Inventory
Tarheel Farm, Inc.
Background
Tarheel Farm, Inc. (TFI) is a corporation involved in agricultural production and has a June 30 fiscal year-end. It is not publicly traded, but is required to prepare annual financial statements for its bank. Historically, the bank has required that these statements comply with US GAAP rules. Currently, the bank is allowing its clients to report using IFRS instead of US GAAP, if they prefer. TFI typically produces three products: beef cattle, corn and winter wheat. Recently, TFI also started growing a number of hibiscus plants. All four of these products have a life cycle of less than one year. The following information is available as of June 30:
- TFI had 400 acres of field corn planted. The corn will not be harvested until the fall. The accumulated cost of the corn is $95,000. The estimated selling costs are $4,500. The current market value of land is $5,000 per acre. Although there is no current market value available for land growing a corn crop on it, TFI is certain that this land would sell for more than $2,200,000.
- TFI had 6,000 bushels of winter wheat harvested and stored in its grain bins. The accumulated cost of the wheat is $27,000. The current market price at the local elevator is $6.10 per bushel. The market price of wheat has increased 10 cents per bushel since the wheat was harvested. The transportation costs from the farm to the elevator are about 5 cents per bushel.
- TFI had a herd of cattle, including heifers and steers that have not yet been weaned. TFI does not anticipate keeping any of the heifers for its breeding herd. The accumulated cost of the heifers and steers was $50,000. The expected selling costs were $2,000. The livestock's local market price for these heifers and steers was $70,000.
- Finally, TFI has 500 hibiscus plants. TFI has harvested these from the field and now has them potted, ready to sell. The accumulated costs are $10 per plant and TFI does not anticipate any significant selling costs. Due to 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 does not believe that the market for this product has changed substantially since that time.
Required
- Obtain and review ASC 905, Agriculture, and IAS 41, Agriculture.
- Review and discuss what the general rules are for agricultural activity using US GAAP and IFRS.
- Determine the inventory valuation for TFI on June 30 using both US GAAP and IFRS.