Question

Part 1. PT Milkisu produced milk for sale to local and national cream producers. The entity began operations at a beginning of current year by purchasing 500 milk cows for CU8.000.000. The entity had the following information available at year-end relating to the cows: Carrying amount of milking cows, Jan 1 8.000.000 Change in fair value due to growth and price change 900.000 Decrease in fair value due to harvest 200.000 Milk harvested during the year but not sold 400.000 Required: Discuss and prepare journal entries: 1. To record the acquisition of milking cows 2. To record the net gain from the change in fair value of the milking cows 3. To record the gain from change in fair value of agricultural produce

Answer 1

Solution:- The Journal entries are as follows-
1)To record the acquisition of milking cows-
As of January 1st,the value of dairy cows is 8,000,000,The dairy cow is part of biological asset; Assumptions paid in cash.Journal entry as follows

Particulars	Amount	amount
Biological Asset A/c Dr.	8,000,000
To Cash A/c   Cr.		8,000,000

2) To record the net gain from the change in the fair value of milking cows-
As of December 31st,The value of dairy cows has increased by 900,000.The addition in Fair value will increase biological assets .Journal entry as follows-

Particulars	Amount	Amount
Biological Asset A/c Dr.	900,000
To Income from appreciation A/c Cr.		900,000

3)To record the gain from change in fair value of agricultural produce-A decrease in Fair value of an agriculture product will reduce the value of inventory.Journal entry as follows-

Particulars	Amount	Amount
Impairment loss A/c Dr.	200,000
To Stock A/c Cr.		200,000

4)Agricultural products that have not been sold will reduce the value of biological assets and increase supply
Journal as follows-

Particulars	Amount	Amount
Stock A/c Dr.	400,000
To Biological asset A/c Cr.		400,000