Question

On Narla Ltd's beef cattle farm, the firm has 1,000 head of beef cattle with an average market value of $1,500 per head (known as Group A). In addition, there are 200 cattle which are ‘in calf” and due to give birth in November/December 2017 (known as Group B). The market value of the cattle “in calf' is an average of $2,000 per head (assume no twin births.) After birth, the mothers will be valued at $1,500 and the calves at $650 each. One hundred of the calves (known as Group C) will be sold at the nearby cattle market next February and the other one hundred calves (known as Group D) will be retained for “'fattening up” over the next 4-5 years before they are sold. Costs to sell the calves include: transport and other costs amounting to $50 per head. State the classification of each of the groups of cattle on the 31st December 2017 Statement of Financial Position. - -- -- - -- - -- -- - - -- - - -- - -- -- - -- - -- -- - -- -- - ----- -- - -- -- - - -- -- - -- - -- -- - -- -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 marks Explain the basis of the valuation of the cattle in Group C. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Answer 1

1)Classification of each group of cattle in the statement of financial position (balance sheet) :

Group A will be classified under fixed assets because beef cattle are used for producing revenue in the form of calves.

Group B calves  will be divided into Group C and Group D

Group C calves will be sold in the near by market in next February so they will be classified as inventory because inventory is a current asset used to generate profit within one business year.

Group D will be classified as work in progress because they are used for fattening up over the next 4-5 years before they are sold.

2) Group C will be valued as per inventory valuation accounting standard i.e cost or NRV whichever is lower.