4 o THE AGRICULTURAL CLUB. 



But whatever reasons of practical convenience may support 

 the valuation of the " circulating " assets at market prices 

 the position is not the same with the valuation of the " fixed " 

 assets. Profits thus arising from the changing values of this 

 fixed property are not only paper profits, but paper profits 

 arising on fixed or capital assets which must remain on the farm. 

 The earning efficiency of these assets is unaffected by market 

 movements ; they are kept on the farm to produce, the work- 

 horses and implements producing the crops, the breeding stock 

 their offspring and the dairy herd also producing milk. This 

 being so, their efficiency as producing instruments is the measure 

 of their value to the farm as a going concern. 



In the course of the proceedings of the present Royal Com- 

 mission on Income Tax, reference was made to the fact of these 

 changing " capital " values appearing as profits in farm ac- 

 counts, and it was argued that it was therefore inequitable to 

 assess farmers for Income Tax on the amount of the profits 

 shown by the annual accounts, as they would thereby be paying 

 tax not only on the true annual profits from the produce sold, 

 but also on these capital profits, to which Income Tax was not 

 meant to apply. 



Yearly Tenancies. It must be borne in mind that in 

 England, at all events, most farms are let on a yearly tenancy, 

 and with the increasing frequency with which estates are being 

 sold and the risk of a notice to quit, it may be necessary for the 

 occupier at short notice to realise even what have been termed 

 the fixed assets. 



It may be argued that these reasons make it unwise to assume 

 that the farm will continue as a going concern, and that these 

 fixed assets should, therefore, be valued in the same way as the 

 stock, etc., intended for sale. But if for the " Fixed " Stock, 

 cost less depreciation be adhered to as the basis, there is not 

 much risk of a loss ensuing on realisation. Further, the great 

 majority of farms in the past have not been subjected to inter- 

 ruption of their tenancies, and, in view of the promised legisla- 

 tion to give farmers increased security of tenure, I think the 

 general considerations put forward above may stand. 



At the end of the year there may be liabilities and contingen- 

 cies such as bad debts, dilapidations, decreased fertility, etc., 

 for which it may be necessary to provide by making a reserve 

 against the year's profit. 



The necessary amount of depreciation to be written off the 

 Live and Dead Stock (if these are not the subjects of a valua- 

 tion) has also to be decided, and in practice this is often an 

 important question. 



In commercial concerns these reserves are more numerous 

 and important than in farming. 



