ExpertThis question is part of a case study — click to read the full scenario(Case 26)
Section B - Case 3: AgriCorp
Scenario: AgriCorp owns vineyards and a grape processing plant. On 1 January 20X4, the carrying amount of the grapevines (bearer plants) was $5,000,000. The fair value of the grapes growing on the vines was $500,000. On 31 December 20X4, AgriCorp harvested the grapes. The fair value less costs to sell of the harvested grapes was $800,000.
On 1 January 20X4, AgriCorp received a government grant of $1,000,000 to purchase a specialized eco-friendly tractor costing $4,000,000. The tractor has a useful life of 5 years. AgriCorp accounts for grants by deducting them from the carrying amount of the asset.
AgriCorp also holds a portfolio of corporate bonds purchased for $2,000,000 on 1 January 20X4. The business model is to hold the bonds to collect contractual cash flows (principal and interest). At 31 December 20X4, the 12-month expected credit loss (ECL) is $50,000, and the lifetime ECL is $200,000. There has been no significant increase in credit risk since initial recognition.
Question: How should the grapevines (bearer plants) be accounted for in AgriCorp's financial statements?
ACCA · Question 29 · Financial Instruments
Section B - Case 3: AgriCorp
Scenario: AgriCorp owns vineyards and a grape processing plant. On 1 January 20X4, the carrying amount of the grapevines (bearer plants) was $5,000,000. The fair value of the grapes growing on the vines was $500,000. On 31 December 20X4, AgriCorp harvested the grapes. The fair value less costs to sell of the harvested grapes was $800,000.
On 1 January 20X4, AgriCorp received a government grant of $1,000,000 to purchase a specialized eco-friendly tractor costing $4,000,000. The tractor has a useful life of 5 years. AgriCorp accounts for grants by deducting them from the carrying amount of the asset.
AgriCorp also holds a portfolio of corporate bonds purchased for $2,000,000 on 1 January 20X4. The business model is to hold the bonds to collect contractual cash flows (principal and interest). At 31 December 20X4, the 12-month expected credit loss (ECL) is $50,000, and the lifetime ECL is $200,000. There has been no significant increase in credit risk since initial recognition.
Question: How should the corporate bonds be classified and measured under IFRS 9?
Section B - Case 3: AgriCorp
Scenario: AgriCorp owns vineyards and a grape processing plant. On 1 January 20X4, the carrying amount of the grapevines (bearer plants) was $5,000,000. The fair value of the grapes growing on the vines was $500,000. On 31 December 20X4, AgriCorp harvested the grapes. The fair value less costs to sell of the harvested grapes was $800,000.
On 1 January 20X4, AgriCorp received a government grant of $1,000,000 to purchase a specialized eco-friendly tractor costing $4,000,000. The tractor has a useful life of 5 years. AgriCorp accounts for grants by deducting them from the carrying amount of the asset.
AgriCorp also holds a portfolio of corporate bonds purchased for $2,000,000 on 1 January 20X4. The business model is to hold the bonds to collect contractual cash flows (principal and interest). At 31 December 20X4, the 12-month expected credit loss (ECL) is $50,000, and the lifetime ECL is $200,000. There has been no significant increase in credit risk since initial recognition.
Question: How should the corporate bonds be classified and measured under IFRS 9?
Answer options:
Fair value through profit or loss (FVTPL)
Fair value through other comprehensive income (FVTOCI)
Amortized cost
Lower of cost and net realizable value
How to approach this question
Full Answer
Common mistakes
Practice the full ACCA FR — Financial Reporting Practice Exam 4
32 questions · hints · full answers · grading