BIM55450 - Farming: stock valuation: harvested crops: Arable Area Payments
Farmers growing cereals, oilseeds and proteins can claim
subsidies under the Arable Area Payments Scheme. In order to
qualify, they must set aside a percentage of the total area on
which they are claiming and they are paid compensation for the area
set aside.
The timing of recognition of payments under the scheme was
considered in an article in Tax Bulletin, Issue 10 (February 1994).
It stated that we would accept accounts in which Arable Area
Payments were recognised as income of the accounting period to the
extent that the crop has been sold by the balance sheet date.
Where this approach is adopted and the deemed cost method of
valuation described in Section 7.3 of BEN 19 (see
BIM55410) is used, valuations should be
based on 75% of the total of the market value at the valuation date
plus the related Arable Area Payments (including payments in
respect of the required level of set-aside). The Area Payments
should also be taken into account when net realisable value is
computed.
The Tax Bulletin article included the following example. The
figures used are hypothetical and do not relate to any particular
arable crop.
Maggie is a farmer. She grows 85 hectares of an eligible
arable crop and sets aside an additional 15 hectares which is the
requirement for rotational set-aside. She accounts to 30 September
by which time the harvest of 500 tons has been gathered, half of it
has been sold off the combine at £88 per ton and half is in
store. The open market value of the crop in store at 30 September
is £90 per ton and stock is valued in accordance with the
deemed cost method described in Section 7 of BEN 19. Maggie expects
to receive Arable Area Payments of £200 per hectare for the
crop and £300 per hectare for the set-aside land making a
total of £21,500 but it has not yet been paid.
The accounts will include the following figures:
Sales and Arable Area Payments: £32,750 [(250 x
£88) plus (1/2 x £21,500)].
Stock (250 tons): £24,937 [75% x ((250 x £90) plus
(250/500 x £21,500))].
