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Chapter
32 /
Agriculture (lAS 41)
357
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
6.000
Heifers
(30,000 - 20,000)
x
$30
300
Purchase
75,000
heifers x
$30
2250
8,550
Increase due to price change
150,000
x
$(45 - 40)
750
10,000
x
$(32 - 30)
20
75,000
x
$(32 - 30)
----..!2Q
920
Increase due to physical change
150,000
x
$(50 - 45)
750
10,000
x
$(45 - 32)
130
75,000
x
$(36 - 32)
300
1.\ 80
Fair value less estimated point-of-
sale costs at October
31, 20X4
150,000
x
$50
7,500
10,000
x
$45
450
75,000
x
$36
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
60,000
cows x
$50
20,000
heifers x
$45
SOOO
3,000
900
3900
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 .