Roatcap Cattle Company

Roatcap Cattle Company, Ltd. (RCC) faces changing the focus of its cattle operations. The options are (1) to maintain the cattle operations at the current level, (2) to expand to 100 cows, (3) to expand to 200 cows, or (4) to get out of the cattle business altogether. RCC currently uses a cash or tax based method to account for its cattle operations, RCC has employed our accounting firm to modify, based on RCC’s approval, its accounting methods for the following four objectives: financial, cost/systems, audit, and tax.

RCC recognizes that the company may require audited GAAP basis financial statements to secure financing for future operations. The following analysis contains our recommendation regarding how to set up GAAP based financial statement

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calves should be recorded in three asset pools, rather than each animal recorded as an individual asset.


s, the cost accounting system to support these financials, and the audit issues related to the financials. Additionally, RCC has requested our analysis of tax issues related to the company’s options for its cattle operations.

RCC has requested the financial experts of our firm to create GAAP based financial statements for 1996. Our primary concern is how to account for the cattle as assets. We have researched the AICPA’s Audit and Accounting Guide for Audits of Agricultural Producers and Cooperatives (cited as AAG-APC) and developed these recommendations.

RCC maintains two types of cattle operations—breeding and disposition. Bulls and mature cows produce calves. Female calves are held through maturity, at which point they are also used for breeding. All cattle intended for breeding should be classified as fixed assets. Male calves are sold at six months of age. The male calves held for disposition should be classified as inventory (AAG-APC 26, 29).

RCC would expend too much time accounting for each cattle unit individually. RCC should record the cattle assets in four major asset categories: bulls, breeding cows, immature breeding cows, and male calves. Bulls should be recorded separately from the cows because (1) the market value of each bull is substantially greater than that of each cow, and (2) costs associated with bulls are different than costs associated with cows (AAG-APC). Because there are only three bulls, we suggest that each bull be accounted for individually. However, breeding cows, immature female cows, and male calves should be recorded in three asset pools, rather than each animal recorded as an individual asset.


Although the farm equipment owned by RCC is not directly used in the production of the cows, it is necessary and is a major asset on the financial statements due to its large monetary value. Potential risks involving this equipment include: the overstatement of the assets value on the balance sheet, the inclusion of nonexistent or impaire

calves should be recorded in three asset pools, rather than each animal recorded as an individual asset.


d assets, and the improper application of depreciation methods of the assets. The main audit objectives regarding this equipment include verifying its existence and its proper valuation. Physically viewing the equipment is the

ibles” must be amortized over 15 years. Section 197(d)(D) of the Internal Revenue Code recognizes permits granted by a government unit, but the firm does not believe §197 provides an exception applicable to RCC’s disposition (FIC, 169). The 70 cows to be acquired would be classified as §1245 property, which includes livestock, irrespective of the use to which they are put or the purpose for which they are held.

The firm believes that RCC will not be able to amortize $21,000 (70 X $300) of the proposed acquisition of 70 permits or the $7,500 expended for the 30 leases currently held. The purchase of 70 cows would be held in the Modified Accelerated Recovery System’s (MACRS) 5 year (01.21) asset class and be depreciated accordingly. Depending on which portion of the year the depreciable tangible personal property are acquired, you ma

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Roatcap Cattle Company. (2018, Jun 07). Retrieved from