ExpertEasy2 marksMultiple Choice
ACCA · Question 08 · Accounting for Transactions
SECTION A
Verdant Vineyards owns a large grape plantation. At the year-end, the grapes are still growing on the vines. The fair value of the unharvested grapes is estimated at $80,000. If Verdant were to sell the grapes immediately, they would incur transport costs to the market of $2,000 and auctioneer fees of $3,000.
At what amount should the biological asset (the growing grapes) be measured in the Statement of Financial Position under IAS 41 Agriculture?
SECTION A
Verdant Vineyards owns a large grape plantation. At the year-end, the grapes are still growing on the vines. The fair value of the unharvested grapes is estimated at $80,000. If Verdant were to sell the grapes immediately, they would incur transport costs to the market of $2,000 and auctioneer fees of $3,000.
At what amount should the biological asset (the growing grapes) be measured in the Statement of Financial Position under IAS 41 Agriculture?
Answer options:
A.
$80,000
B.
$78,000
C.
$75,000
D.
$77,000
How to approach this question
Apply the IAS 41 measurement rule: Fair Value less estimated costs to sell. Costs to sell include commissions, levies, and transport costs.
Full Answer
C.$75,000✓ Correct
Under IAS 41, biological assets are measured on initial recognition and at the end of each reporting period at fair value less costs to sell. Costs to sell include commissions to brokers/auctioneers and transport costs. Measurement = $80,000 - $2,000 - $3,000 = $75,000.
Common mistakes
Excluding transport costs from 'costs to sell'. Under IFRS 13, transport costs adjust fair value, but under IAS 41, all costs necessary to sell are deducted.
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