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Scottson, a farmer, acquired 600 two-year old cows on 1 January 20X1 for $800 each. 100 calves were born in December 20X1. 150 animals were sold during the year for $840 each. The fair value less costs to sell the cows at 31 December 20X1 was: Calves $200 Two-year old cows $850 Three-year old cows $900
How much should be recognised in profit or loss in total in respect of the cows for the year ended 31 December 20X1?
I don’t know what is the correct answer.
I did the sum like this. But I don’t know whether my answer is right or wrong.
1 January 20X1 2 year old cows (600 * 850) : 510000
December 20X1 Calves born (100 * 200) : 20000Total : 530000
31 December 20X1 3-year-old cows (450 * 900): 405000 (600 – 150 (sold) = 450)
Calves (100 * 200): 20000
Total : 425000Gain to SPL : 105000 (530000 – 4250000)
I also have confusion if I have to take the fair value less cost to sell value of calves to recognize profit or loss.
Hi,
You need the FV at 1 January and the FV at 31 December. The FV at 1 January is the 600 2 year old cows at $800.
The FV at 31 December is 450 3 year old cows (as 150 have been sold) at $900 plus the 100 claves at $200.
The movement is taken through profit or loss.
Thanks
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