Question 1

SECTION B

CASE SCENARIO: BioHarvest Ltd is an agricultural biotech firm. At 31 December 20X8, BioHarvest has growing crops with a historical cost of $100,000. The fair value of these crops is $150,000, and estimated costs to sell are $10,000. During the year, BioHarvest harvested seeds. At the point of harvest, the seeds had a fair value of $50,000 and costs to sell of $5,000. On 1 January 20X8, BioHarvest signed a contract granting a customer a 3-year right to access its patented seed technology, receiving $300,000 upfront. BioHarvest also spent $500,000 developing a new drought-resistant seed variant; $200,000 was spent before the project met the IAS 38 capitalization criteria on 1 July 20X8, and $300,000 was spent after.

QUESTION: What is the initial cost of the harvested seeds for the purpose of subsequent inventory valuation under IAS 2?

Accepted Answer

Determine the value at the point of harvest using IAS 41 (Fair value less costs to sell). This value becomes the deemed cost for IAS 2 Inventory.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the fair value without deducting costs to sell as the initial inventory cost.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 3

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