Farm Expenditure

In one line

Farm expenditure is everything the farm spent to earn its income in the year, whether or not it was paid in cash, and including the value of what the farm consumed from its own production.

The heads of farm expenditure

Direct, charged to the trading account:

1. Opening stock of produce and of stores.
2. Seed, whether bought or retained from the farm's own crop.
3. Manure, fertiliser and pesticide.
4. Wages of field labour, from the muster roll, by field and operation.
5. Irrigation, being electricity or diesel for the pump, and water charges.
6. Diesel and fuel for the tractor and machinery.
7. Hire charges paid for a tractor, thresher or harvester taken from outside.
8. Bullock labour, charged from the bullock account to the crop that used it.
9. Cattle feed and fodder, bought in and grown.
10. Veterinary charges and medicines.
11. Land revenue, cess and lease rent.
12. Opening livestock, charged to the trading account against the closing value.

Indirect, charged to the profit and loss account:

1. Salaries of the regular staff: overseer, driver, watchman, cattle attendant.
2. Repairs and maintenance of implements, machinery and buildings.
3. Depreciation on deadstock, from the register.
4. Insurance on crops, cattle, machinery and buildings.
5. Interest on the crop loan and the term loan.
6. Transport and market expenses: cartage, commission, mandi cess, weighment and packing.
7. Office and sundry expenses: stationery, telephone, bank charges, professional fees.
8. Bad debts and provisions.

Direct or indirect: the test that decides

Can the expense be identified with a particular field, crop or animal without an assumption?

If yes it is direct and goes to the trading account, charged to that crop. If no it is indirect, goes to the profit and loss account, and is apportioned over the crops only when a cost per crop is being computed.

The wage of a labourer weeding field 3 is direct. The salary of the watchman is not, because he watches the whole farm, and any split of his pay between the crops rests on an assumption.

The apportionment problem

Every indirect cost has to be split when a cost per crop is wanted, and the basis must be stated.

Two farms using different bases are not comparable, and a cost per hectare quoted without its basis means very little.