Farm vehicles are essential tools in agricultural operations, designed to enhance efficiency and productivity on the farm.
These vehicles encompass a range of specialized types, each serving distinct purposes. Tractors are the most versatile, used for towing various implements such as plows, seeders, and trailers. Utility vehicles (UTVs) and all-terrain vehicles (ATVs) are smaller and more agile, ideal for transporting supplies and personnel across the farm. Pickup trucks are crucial for hauling goods, equipment, and sometimes livestock. Additionally, specialized vehicles like feed trucks, irrigation vehicles, and grain trucks cater to specific farming tasks.
These vehicles are integral to modern farming, facilitating transportation, equipment mobilization, and the execution of diverse agricultural activities, thus significantly contributing to the overall efficiency and productivity of farm operations.
In This Section
What are Farm Vehicles?
Farm Vehicles on an agricultural balance sheet represents the value of any vehicle and or vehicular equipment used in the operation to produce agricultural goods or render agricultural services. The scope of farm vehicles can vary widely and is considered either an intermediate asset or a long-term asset due to the multi-year economic lifespan of the asset.
Types & Examples of Farm Vehicles
The following are some common examples of farm vehicles one may find on the balance sheet:
- Trucks
- Tractors
- ATVs
- Utility Vehicles
- Skid Steer Loaders
Farm vehicles should not be confused with farm machinery and equipment, which includes assets such as combines, large tractors and livestock machinery.
Farm Vehicles on the Balance Sheet
Farm Vehicles usually have a useful economic lifespan of greater than a year. As such, these assets are normally classified as long-term assets on a farm balance sheet.
It is noteworthy that farm vehicles often depreciate, or lose value, over time. This is similar to how a personal car loses value over a period of years. Vehicles are recorded at cost, but the lower value is also included on a separate Depreciation account. See below for more information on how this is included in the balance sheet.
Purpose of Farm Vehicles
Vehicles represent significant assets for many businesses, especially farms and ranches. Including vehicles on the balance sheet allows businesses to track and manage their valuable resources effectively. It provides visibility into the company’s asset base and ensures proper oversight and maintenance of vehicles to optimize their use and longevity.
Several agricultural balance sheets may include supplementary details on vehicles, often in the form of detailed schedules. These schedules may include asset values as well as non-financial information such as VIN numbers, year, make, model, and more. Knowing this information helps to get a better understanding of the nature of the vehicle ownership, purpose, and manage and track equipment for maintenance and upkeep purposes as well.
How to Record Farm Vehicles on Balance Sheet
Vehicles are typically valued on a balance sheet at their historical cost, less accumulated depreciation.
Here’s how this valuation process works:
- First, Machinery and equipment are initially recorded on the balance sheet at their historical cost, which includes all costs directly attributable to acquiring and preparing the asset for its intended use. This may include the purchase price, transportation costs, installation fees, and any other directly related expenses.
- Second, over time, machinery and equipment are subject to depreciation, reflecting their gradual wear and tear, obsolescence, and decline in value due to use or the passage of time. Depreciation is the systematic allocation of the asset’s cost over its estimated useful life.
- Net Book Value: The net book value of machinery and equipment is calculated by subtracting accumulated depreciation from the historical cost. The net book value represents the remaining value of the asset on the balance sheet after accounting for depreciation. It reflects the portion of the asset’s cost that has not yet been expensed as depreciation.
Historical Cost – Accumulated Depreciation = Net Book Value
It’s important to note that depreciation methods may vary depending on accounting standards and company policies. Common depreciation methods include straight-line depreciation, which allocates an equal amount of depreciation expense each period, and accelerated depreciation methods, such as the declining balance method or units of production method, which allocate more depreciation expense in the early years of an asset’s life.
Additionally, machinery and equipment may be subject to impairment if their carrying amount exceeds their recoverable amount, which is the higher of their fair value less costs to sell or their value in use. Impairment occurs when there is a significant decline in the asset’s value, such as technological obsolescence, changes in market conditions, or physical damage.
Proper valuation of machinery and equipment on the balance sheet ensures that financial statements accurately reflect the company’s asset base, financial position, and performance. It also provides stakeholders with valuable information for decision-making, financial analysis, and assessing the company’s ability to generate future cash flows.
Exclusions from Farm Vehicles on the Balance Sheet
On a farm balance sheet, common exclusions from the Farm Vehicles category include:
- Personal Vehicles: Vehicles used primarily for personal rather than farm business purposes.
- Leased Vehicles: Vehicles that are leased rather than owned by the farm. Lease payments might be recorded as expenses, but the vehicles themselves are not listed as assets.
- Non-Farm Business Vehicles: Vehicles used for activities unrelated to the farm’s agricultural operations.
- Office Vehicles: Vehicles primarily used for administrative or office-related tasks rather than direct farming activities.
- Equipment and Implements: Attachments and machinery that are used with farm vehicles (e.g., plows, seeders, harvesters) but are categorized separately from the vehicles themselves.
- Depreciation: Accumulated depreciation is shown as a separate line item, reducing the book value of farm vehicles but not included in the initial cost listing of these assets.
- Temporary Rentals: Short-term rental vehicles used for farm operations are treated as rental expenses rather than capitalized as farm vehicle assets.
By correctly categorizing these exclusions, a farm balance sheet provides an accurate representation of the farm’s assets, ensuring clarity and proper financial reporting.
Frequently Asked Questions
Can I Include a Vehicle Used for Both Business and Personal Use on a Balance Sheet?
Yes, however, including a vehicle used for both business and personal use on a balance sheet requires careful handling to accurately reflect its value and usage. Only the business-use portion of the vehicle’s cost should be included in the farm’s balance sheet under farm vehicles or equipment. For example, if the vehicle is used 70% for business, 70% of its cost and related expenses can be included.
Why are Farm Vehicles and Machinery & Equipment Held in Separate Accounts on the Balance Sheet?
On a farm balance sheet, vehicles and machinery are typically held in separate accounts to provide clear and accurate financial reporting. This distinction helps in better managing, depreciating, and tracking the assets.
Vehicles have a distinct depreciation schedule and also specific regulatory and tax implications apart from machinery.
Additionally, the repair and maintenance of farm machinery is usually tracked separately from vehicle maintenance which is helpful in estimating and managing finances of the operation.