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NEWLY ADDED QUESTIONS IN ICAI MODULE FOR MAY 22 ONWARDS

Q7 (ICAI MODULE)
Entity A purchased cattle at an auction on 30th June 20X1

Purchase price at 30th June 20X1 Rs 1,00,000
Costs of transporting the cattle back to the entity’s farm Rs 1,000
Sales price of the cattle at 31st March, 20X2 Rs 1,10,000
The company would have to incur similar transportation costs if it were to sell the cattle at auction, in
addition to an auctioneer’s fee of 2% of sales price. The auctioneer charges 2% of the selling price, from
both, the buyer as well as the seller.

Calculate the amount at which cattle is to be recognised in books on initial recognition and at year end 31st
March, 20X2.

SOLUTION
Initial recognition of cattle

Rs
Fair value less costs to sell (Rs 1,00,000 – Rs 1,000 - Rs 2,000) 97,000
Cash outflow (Rs 1,00,000 + Rs 1,000 + Rs 2,000) 1,03,000
Loss on initial recognition 6,000
Cattle Measurement at year end
Fair value less costs to sell (Rs 1,10,000 – 1,000 – (2% x 1,10,000)) 1,06,800

At 31st March, 20X2, the cattle is measured at fair value of Rs 1,09,000 less the estimated auctioneer’s fee
of Rs 2,200). The estimated transportation costs of getting the cattle to the auction of Rs 1,000 are
deducted from the sales price in determining fair value.

Q8 (ICAI MODULE)

XY Ltd. is a farming entity where cows are milked on a daily basis. Milk is kept in cold storage immediately
after milking and sold to retail distributors on a weekly basis. On 1 April 20X1, XY Ltd. had a herd of 500

cows which were all three years old.

During the year, some of the cows became sick and on 30 September 20X1, 20 cows died. On 1 October 20X1,
XY Ltd. purchased 20 replacement cows from the market for ` 21,000 each. These 20 cows were all one year
old when they were purchased.

On 31 March 20X2, XY Ltd. had 1,000 litres of milk in cold storage which had not been sold to retail
distributors. The market price of milk at 31 March 20X2 was ` 20 per litre. When selling the milk to
distributors, XY Ltd. incurs selling costs of ` 1 per litre. These amounts did not change during March 20X2
and are not expected to change during April 20X2.

Information relating to fair value and costs to sell is given below:

Date Fair value of a dairy cow (aged) Costs to sell a cow

1 year 1.5 years 3 years 4 years

1 st April 20X1 20,000 22,000 27,000 25,000 1,000
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