Recording feeder/breeder association loan transactions

Feeder/breeder association loans encourage the growth of livestock operations by providing credit to producers for competitive rates and lower deposits. AgExpert Analyst assists you in managing your cash flow through retained ownership.

There are several transactions that take place when you take out an association loan.

Example: You receive a loan from your local feeder association for $100,000 to purchase cattle. To receive the proceeds, you’re required to make a five per cent deposit on the loan.

1. Record the deposit on the loan as an asset, as shown:
2. Money is rarely deposited directly into the bank account. The association typically does the purchasing for you. Record the purchase of your cattle as shown:
3. As the producer, you’re responsible for all care and feeding expenses for the cattle and should record these expenses as you normally would.
4. Sale proceeds are always sent directly to the association. They’ll apply the sale against the oldest outstanding loan first (including any interest owing) and forward any extra proceeds to you. In our example, if all cattle were sold for $150,000, you’d enter the following:
5. If you plan on withdrawing another association loan after the initial loan is paid in full, the association will likely elect to keep the deposit and no further action will be taken. If you choose to leave the association, the deposit will be returned to you and you’ll need to record the transaction, as follows:
6. If you default on your association loan, all cattle purchased using the loan may be seized and sold, with the sales applied against the outstanding balance. If the amount isn’t enough to cover the obligation and you refuse to pay back the remaining balance, then your original deposit will be used to try to recover the funds. You’ll need to enter this as follows:
7. Loans, in theory, should never be written off. Technically, the money is still owed, even if it’s being disputed. Renaming the account and putting “(disputed)” at the end will let you know that the debt in question is defaulted and technically still owing. If the loan needs to be written off, it’s best left to the discretion of your accountant.
8. If another member of the association defaults and their deposit isn’t enough to cover the loss, then other members will be asked to cover the loss on a pro-rata basis. If you find yourself in this situation, you’ll need to make the following entry:

You’ll be required to cut another cheque to bring your deposit back to the original value. This will be dealt with as described in Step 1.

Last updated on August 22, 2014 by FCC AgExpert