Reference no: EM132512888
Awana Bhd is an agriculture company operating at Sungai Tiang since the year 2010. The company runs oil palm plantation and cows farming.
- The oil palm plantation process begins with the planting of oil palm seedlings. It takes approximately five years to grow the tree until it can produce its fruit. The oil palm fruit can be harvested after two years grown on the tree and can be continually harvested for the next 20 years. The harvested oil palm fruit is sold to other companies which manufacture various oil palm products. Once the oil palm tree cannot produce fruit anymore, the trees will be cut down and sold as scrap.
- The company also breeds cows. Initially, ten (10) cows were bought at RM2,000 each in the year 2015. The cows give birth to the calf when they reach two years old. The cows can produce a large amount of milk throughout its lifetime. The milk produced will be sold to other local manufacturer, and the cows will be sold when they turn into 10 years old.
The following information is related to the agriculture activities incurred during the financial year 2019:
- The company harvested 280 tan metrics of oil palm fruit with an average fair value of RM1,200 per tan metric. The cost incurred to sell the fruits is estimated to be 3% of the oil palm fruit price.
- The company produced 30,000 litres of milk during the financial year. The market price for milk is RM5 per litre, and the cost incurred to sell milk is estimated to be 2% of the market price.
- Currently, the company breeds 49 cows of different ages. In March 2019, there is a contagious disease related to cows and pushes the price of cows down. The following is the comparative fair value of cows at the beginning and ending of the financial year ended 2019:
Quantity 1 July 2018 (RM per animal) 30 June 2019 (RM per animal)
5 year-old cows 10 4,500 4,000
3 year-old cows 15 3,500 3,200
1 year-old cows 24 1,800 1,200
- The average cost to sell the cows is estimated to be RM100 and RM120 per cow for the year ended 2018 and 2019 respectively.
- The company is entitled to receive a grant of RM100,000 from the Ministry of Agriculture. The grant is earned once the company is able to produce more than 200 tan metrics of oil palm fruit by 30 June 2019.
- The company's financial year ends on 30 June every year.
REQUIRED:
Question (a) Explain the appropriate accounting treatment and measurement for the oil palm tree in accordance to the relevant MFRS. Justify your answer.
Question (b) Prepare the journal entry to record the oil palm plantation and cows farming activity during the financial year 2019.
Question (c) Explain why biological asset shall not be subsequently measured using historical cost basis. Justify your answer with relevant examples