Based on your understanding of the concept of the biological asset according to the MFRS 141 Agriculture, explain and provide an example of biological asset, agricultural produce and bearer plant in relation to GPB agricultural activities. Agricultural produce is recognised and measured at the only point of harvest. Should GPB re-measure the amount of agricultural produce to record the value of inventory for oil palm fruits? Justify your answer. Explain why GPB uses a discounted cash flow model to determine the fair value of biological assets.
QUESTION 1
GroWell Plantation Bhd (GPB) is a public limited company and has commenced business in Malaysia for more than 40 years. GPB currently owns and manages oil palm estates with a total plantation acreage of 9,000 acres in the state of Pahang, Malaysia. The harvesting process is continuously throughout the financial year to be used in the production of crude palm oil (CPO). GPB has two types of inventories, oil palm fruits and CPO. The financial statements of GPB are prepared under the historical cost convention, except for investment in subsidiaries and biological assets (including agricultural produce) that are measured at revalued amounts of fair values at the end of each reporting period. For the biological assets, fair value is determined based on the present value of expected net
Notes to the financial statements:
- BIOLOGICAL ASSETS
|
At valuation |
2020 (RM) |
2019 (RM) |
|
At 1 January Fair value gain/(loss) |
a b |
1,054,212 (377,256) |
|
At 31 December |
c |
676,956 |
The fair value and cost to sell of the biological assets for the year ended 2020 was RM850,000 and RM98,262, respectively.
Question
- Based on your understanding of the concept of the biological asset according to the MFRS 141 Agriculture, explain and provide an example of biological asset, agricultural produce and bearer plant in relation to GPB agricultural activities.
- Agricultural produce is recognised and measured at the only point of harvest. Should GPB re-measure the amount of agricultural produce to record the value of inventory for oil palm fruits? Justify your answer.
- Explain why GPB uses a discounted cash flow model to determine the fair value of biological assets.
- Determine the value of a, b and c that are missing in the notes to the financial statements.
- Prepare the
journal entries to record the fair value gain or loss in 2019 and 2020 for GPB according to MFRS 141 Agriculture.
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