Crops are berries, fibers, fruits, grains, nuts, and vegetables grown by an agricultural producer. All costs of growing crops are to be accumulated until harvesting time. This rule includes crop costs that are incurred before planting, such as the cost of soil preparation. Some costs associated with growing crops are not incurred until after the harvest, perhaps not until the next year. For example, there may be a residue of harvested crops in the fields that is not cleared until the start of the next growing season. These costs should be accrued and allocated to the harvested crop. The cost of growing crops should be reported at the lower of cost or market.
Another way to value raised crops is to do so at their selling price, less any estimated costs of disposal. This net realizable value option is only available if all of the following conditions are present:
- The product is available for immediate delivery
- The costs of disposal are predictable and insignificant
- The product has a readily determinable and reliable market price
When net realizable value is assigned to the inventory, it is also recorded as a change in revenue on the income statement. At the end of the reporting period, the amount of raised crops is determined and valued based on the net realizable value at the end of the period. This ending valuation is then compared to the valuation already in the relevant inventory account from the beginning of the reporting period; the difference is recorded in a revenue account.