Question

1.​Winthrop Dairy Farms Ltd. is an Ontario corporation. The farm owns dairy cows that produce milk.

​a) Describe the accounting treatment and measurement value of the dairy cows assuming the farm uses IFRS.​

​b) Describe the accounting treatment and measurement value of the milk assuming the farm uses IFRS.​

c) Assume the farm uses IFRS and the fair value of a dairy cow increased from the 2017 year-end to the 2018 year-end. How would you record this increase in 2018?​

​d) Assume the farm uses ASPE and the fair value of a cow increased from the 2017 year-end to the 2018 year-end.   How would you record this increase in 2018

Answer 1

(a) It should be noted that dairy cows are treated as biological asset and biological assets are measured on initial recognition and at each reporting date at fair value less cost to sell. Thus, all the dairy cows will be recorded and measured at fair value less cost which may be incurred to sell them.

If there is any difference between the purchase price and the fair value then if fair value is less then purchase price then FV loss on initial recognition of biological asset is debited.

(b) Note that upto the point of harvest (milking), milk is not inventory, it is part of biological asset (cows) and is accounted accordingly and after that it will be accounted as per inventory.

(c) Any increase in the fair value of a dairy cow from 2017 year end to the 2018 year end is to be recognized by crediting FV gains on remeasurement of biological asset with the difference between the faie value as on 2018 and fair value as on 2017.

(d) As per ASPE, biological assets are typically recorded at cost or nrv whichever is lower. Initially, it is recorded at cost and later on if there is any fall in the fair value of those cows then it will be recorded at that fallen fair value as per the principle of cost or nrv whichever is lower.

Note that in the present case fair value of cow has been increased but we know that they are recorded at cost or nrv whichever is lower. Accordingly, in case of increase in fair value such increase cannot be recorded as per the principle of cost or nrv whichever is lower and it will be continued to be shown at cost only.