Tutorial: Biological Asset

Question 1

Denai Agro Farm Sdn Bhd raises 2000 cattle in its farm in Kuala Selangor. The
company slaughters the cattle at its abattoirs and sells the carcasses to the local market
in Selangor, Kuala Lumpur and Perak.

Required: Explain whether the above activities are within the scope of MFRS 141
Agriculture.

Solution
Denai Agro Farm Sdn Bhd involves in agricultural activities because raising the cattle
meets the criteria specified in paragraph 6 of MFRS 141. The cattle are biological
assets while they are living. However, when they are slaughtered, biological
transformation ceases and the carcasses meet the definition of agricultural produce. In
this case, Denai Agro Farm Sdn Bhd should account for the live cattle in accordance
with MFRS 141 and the carcasses as inventory in accordance with MFRS102.

Question 2
Nona Fruity Bhd owns 20 acres durian orchard farms. The company’s activities
include, planting and managing the durian trees such as pruning, irrigation, fertilizer
applications, pests and disease control, flower thinning and assisted pollination. The
company uses durian fruits to produce variety durian foods products such as durian
ice cream, frozen durian pulp and crunchy durian roll. The company exports the
processed products to Indonesia, Brunei and Singapore.

Required: Explain whether the above activities are within the MFRS141.

Solution

Nona Fruity Bhd involves in agricultural activities as defined in paragraph 6 of MFRS

141, therefore durian trees are classified as biological assets and the accounting
treatment are in accordance with the requirement of MFRS 141. The products that are
the results of processing after harvest such as durian ice cream, frozen durian pulp and
crunchy durian roll are not covered under MFRS 141. MFRS 141 applies up to
agriculture produce at the point of harvest only. MFRS 102 Inventories applies to the
durian finished products such as durian ice-cream and crunchy durian roll.
Question 3

Coco Best Farm Bhd raises 8000 dairy cattle in its farm in Melaka. The market value
of dairy cattle is calculated by reference to the litres of milk able to be produced and
the lactation rate of the cattle. At the end of each year, Coco Best Farm Bhd sells
1000 mature cattle and 500 young cattle at agro market in Johor Bahru. The
transportation costs to bring the cattle to the market are RM1050.00 per truck. Coco
Best Farm needs 5 trucks to transport the cattle because the normal capacity per truck
is approximately 300 cattle. The latest market values of dairy cattle are given as
follows:
 Mature cattle: 5000 litres x lactation rate (0.5) x price of milk (RM0.45)=
RM1,125.00
 Young cattle: 2000 litres x lactation rate (0.5) x price of milk (RM0.45)= RM
450.00

Required: Calculate the fair value of cattle for Coco Best Farm Bhd.

Solution

Fair value of a cattle= market value – transport cost

Transport cost per cattle = RM 1050/300 = RM3.50
Fair value for a mature cattle = RM1125 – RM3.50 = RM1121.50
Fair value for a young cattle= RM450 – RM3.50 = RM446.50
The fair value of cattle recorded in the book of Coco Farm Best Bhd:

Fair value computation RM

1000 x RM1121.50 1,121,500.00

500 x RM 446.50 223,250.00

Total fair value 1,344,750.00

Question 4

On 1 January 2014, Nona Farm Heritage Bhd purchased 1,000 sheep at a cost of
RM500,000. The company’s financial year-end is 31 December. It is estimated that
the fair value of sheep in the market on 31 December 2014 is RM515,000. The
company estimates that commission to dealers is about RM3,000 if they decide to sell
the sheep.

Required: Explain how the above transactions are presented in the financial
statements of Nona Farm Heritage Bhd as at 31 December 2014.
Solution

 The journal entry recorded by Nona Farm Heritage on 1 January 2014:

Dr Biological asset – sheep 500,000
Cr Cash 500,000
(To record the acquisition of the sheep)

 The biological asset (sheep) is measured at its fair value less cost to sell.
Therefore the carrying amount of biological asset discloses in the financial
position as at 31 December 2014 = RM515,000 – RM3,000 = RM512,000.

 A gain arise on initial recognition of RM12,000 (RM512,000 – RM500,000)

shall be credited to the income statement for the year ended 31 December
2014. The journal entry:

Dr Biological asset-sheep 12,000

Cr Profit or loss 12,000
(To recognise the sheep at fair value)

Question 5

Refer to the example 5.2.2 above. Assume now that the company incurred the
transportation cost of RM2,000 to bring the sheep to the market.

Required: Explain how the above transactions are presented in the financial
statements of Nona Farm Heritage Bhd as at 31 December 2014.

Solution

 The fair value of biological asset (sheep) = RM515,000 – RM2,000 =

RM513,000.

 The carrying amount of biological asset in the financial position as at 31

December 2014= RM510, 000 (RM513,000 – RM3,000).

 A gain to be credited to the income statement for the year ended 31 December
2014 = RM10,000 (RM510,000 – RM500,000). The journal entry:

Dr Biological asset-sheep 10,000

Cr Profit or loss 10,000
(To recognise the sheep at fair value)