the related costs. Monthly to the actual costs, the part of the funds should be transferred for the elimination of the asset, and the amount of work calculated on a discount method of the present estimated cost of such work taking into account the planned service life of the asset.

In addition, a valid accounting practice does not provide the situation, where due to the fruiting plantations' periodicity phenomenon the company loses the ability to produce a crop during the reporting period. In this case, all the expenses can not be attributed to the group costs that have occurred as a result of extraordinary events. Since all the agronomic activities undertaken in the reporting year - watering, applied complex protection from pests and diseases, soil fertilizer, and most importantly - the elimination of the effects of activating growth (optional trim) is, in fact, the costs that are being implemented in order to maintain biological productivity in the coming year. By their economic content they are related to work in progress, which is atypical for the industry. Therefore, the production costs for such situations are advisable to refer to the costs of the future period (year). Thus, the account to record costs in horticulture during the reporting year on the relevant assets to be closed, or must be the accumulated on other cost-accounting accounts. To solve this problem, we propose the use of a special account designed to count future period expenses [8].

Thus, the cost of plants care in a bad year will be expensed in future periods, and when it's a good year, the accumulated amount of money to be written off in return - on account of production.

Thus, for the improvement of production processes accounting in gardening one not only need to carefully consider all accounting problems, but also to take into consideration the dependence of the information support level of production processes in the horticulture industry on the conditions of each individual enterprise.

Since fruit and berry producers are endowed with the right to choose how to build their own cost accounting system, calculation methods, methods of production and valuation of assets, then the actual accounting costs of biological transformation in horticulture, it is appropriable to provide separate positions for future expenditures' reserve funds. This is due to the loss of fair value and the formation of collateral for the financing of liquidating works in the future.

To improve accounting production processes in horticulture one should:

Extend the list of accounts used to record production costs (accounting for deferred expenses);

Provide new calculation production costs articles for the formation of reserves to finance expensive projects;

Calculate the rate of interest for the provision for future financing of works related to the liquidation of plantations;

Fixation of industry's accounting features in the Order of the Company's accounting policies.

References

accounting expense gardening

1. Положение (стандарт) бухгалтерского учета 30 «Биологические активы»: [Электронный ресурс]: приказ Министерства Финансов Украины от 18.11.2005 г. № 790 (с изменениями и дополнениями от 18.03.2011 г. № 372). - Режим доступу: http://zakon.rada.gov.ua/cgi-bin/laws/main.cgi?nreg=z1456-05.

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