What is Cap and Depreciation?

Capitalization

Method used to delay the recognition of expenses by recording the expense as long-term assets. In general, capitalizing expenses is beneficial as companies acquiring new assets with a long-term lifespan can spread out the cost over a specified period of time.

How is capitalization used in the Layer Industry?

Flocks in the pullet house accumulate expenses but the farm is not making money off of these birds yet because they are not yet productive by laying eggs.  Layer Hens usually start laying eggs between 16-18 weeks of age.  So all costs prior to the flocks cap date (16-18 weeks) are accumulated to be spread out over the Layer Flocks lifespan which can be 130+ weeks if molted.

If the flock is molted, a lot of companies will add the expenses during the molting periods to the total balance of the remaining capitalization amount and then distribute those costs to the rest of the life of the flock.

Depreciation

Depreciation is a systematic allocation of the cost of a fixed asset over its useful life. It is a way of matching the cost of a fixed asset with the revenue it generates over its useful life. Without depreciation accounting, the entire cost of a fixed asset will be recognized in the month/year of purchase. This will give a misleading view of the profitability of the entity.

How is Depreciation used in the Layer Industry?

Once the flock reaches its cap date, the flock starts depreciating those costs.

Methods of Depreciation in Aeros LIVE

• Straight Line Depreciation Auto – Same depreciation is charged over the entire useful life (# of periods).

  • Capitalized Amount = (Total Acquisition Cost – Salvage Value) / Useful Life

    • Acquisition Cost = Cap Total

    • Salvage Value = Estimated resale value of an asset at the end of its useful life

• Amount Per Week/Weekend/Day – Similar to Straight line but a specified amount of depreciation is charged over the entire useful life by week, weekend or day.

• Units of Production Depreciation Method – calculates depreciation on the basis of expected output or usage.

  • Percent Hen Day Production – Standard table in Aeros LIVE that gives expected egg output

  • Percent Depreciation – Standard table in Aeros LIVE that can be set up to make own rules in regards to how much is depreciated

Amortization Report

An amortization report, reports how much the depreciation schedule allocated for the month so it can be recorded in the General Ledger.

Example Flock Information

Pullet Expenses

Create Transfer Out

Reconcile

Layer Flock Transferred In Expenses

Capitalized Expenses

Simple Straight Line Method Example

• Capitalized Amount = (Total Acquisition Cost – Salvage Value) / Useful Life

• ($534,721.00 - $0.00) / 45 = $11,882.69

Total cap balance - no salvage value set, configuration set for 45 periods

Units of Production Depreciation Method

We are using a different depreciation method with the same data.  We are going to use the Depreciation Percentage to determine the depreciation amount

Use the Depreciation Percentage System Table

Units of production or percentage Depreciation

• @17 weeks = 95%  (see dep % table above)

• $534,721.00  * .95 = $507,984.95

• 534,721.00 - 507,984.95 = 26,735.05
  
   

  Open

  

Hen Day Production Depreciation Method

Currently not developed.