1. NSAC Advanced Co-op Accounting Course

2. Pool Accounting For Cooperatives2 2

3. Session Objectives Develop understanding of pool accounting
Review inventory accounting methods unique to cooperatives
Develop understanding impact of pool and inventory accounting on financial statements

4. Discussion Topics Define Pool Accounting
Review Inventory Accounting Methods
Pool Accounting Methods
Impact on Financial Statements

5. Pool Accounting Definition of Pool Accounting:
“Accounting control centers used for determining earnings and patronage refunds due particular patron”
Requires more accounting units (pools);
Time frames many time different from fiscal year,
vary from weeks to years;
Basically good cost accounting.
What do you see as a common denominator between these four definitions?
All four indicate some form or another of protection or shelter: to place protection around, surround with protection, or to protect from loss.
In nearly all instances, co-ops engage in Hedging for this very reason, to establish protection for inventory positions or cash flows, to limit losses associated with the risk of price changes.
What co-ops generally do not do is to engage in Hedging activities in efforts to gain from purely speculative positions taken. In fact, good co-op policy prohibits speculation hedging. We will discuss this in our module on Risk Management.

6. Pool Accounting
What do you see as a common denominator between these four definitions?
All four indicate some form or another of protection or shelter: to place protection around, surround with protection, or to protect from loss.
In nearly all instances, co-ops engage in Hedging for this very reason, to establish protection for inventory positions or cash flows, to limit losses associated with the risk of price changes.
What co-ops generally do not do is to engage in Hedging activities in efforts to gain from purely speculative positions taken. In fact, good co-op policy prohibits speculation hedging. We will discuss this in our module on Risk Management.

7. Good Cost Accounting
Systematic rational
Requires more detail records
By patron
By crop production cycle
By unit measure
Consistent application
As plays with the raw definitions of hedging, these producers are using the process of hedging to provide financial shelter or protection.
Later, we will talk more about commodities, and about futures contracts.

8. Good Cost Accounting
Transparent
Communicated to members
Perception of equitability
Those charged with governance understand policies and risks
As plays with the raw definitions of hedging, these producers are using the process of hedging to provide financial shelter or protection.
Later, we will talk more about commodities, and about futures contracts.

9. Methods of Pool Accounting
Single
One accounting unit
Usually conforms to fiscal year
Simple in application
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

10. Methods of Pool Accounting
Multiple Pools
By grade or size
By product or variety
By season or marketing conditions
early, late season
By marketing arrangement
Comingled pool, share prices
Call pool, member “calls” price,
expenses allocated based on units
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

11. Methods of Pool Accounting
Allocations to Pools
Revenue – Direct
Expense –
Direct to the extent possible
Indirect – Allocate – wide variance in policies
Other income / expense
Allocate
Consistent policy
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

12. Methods of Pool Accounting
How long should pool run?
Best to have consistent policy
Most run until majority of pool is sold
Many use 90% to 95% of crop
Sell forward remaining crop to next
Usually at Net Realizable Value
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

13. Methods of Pool Accounting
Single vs. Multiple Pools
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

14. Methods of Pool Accounting
Sell forward remaining crop to next
Sales $129
Crop sold to next pool
Crop from prior pool (31)
Gross proceeds of pool $134
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

15. Inventory Accounting Methods
Supply cooperative
Same as non-cooperative company
Lower of cost or market
Marketing cooperatives
Wide variances
Effected by arrangement with patrons
Is there a cost of product?
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

16. Inventory Accounting Methods in Use
Lower Cost or Market
Buy – sell cooperative
Reliable cost of product
Net Realizable Value
ASC
AICPA Agricultural Producer Guide Issued 1987
FASB resisted use of market values
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

17. Other Methods in Use Most Considered Non-GAAP for Inventory Accounting
Assigned or Established Value
Standard cost
Regardless, Inventory value should not exceed Net Realizable Value
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

18. Net Realizable Value Definition of Net Realizable Value:
“Valuation of inventories at estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation”
Requires a number of estimates / projections
Some abuses over the years
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

19. Net Realizable Value Let’s work through computation
Starts with estimated sales price
Where do we get that?
Net Realizable Value
What costs do we net off estimated sales value?
Wide variances in application
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

20. Net Realizable Value
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

21. Net Realizable Value

22. Impact on Financial Statements
Balance Sheet
Inventories
Amounts Due To/From Members
Profit and Loss
Net proceeds, when use assigned value for crop or no value for crop
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

23. Impact on Financial Statements
Profit and Loss differences
Crop recorded at cost
Crop recorded at assigned value
Crop raw material value not recorded
Inventory recorded at cost
Inventory recorded at NRV
Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

24. Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

25. Speculators, often known simply as traders, buy and sell futures contracts, options, and other exchange-traded products through an electronic platform or a broker to profit from price fluctuations.
A trader who thinks that the price of crude oil is going up will buy a crude oil futures contract to try to profit from her hunch.
For some reason, the term speculator carries some negative connotation, as if speculation was a sinful or immoral act. The fact of the matter is that speculators play an important and necessary role in the global financing system. In fact, whenever you buy a stock or bond, you are speculating. When you think prices are going up, you buy. When they’re going down, you sell. The process of figuring out where prices are headed and how to profit from this is the essence of speculation. So, we’re all speculators.

26. Effect on Amounts Due Patrons

27. Effect on Amounts Due Patrons

28. Impact on Financial Statements

29. Impact on Financial Statements

30. Pool Accounting For Cooperatives
QUESTIONS ? 30 30