Chapter 2- exercises
1. Wined is a viticultural who produces wine from grapes grown on his own property.
Which of Wined’s assets is subject to IAS 41?
a. Theo 4,000 tons of grapes in the holding bay waiting to be processed into wine.
b. The 400 hectares of land that was acquired by Wined’s great-grand-father.
c. The 3,500,000 bottles or wine stored in a refrigerated warehouse holding the
prroduce last year’s yeild.
d. The 300,000 grape vines that have been producing grapes for 4 generations of
Wined’s family.
2. Masan owned cattle recorded in the financial statements at $5,250 on 1 January 20X4. At
31 December 20X4 the cattle have a fair value of $6,500. If Masan sold the cattle,
commision of 2% would be payable. What is the correct accounting treatment for the
cattle at 31 December 20X4 according to IAS 41 Agriculture?
a. Hold at cost of $5,250.
b. Revalue to $6,500, taking gain of $1,250 to the statement of profit or loss.
c. Revalue to $6,500, taking gain of $1,250 to the revaluation surplus.
d. Revalue to $6,370, taking gain of $1,120 to the statement of profit or loss.
a6500*0.98=6370
Fair Value – cost of sales, taking gain or loss to the statement of PnL
3. The following is an extract from the 2013 Annual Report of SIPEF NV:
Because of the inherent uncertainty associated with the valuation at fair value of the
biological assets due to the volatility of the prices of the agricultural produce and the
absence of a liquid market, their carrying value may differ from their realisable value.
Given the inherent uncertainty in applying IAS 41, discuss whether the pre-IAS 41
practice of value at historical cost is preferable for the statement of financial position.
4. Agriculture is a key business activity in many parts of the world, particularly in
developing countries. Following extensive discussions with, and funding from, the World
Bank, the International Accounting Standards Committee (IASC) developed an
accounting standard relating to agricultural activity. IAS 41 Agriculture was published in
2001 to apply to accounting periods beginning on or after 1 January 2003. Sigma
prepares financial statements to 30 September each year. On 1 October 2003 Sigma
carried out the following transactions:
● Purchased a large piece of land for $20 million.
● Purchased 10,000 dairy cows (average age at 1 October 2003, two years) for $1 million.
● Received a grant of $400,000 towards the acquisition of the cows. This grant was non-
returnable. During the year ending 30 September 2004 Sigma incurred the following costs:
● $500,000 to maintain the condition of the animals (food and protection).
● $300,000 in breeding fees to a local farmer.
On 1 April 2004, 5,000 calves were born. There were no other changes in the number of animals
during the year ended 30 September 2004. At 30 September 2004, Sigma had 10,000 litres of
unsold milk in inventory. The milk was sold shortly after the year-end at market prices.
Information regarding fair values is as follows:
Item Fair value less point-of-sale costs
1 October 2003 1 April 2004 30 September 2004
$m $m $m
Land 20 22 24
New-born calves (per calf) 20 21 22
Six-month-old calves (per 23 24 25
calf)
Two-year-old cows (per cow) 90 92 94
Three-year-old cows (per 93 95 97
cow)
Milk (per litre) 0.6 0.55 0.55
Required:
(a) Discuss how the IAS 41 requirements regarding the recognition and measurement of
biological assets and agricultural produce are consistent with the IASC Framework for the
Preparation and Presentation of Financial Statements.
(b) Prepare extracts from the statement of comprehensive income and the statement of financial
position that show how the transactions entered into by Sigma in respect of the purchase and
maintenance of the dairy herd would be reflected in the financial statements of the entity for the
year ended 30 September 2004. You do not need to prepare a reconciliation of changes in the
carrying amount of biological assets.
