The general rule is that the sale proceeds of any animal which is replaced in a herd are to be treated as a trading receipt (ITTOIA 2005, s. 116). The replacement cost is a deductible expense in arriving at the farmer’s trading profit or loss, except to the extent that such cost is already deductible in computing the farmer’s trading profits.

There are, however, provisos to the herd basis rules which deal with the cases where the replacement is of better quality than the animal which it replaced and where the replacement is of a worse quality than the animal which it replaced and the latter was slaughtered (ITTOIA 2005, s. 116(5)).

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