The introduction to this chapter mentioned several issues in allocation, including cattle growing. Assume that Heather Cattle Ranch buys young calves at an age of six months, and then feeds them until they are three years old. It then sells the cattle.

A. Economically, when does the increase in value of the cattle occur? As they grow, or at the time of sale?

B. Should it recognize revenue for accounting purposes as the cattle grow

(and become more valuable) or only when it sells them? Explain.

C. For tax purposes, revenue is recognized at the time of sale. Can you explain why you think the tax law uses this rule?