Production supply expense inventory represents inputs purchased, but not used in the current year production of crops and livestock. This type of inventory of inputs often results from year-end purchases for tax management purposes. If production supply expense inventory value is greater at the beginning of the period, the value is added to farm cash expenses. If it is less at the beginning of the period, the value is subtracted from farm cash expenses. Investments that last for more than a year are called capital expenditures.
Depreciation represents the annual allocation of the cost of capital assets.
This method attempts to allocate capital costs to the periods in which the asset is used. Breeding livestock is treated like any other capital asset, and are depreciated. Gain or Loss on Sale of Farm Capital Assets. For income statement purposes, purchased breeding livestock are treated as a capital asset and the cost depreciated. The base method can be used in valuing raised breeding livestock, that is, a base value for each class of livestock in the breeding herd is established.