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Q9 (ICAI MODULE)

Company X purchased 100 goats at an auction for ` 1,00,000 on 30 September 20X1. Subsequent
transportation costs were ` 1,000 that is similar to the cost X would have to incur to sell the goat at the
auction. Additionally, there would be a 2% selling fee on the market price of the goat to be incurred by the
seller.

On 31 March 20X2, the market value of the goat in the most relevant market increases to ` 1,10,000.
Transportation costs of ` 1,000 would have to be incurred by the seller to get the goat to the relevant
market. An auctioneer’s fee of 2% on the market price of the goat would be payable by the seller.
On 1 June 20X2, X sold 18 goats for ` 20,000 and incurred transportation charges of ` 150. In addition,
there was a 2% auctioneer’s fee on the market price of the goat paid by the seller.

On 15 September 20X2, the fair value of the remaining goat was`82,820. 42 goats were slaughtered on
that day, with a total slaughter cost of ` 4,200. The total market price of the carcasses on that day was `
48,300, and the expected transportation cost to sell the carcasses is ` 420. No other costs are expected.
On 30 September 20X2, the market price of the remaining 40 goat was ` 44,800. The expected
transportation cost is ` 400. Also, there would be a 2% auctioneer’s fee on the market price of the goat
payable by the seller.

Pass Journal entries so as to provide the initial and subsequent measurement for all above transactions.
Interim reporting periods are of 30 September and 31 March and the company determines the fair values on
these dates for reporting.

SOLUTION

Value of goat at initial recognition (30 September 20X1) (All figures are in `)

Biological asset (goat) Dr. 97,000*

Loss on initial recognition Dr. 4,000
To Bank (Purchase and cost of transportation) 1,01,000
(Initial recognition of goat at fair value less costs to sell)

*Fair value of goat = 1,00,000 – 1,000 – 2,000 (2% of 1,00,000) = 97,000

Subsequent measurement at 31 March 20X2 (All figures are in `)

Biological Assets (Goat) Dr. 9,800
To Gain on Sale (Profit & Loss) 9,800

(Subsequent measurement of Goat at fair value less costs to sell (1,06,800** –
97,000))

** Fair value of goat = 1,10,0000 – 1,000 – 2,200 (2% of 1,10,000) = 1,06,800

Sale of goat on 1 June 20X2 (All figures are in `)

Biological Assets (Goats) Dr. 226
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