Tarheel Farm, Inc. (TFI) is a corporation involved in agricultural production and has a June 30 financial year-end. It is not publicly traded, however is required to make annual financial statements for its bank. In the past, the bank has required that these statements fulfil with US GAAP rules. At present, the bank is allowing its clients to report by using IFRS instead of US GAAP, if they prefer. TFI usually produces three products: beef cattle, winter wheat and corn. Recently, TFI also started growing a number of the hibiscus plants. All four of these products have a life cycle of less than one year. The following information is accessible as of June 30:
a) TFI had 400 acres of field corn planted. The corn will not be harvested till the fall. The accrued cost of the corn is $95,000. The estimated selling costs are $4,500. The current land costs are $5,000 per acre. Though there is no current market value accessible for land growing a corn crop on it, TFI is certain that this land would sell for more than $2,200,000.
b) TFI had 6,000 bushels of winter wheat harvested and stored in its grain bins. The accrued cost of the wheat is $27,000. The present market price at the local elevator is $6.10 per bushel. The market price of wheat has raised 10 cents per bushel since the wheat was harvested. The transportation costs from the farm to elevator are about 5 cents per bushel.
c) TFI had a herd of cattle, including heifers and steers that have not yet been weaned. TFI doesn’t expect keeping any of the heifers for its breeding herd. The accumulated cost of the steers and heifers was $50,000. The expected selling costs were $2,000. The livestock’s local market price for these heifers and steers was $70,000.
d) At last, TFI has 500 hibiscus plants. The accumulated costs are $10 per plant and TFI does not expect any significant selling costs. Because of the rarity of this beautiful plant, there is no local market for this product. TFI sold some of these plants two months ago for $25 a plant. TFI doesn’t believe that the market for this product has changed substantially since that time.
Required
i. Obtain and review ASC 905, Agriculture, and IAS 41, Agriculture.
ii. Review and discuss what the general rules are for agricultural produce using US GAAP and IFRS.
iii. Determine the inventory valuation for TFI on June 30 using both US GAAP and IFRS.
Inventory
The Cost of Inventory
Required
- Obtain and review ASC 330-10-30, paragraphs 1 through 8, and IAS 2, paragraphs 10 through 16.
- Present a discussion of the general principle for cost inclusion into inventory for both US GAAP and IFRS. Are these principles similar?
- Present an analysis of what costs are specifically included and excluded in inventory for both US GAAP and IFRS. You might ignore issues of interest capitalization in inventory.
- Present a discussion of which standard is most principle-based and which one is much rules-based.