Cost is the original cost or basis of the asset less any accumulated depreciation. In addition to affecting financial ratios derived from the balance sheet and the amount of deferred taxes, the biggest issue is the impact on farm equity. One of the most important issues in completing and using the balance sheet is the method used to value assets. The two most common are current market value and cost. Market value is the estimated amount the asset would sell for on the date of the statement less selling costs.
Cost is the original cost or basis of the asset less any accumulated depreciation.
In addition to affecting financial ratios derived from the balance sheet and the amount of deferred taxes, the biggest issue is the impact on farm equity. The National Farm Financial Standards Council recommends that the balance sheet should be prepared on both a market and a cost basis. The cost basis indicates the amount of earned and contributed owner equity. The market value indicates the additional amount of equity that has resulted from the change is asset values due to inflation or deflation. The portion of total equity that has resulted from market value changes is the difference between the market value and cost basis owner equity.