Biological Assets

Hi there,

I’d appreciate help on the following question, I’m unsure where the 98% came from in the answer , please could i have some help? Thank you

QUESTION:

On 1 January 20X1, a farmer had a herd of 100 cows, all of which were
2 years old. At this date, the fair value less point of sale costs of the herd
was $10,000. On 1 July 20X1, the farmer purchased 20 cows (each two
and half years old) for $60 each.
As at 31 December 20X1, three year old cows sell at market for $90
each.
Market auctioneers have charged a sales levy of 2% for many years.
Required:
Discuss the accounting treatment of the above in the financial
statements for the year ended 31 December 20X1.

ANSWER:

Cows are biological assets and should be initially recognised at fair
value less costs to sell.
The cows purchased in the year should be initially recognised at $1,176
((20 × $60) × 98%). This will give rise to an immediate loss of $24 ((20
× $60) – $1,176) in the statement of profit or loss.
At year end, the whole herd should be revalued to fair value less costs
to sell. Any gain or loss will be recorded in the statement of profit or
loss.
The herd of cows will be held at $10,584 ((120 × $90) × 98%) on the
statement of financial position.
This will give rise to a further loss of $592 (W1) in the statement of
profit or loss.
(W1) Loss on revaluation
$
Value at 1 January 20X1 10,000
New purchase 1,176
Loss (bal. fig) (592)
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Value at 31 December 20X1 10,584
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