IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

357

Chapter 32 / Agriculture (lAS 41)

Solution Biological assets should be measured at each balance sheet date at fair value less estimated point-of-sale costs unless fair value cannot be measured reliably. The Standard encoura ges companies to separate the change in fair value less estimated point-of-sale costs between those changes due to physical reasons and those due to price. Fair value of cattle excluding Borthw ick region: sooo SOOO

Fair value at November I, 20X3 Cows (210,000 - 60,000) x $40 Heifers (30,000 - 20,000) x $30 Purchase 75,000 heifers x $30

6.000

300

2250 8,550

Increase due to price change 150,000 x $(45 - 40)

750

10,000 x $(32 - 30) 75,000 x $(32 - 30)

20

----..!2Q

920

Increase due to physical change 150,000 x $(50 - 45)

750 130 300

10,000 x $(45 - 32) 75,000 x $(36 - 32)

1.\ 80

Fair value less estimated point-of- sale costs at October 31, 20X4 150,000 x $50

7,500

10,000 x $45 75,000 x $36

450

2700

10 650

Borthwick region- fair value of cattle: Thi s region has an inventory of cattle of 60,000 cows and 20,000 heifers. Fair value is difficult to ascer– tain because of the region ' s problems. However, according to lAS 4 1, if fair value was used on initial recogniti on, then it should be continued to be used . The cattle in this reg ion wou ld have been fair valued at November I, 20X3, under the Standard. Therefore, the cattle must be valued at fair value less esti– mated point-of-sale costs as at October 3 1, 20X4. Although $3 million has been offered for these ani– mals, this may be an onerous contract as rival companies are likely to wish to take advantage of the problems in this region. The future discounted income is aga in an inappropriate value as the cattle are

healthy and could be moved to another region and sold. The cattle in this region would therefore be valued at

SOOO 3,000 900 3900

60,000 cows x $50 20,000 heifers x $45

Additional Points • The powdered milk inventory will be valued using lAS 2, Inventories, and will be valued at the lower of cost and net realizable value. Because of the large amount of inventory, there may be an issue regard ing obsolescence or possibly contamination, whic h might resu lt in a reduction in the asset' s value. • Biological assets that meet the crite ria to be classified as held for sale should be acco unted for us– ing IFRS 5. The offer for the farms and cattle would not meet the criteria under IFRS 5 as from Dairy's viewpoint, the carryin g amount of the assets (disposal group) is unlikely to be recovered now principally through a sale transaction. • Uncond itional government grants should be recogni zed when the grants become rece ivab le. The statement in the national press on September I, 20X4, would not be sufficient to recogni ze the grant, but the offici al letter of October 10, 20X4 , would be sufficient. Therefore, a receivable of $5 million would be shown in the financia l statements to Octobe r 3 1, 20X4, and credited to in– come .