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Hi Mike,
i have been presented with a revision Q:
Slick operates in the palm oil market and owns a plantation of oil palms. The harvested produce from these trees is called fresh fruit bunches (FFB). Slick mills, steams and presses the FFB in order to extract palm oil. The palm oil is then sold to manufacturers within the food and beverage industry.
Slick determines the fair value of its FFB at the point of harvest by estimating the quantity of palm oil that will be extracted and multiplying this by the quoted price of palm oil at the reporting date. Estimated costs to convert the FFB into palm oil are then deducted. The amount of palm oil obtained from FFB can vary dramatically, depending on factors such as climate and the delay between harvesting and processing. In the country in which Slick operates, there is an active market for FFB.
Some of the FFB held at the reporting date were harvested several days previously. Such delays cause fatty acids to build up in the FFB, severely diminishing the quality of the palm oil extract. As a result, these FFB cannot be processed or sold.
The directors require advice about the correct accounting treatment of the FFB.
Am i right in thinking that the FFB should be valued under IAS 2 not IFRS13?
IAS 41?
These FFBs that have a build up of fatty acids can be neither processed nor sold? So, valueless? Does it matter whether they are valueless under IAS 2, valueless under IAS 41 or valueless under IFRS 13?
I understand that IAS 41 no longer applies after agricultural produce has been harvested and we move over to IAS 2. I’m not sure where IFRS 13 fits into your thinking
I think the fact it mentions fair value and that the oil is actively traded in markets….
I just assumed as fair value was mentioned that IFRS 13 applies.
I was leaning towards IAS 2 as the standard but thought I’d double check.
Thanks
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