Question 1

Applying fair value to agricultural activity is assumed on the basis that it can be measured reliably.What do you think could potentially cause an asset's measurement to be unreliable,and why? How detailed should be the disclosure of any inherent unreliability?

Accepted Answer

There is an important difference between biological assets and other non-current assets.Biological assets have the capacity to change through biological processes - they grow,degenerate and procreate.Other non-current assets do not.For non-biological,non-current assets,changes in net realisable value are caused solely by price changes.For biological assets,changes in net realisable value are caused by a combination of growth and changes in prices.There has been some reluctance to regard changes in net realisable value due to changes in prices as income because the increases in value may not be realised as cash inﬂows.If prices can rise,they can subsequently fall.This period's income may be lost in the next period as prices fall.It has been suggested that,if an increase in net realisable value is due to growth and price changes,then that part due to price changes should not be recognised as income.This argument is based on an assumption that changes in growth are not reversible,but changes in price are reversible.The probability of realising the increase in value from growth is greater than the probability of realising the increase in value due to price changes.For several reasons,we do not support the argument that changes in value from growth and from price changes should be treated differently.First,there are practical difﬁculties in separating the effects of the two causes of value change.Second,changes in value due to price changes satisfy the Framework 2014 deﬁnition of income.Third,the recognition criteria for income require that realisation must be 'probable'.If it is probable that price increases will be reversed,then,as far as practicable,the value changes due to price increases should be omitted.

Question 2

AASB 141 requires that biological assets be measured at net realisable value that is:

Accepted Answer

AASB 141 requires that biological assets be measured at fair value less estimated point of sale costs, which represents the net realisable value of the asset. This is because net realisable value reflects the estimated amount that the entity would receive from the sale of the asset, minus the estimated costs of selling it. Therefore, the correct answer is A, fair value less estimated point of sale costs.

Question 3

Paragraphs 54 to 56 require additional disclosures for biological assets where fair value cannot be reliably measured.These disclosures include which of the following:

Accepted Answer

A

Question 4

Which of the following activities do not fall under the auspices of AASB 141?

Accepted Answer

All of the activities listed (circus animals, greyhounds and horses held for racing, investment in a carbon sink) fall under the auspices of AASB 141, which deals with accounting for biological assets.

Question 5

The accounting treatment of government grants under AASB 141 requires that:

Accepted Answer

According to AASB 141, unconditional grants are to be treated as income when they become receivable. This treatment recognizes that the grant is not repayable and the recipient has met any conditions attached to the grant. However, conditional grants are recognized as a liability until the conditions for the grant have been fulfilled.

Question 6

Agricultural activity should be classified as:

Accepted Answer

The answer of Agricultural activity should be classified as:
...

Question 7

Agricultural assets that are plants or trees are most appropriately measured for accounting purposes at:

Accepted Answer

Agricultural assets that are plants or trees are most appropriately measured at net realisable value, which is the estimated selling price in the ordinary course of business, minus the estimated costs of completion and the estimated costs necessary to make the sale. This approach provides the most relevant and reliable measure of the asset's value, reflecting its current market conditions.

Question 8

On 1 September 20XX,Beuno Vista Ltd purchased an established forest for a total cost of $2 000 000.During the year ended 30 June 20XX,Beuno Vista spent $300 000 on maintaining the forest and $100 000 on office administration costs.In March 20XX,the company cut logs from the forest that had an estimated net realisable value of $800 000.Costs of logging were $150 000.The logs were sold in June 20XX for $ \$ 850000 $ .On 30 June 20XX the forest had an estimated net realisable value of $1 300 000.The total profit (or loss)from operations for the year ended 30 June 20XX is:

Accepted Answer

The answer of On 1 September 20XX,Beuno Vista Ltd purchased...

Question 9

Alton Downs Ltd has an orchard of citrus trees with an estimated net realisable value at 1 January 20X1 of $1 600 000.During the year ended 31 December 20X1 fruit with an estimated fair value of $300 000 was picked.The fruit was still on hand at the end of the year.Estimated sales commission on this fruit was $ \$ 25000 $.Costs of picking,sorting,packing and storage totalled $125 000.The fruit was sold in 20X2 (after the 20X1 financial statements were prepared)for $430 000.On 31 December 20X1 the orange orchard had an estimated net realisable value of $1 550 000.The fruit on hand at 31 December 20X2 should be valued at:

Accepted Answer

The fruit on hand at the end of 20X1 should be valued at the lower of the estimated net realisable value ($1 550 000) less estimated costs to complete and sell ($125 000) and the fair value ($300 000) less estimated sales commission (11% of $300 000 = $33 000). Thus, the value of the fruit on hand at the end of 20X1 should be $275 000 ((1 550 000 - 125 000) < (300 000 - 33 000)).

Question 10

Which of the following statements about a growing crop expected to be sold within the next reporting cycle is not true?

Accepted Answer

A growing crop expected to be sold within the next reporting cycle should be classified as inventory, as it meets the definition of inventory - it is held for sale in the ordinary course of business. It is in the process of production, but once it is ready for sale, it should be recognized as inventory. Therefore, option A is not true.

Question 11

Greenview Dreams Ltd has an orchard of mango trees with an estimated fair value at 1 January 20X1 of $1 600 000.During the year ended 31 December 20X1 mangoes with a fair value of $300 000 were picked and they were still on hand at the end of the year.Costs of picking,sorting,packing and storage totaled $125 000.The mangoes were sold later in 2012 for $430 000.On 31 December 20X1 the mango orchard had an estimated net realisable value of $1 750 000.The total profit from operations for the 20X1 year is:

Accepted Answer

The profit from operations is calculated as the change in the fair value of the orchard plus the profit from the mangoes. The increase in the orchard's value is $150,000 ($1,750,000 - $1,600,000). The profit from the mangoes is $175,000 ($300,000 fair value - $125,000 costs). Total profit is $325,000 ($150,000 + $175,000).

Question 12

Agricultural activity under the heading of Biological assets such as animals is most appropriately measured for accounting purposes at:

Accepted Answer

Agricultural activity involving biological assets such as animals is best measured for accounting purposes at net realisable value. Net realisable value is the estimated selling price of the product that will be obtained from the biological asset, minus the estimated cost of completion and selling. This method provides a more accurate figure of the true value of the asset and is therefore considered the most appropriate for this type of activity.

Question 13

In what ways is agricultural activity different from other forms of assets? In what ways are they similar to other forms of assets? How do these differences,and similarities,affect accounting for agricultural activity?

Accepted Answer

The answer of In what ways is agricultural activity different...

Question 14

At the beginning of the 20X1 financial year,Vaughn Downs Ltd owned a forest with an estimated net realisable value of $8 000 000.During the year,Vaughn Downs spent $300 000 on general administration costs and $400 000 on maintaining and improving the forest.Also during the year the company felled some timber from the forest that had an estimated net realisable value of $3 000 000.Costs of felling and treating the timber amounted to $800 000.The timber was sold later in the year for $3 100 000.At the end of the year,the forest had an estimated net realisable value of $8 700 000.The financial statements for the year should report:

Accepted Answer

The answer of At the beginning of the 20X1 financial...

Question 15

Australian Accounting Standard AASB '141 Agricultural Activity' requires disclosure of the following items of information EXCEPT:

Accepted Answer

Australian Accounting Standard AASB '141 Agricultural Activity' requires disclosure of the cost of agricultural produce, specific requirements for government grants related to a biological asset, and specific disclosures in relation to biological assets. However, it does not require disclosure of the method of calculating the replacement cost of biological assets.

Question 16

Describe the sustained-yield method and the standard method of measuring forestry assets.

Accepted Answer

The answer of Describe the sustained-yield method and the standard...

Question 17

List three significant items of information that Australian Accounting Standard AASB 141 'Agricultural Activity' requires to be shown in the annual report and financial statements specifically of a primary production business.Explain why disclosure of each of these items is considered to provide useful information to investors.

Accepted Answer

The answer of List three significant items of information that...

Quiz 20: Accounting for Agricultural Activity