Ind AS 41, Agriculture, Important Questions with Solutions for CA Final Financial Reporting May & Nov 2021 Exams

Join Our Telegram Channel for Exclusive Updates

Question 1 –

As at 31st March, 2017, a plantation consists of 100 Pinus Radiata trees that were planted 10 years earlier. The tree takes 30 years to mature, and will ultimately be processed into building material for houses or furniture. The enterprise’s weighted average cost of capital is 6% p.a.

Only mature trees have established fair values by reference to a quoted price in an active market. The fair value (inclusive of current transport costs to get 100 logs to market) for a mature tree of the same grade as in the plantation is:

As at 31st March, 2017: 171

As at 31st March, 2018: 165

Assume that there would be immaterial cash flow between now and point of harvest.

The present value factor of Rs.1 @ 6% for

19th year = 0.331

20th year = 0.312

State the value of such plantation as on 31st March, 2017 and 2018 and the gain or loss to be recognised as per Ind AS.

Solution –

As at 31st March, 2017, the mature plantation would have been valued at 17,100 (171 x 100).

 As at 31st March, 2018, the mature plantation would have been valued at 16,500 (165 x 100).

Assuming immaterial cash flow between now and the point of harvest, the fair value (and therefore the amount reported as an asset on the statement of financial position) of the plantation is estimated as follows:

As at 31st March, 2017: 17,100 x 0.312 = 5,335.20.

As at 31st March, 2018: 16,500 x 0.331 = 5,461.50.

Gain or loss

The difference in fair value of the plantation between the two year end dates is 126.30 (5,461.50 – 5,335.20), which will be reported as a gain in the statement or profit or loss (regardless of the fact that it has not yet been realised).

Question 2 –

A farmer owned a dairy herd, of three years old cattle as at April 1, 20X1 with a fair value of Rs. 13,750 and the number of cattle in the herd was 250.

The fair value of three year cattle as at March 31, 20X2 was Rs. 60 per cattle. The fair value of four year cattle as at March 31, 20X2 is Rs.75 per cattle.

Calculate the measurement of group of cattle as at March 31, 20X2 stating price and physical change separately.

Solution –

Particulars Amount (Rs.)
Fair value as at April 1, 20X1 13,750
Increase due to Price change [250 x {60 – (13,750/250)}] 1,250
Increase due to Physical change [250 x {75-60}] 3,750
Fair value as at March 31, 20X2 18,750

Question 3 –

Moon Ltd prepares financial statements to 31st March, each year. On 1st April 20X1 the company carried out the following transactions:

  • Purchased a land for Rs. 50 Lakhs.
  • Purchased 200 dairy cows (average age at 1st April, 20X1 two years) for Rs. 10 Lakhs.
  • Received a grant of Rs. 1 million towards the acquisition of the cows. This grant was non- refundable.

For the year ending 31st March, 20X2, the company has incurred following costs:

  • 6 Lakh to maintain the condition of the animals (food and protection).
  • 4 Lakh as breeding fee to a local farmer.

On 1st October, 20X1, 100 calves were born. There were no other changes in the number of animals during the year  ended  31st  March,  20X2. As  of  31st  March,  20X2,  Moon  Ltd  had 3,000 litres of unsold milk in inventory. The milk was sold shortly after the year end at market prices.

Information regarding fair values is as follows:


Fair Value less cost to sell

1st April, 20X1 1st October, 20X1 31st March, 20X2
Rs. Rs. Rs.
Land 50 Lakhs 60 Lakhs 70 Lakhs
New born calves (per calf) 1,000 1,100 1,200
Six month old calves (per calf) 1,100 1,200 1,300
Two year old cows (per cow) 5,000 5,100 5,200
Three year old cows (per cow) 5,200 5,300 5,500
Milk (per litre) 20 22 24

Prepare extracts from the Balance Sheet and Statement of Profit  &  Loss  that  would be reflected in the financial statements of the entity for the year ended 31st March, 20X2.

Solution – 

Extract from the Statement of Profit & Loss

WN Amount
Change in fair value of purchased dairy cow WN 2 1,00,000
Government Grant WN 3 10,00,000
Change in the fair value of newly born calves WN 4 1,30,000
Fair Value of Milk WN 5     72,000
Total Income 13,02,000
Maintenance Costs WN 2 6,00,000
Breeding Fees WN 2    4,00,000
Total Expense (10,00,000)
Net Income     3,02,000

Extracts from Balance Sheet

Property, Plant and Equipment:
Land WN 1 50,00,000
Biological assets other than bearer plants:
Dairy Cow WN 2 11,00,000
Calves WN 4   1,30,000
 Inventory: 62,30,000
Milk WN 5 72,000

Working Notes:

1. Land: The purchase of the land is not covered by Ind AS 41. The relevant standard which would apply to this transaction is Ind AS 16. Under this standard the land would initially be recorded at cost and depreciated over its useful economic life. This would usually be considered to be infinite in the case of land and so no depreciation would be appropriate. Under Cost Model no recognition would be made for post-acquisition changes in the value of land. The allowed alternative treatment under Revaluation Model would permit the land to be revalued to market value with the revaluation surplus taken to the other comprehensive income. We have followed the Cost Model.

2. Dairy Cows: Under the ‘fair value model’ laid down in Ind AS 41 the mature cows would be recognised in the Balance Sheet at 31st March, 20X2 at the fair value of 200 x Rs. 5,500 = Rs.11,00,000.

Increase in price change 200 x (5,200-5,000) = 40,000

Increase in physical change 200 x (5,500-5,200) = 60,000

The total difference between the fair value of matured herd and its initial cost (Rs. 11,00,000 – Rs. 10,00,000 = a gain of Rs. 1,00,000) would be recognised in the profit and loss along with the maintenance costs and breeding fee of Rs. 6,00,000 and Rs. 4,00,000 respectively.

3. Grant: Grand relating to agricultural activity is not  subject  to  the  normal  requirement  of Ind AS 20. Under Ind AS 41 such grants are credited to income as soon as they are unconditionally receivable rather than being recognised over the useful economic life of the herd. Therefore, Rs. 10,00,000 would be credited to income of the company.

4. Calves: They are a biological asset and the fair value model is The breeding fees are charged to income and an asset of 100 x Rs. 1,300 = Rs. 1,30,000 recognised in the Balance sheet and credited to Profit and loss.

5. Milk: This is agricultural produce and initially recognised on the same basis as biological assets. Thus the milk would be valued at 3,000 x Rs. 24 = Rs. 72,000. This is regarded as ‘cost’ for the future application of Ind AS 2 to the unsold milk.

This Post Has One Comment

Leave a Reply