Measurement Issues in Assessing Farm Profitability through Cash Tax Returns Report as inadecuate




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It is widely accepted that net farmincome reported on an accrual-adjustedincome statement is a moreappropriate profitability measurethan net farm income reported onSchedule F of the federal tax return,which is prepared using cash basisaccounting. However, a commonpractice among agricultural lendersis to use Schedule F net farmincome, which uses the cash basis ofaccounting, as a proxy for accrual-adjustednet farm income. A studyof 1,045 individual Illinois farms’records from 2002 through 2006found the median absolute annualpercentage difference between athree-year average cash and a three-yearaverage accrual-adjusted netfarm incomes is 57 percent for farmsof stable size; 43 percent for farmswith annual gross revenue increasingat rates of less than 5 percent, 50percent at rates of 5-10 percent, and58 percent at rates over 10 percent;and 61 percent for farms with adebt-to-asset ratio greater than 40percent.

Subject(s): Agricultural Finance

Issue Date: 2010

Publication Type: Journal Article

PURL Identifier: http://purl.umn.edu/96408 Page range: 207-217

Total Pages: 11

Record appears in: American Society of Farm Managers and Rural Appraisers > Journal of the ASFMRA





Author: Barnard, Freddie L. ; Ellinger, Paul N. ; Wilson, Christine A.

Source: http://ageconsearch.umn.edu/record/96408?ln=en



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