Depreciation of animals and economic return: case study

Abstract

The article is relevant due to the different prevailing practices of calculati ng the depreciation of biological assets in different countries. There is also no substantiated answer in scientific research to the following questions: is it necessary to calculate the depreciation of animals, used in agricultural activity, and what is t he impact of depreciation of animals’ calculation/non - calculation on economic return? Purpose of the article is to assess the impact of the accounting of animals at their acquisition (production) cost less depreciation to the financial results and economic return of agricultural businesses. It is a case study, based on analytical data from agricultural businesses, that specialise in animal breeding and value the animals at the acquisition cost, however do not calculate depreciation. The methods used for the research are analysis of accounting registers a nalytical data as well as calculation and analysis of selected financial ratios to assess the effect of animal depreciation on the book values of animals and significance of the indicators of economic return. Research results reveal that the gradual write - off of the cost of livestock in the form of depreciation is not reasoned, because it does not take into account the changes in the economic value of the animals. Additionally, as shown by the results of the case study, in order to improve the solvency (i.e . liquidity and stability), reduce the financial risk, and increase economic return, the most attractive alternative from the financial perspective is to measure the livestock at the acquisition (production) cost and to waive the depreciation accounting.