The Red Hen company produces, processes, and sells fresh eggs. The company is in the process of preparing financial statements at the end of its first year of operations and has asked for your help in determining the appropriate treatment of the cost of its egg-laying flock. The estimated life of a laying hen is approximately two years, after which they are sold to soup companies.

The controller considers the company's operating cycle to be two years and wants to present the cost of the egg-producing flock as inventory in the current asset section of the balance sheet. He feels that the hens are "goods awaiting sale." The chief financial officer does not agree with this treatment. He thinks that the cost of the flock should be classified as property, plant and equipment because the hens are used in the production of product - the eggs.

The focus of this case is the balance sheet presentation of the cost of the egg-producing flock. Do you agree with the CFO or Controller pertaining to the classification of the assets?Should the hens be classified as inventory or property, plant and equipment?Why?