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ACCA Applied Skills · Financial Reporting · Inventories and agriculture

Meadow Co holds a flock of sheep. At the start of the year the flock had a fair value less costs to sell of $520,000. During the year no sheep were bought or sold. At the year end, the fair value less costs to sell of the flock is $585,000. Meadow also paid $30,000 of feed and vet costs in the year, expensed to profit or loss. What is the gain from the change in fair value of the flock recognised in profit or loss under IAS 41?

The gain is the movement in fair value less costs to sell, $585,000 minus $520,000, which equals $65,000. The $30,000 of feed and vet costs is a separate expense and is not deducted in calculating the fair value gain.

  1. A$35,000
  2. B$95,000
  3. C$65,000Correct
  4. D$555,000

Explanation

The gain arising on the change in fair value less costs to sell is $585,000 minus $520,000 = $65,000. The feed and vet costs are separate expenses and are not netted within the fair value gain. Netting them gives $35,000, which is wrong; adding them gives $95,000.

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