Reference no: EM133040077
Problem - Danding Company produces milk on its farms. The entity produces 20% of the community's milk. That is consumed. Danding Co owns 5 farms and had a stock of 2,100 cows and 1,050 heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000 kilograms of milk. However, on December 31, 2020 the entity is currently holding 50,000 kilograms of milk in powder. On December 31, 2020, the biological assets are:
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Purchased before January 1, 2020 (3 years old)
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2,100 cows
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Purchased on January 1, 2020 (2 years old )
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300 heifers
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Purchased on July 1, 2020 (1.5 years old)
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750 heifers
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No animals were born or sold during the current year. The unit fair value less cost to sell is as follows:
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January 1, 2020:
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1 -year old
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3,000
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2 - year old
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4,000
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July 1, 2020:
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1 - year old
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3,000
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December 31, 2020;
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1- year old
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3,200
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2 -year old
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4,500
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1.5-year old
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3,600
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3 -year old
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5,000
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The entity has had problems during the year. Contaminated milk was sold to customers. As a result, milk consumption has gone down.
The entity's business is spread over different parts of the country. The only region affected by the contamination was Laguna. However, the cattle in this area were unaffected by the contamination and were healthy. The entity feels that it cannot measure the fair value of the cows in the region because of the problems created by the contamination. There are 600 cows and 200 heifers in the Laguna farm and all these animals had been purchased on January 1, 2020.
Required -
1) What is the fair value of biological assets on January 1, 2020?
2) What is the fair value of biological assets purchased on July 1, 2020?
3) What is the fair value of biological assets on December 31, 2020?
4) What is the increase in fair value of biological assets on December 31, 2020?
5) What is the increase in fair value of biological assets due to physical change?