BKAR2023 FINANCIAL ACCOUNTING AND REPORTING II (A172)

MINI CASE 5
Biological assets
DUE DATE: EXERCISE 28/3/2019

QUESTION 1

Situation 1
Entity A raises cattle, slaughters them at its abattoirs and sells the carcasses to the local meat
market.

Situation 2
Entity B grows rubber trees, harvests the latex and produces rubber gloves.

Situation 3
Entity C manages a zoo which provide natural breeding of animals for recreational activity.

REQUIRED:

Identify the relevant accounting standards for each of the above situations based on MFRS 141
Agriculture, MFRS 116 Property, Plant and Equipment or MFRS 102 Inventories.

QUESTION 2
FTQ Bhd runs ‘dokong’ fruit plantation as well as corn plantation. The entity needs clarification
on the differences between biological assets, agricultural produce and bearer plants.

REQUIRED:

(a) Explain the definition, recognition and measurement of biological assets, agriculture
produce and bearer plant in accordance with MFRS 141 Agriculture. Give example in
the context of the different types of plantations above.

(b) Briefly explain why do bearer plants are considered to have more resemblance to
machinery and equipment under MFRS 116 Property, Plant and Equipment than
biological assets under MFRS 141 Agriculture.

QUESTION 3
Ola Oli Bhd runs a palm oil plantation at Sungai Besar, Selangor. The plantation process begins
with the planting of palm oil seedlings. It takes approximately five years to grow to be a mature
tree. Once the tree is matured, the palm oil fruit can be harvested from the tree for the next 25
years. Once the palm oil tree cannot produce palm oil fruit anymore, the trees will be cut down

1
and sold as scrap. As for palm oil fruits, once it is collected, it will be used in the processing of
crude palm oil or sold to other manufacturer.

Given that the fair value of the harvested palm oil fruit during year 2016 is RM30,000 and cost
incurred to sell the fruits is 5% of the palm oil fruit price.

REQUIRED:

(a) Prepare journal entry to recognize the harvested palm oil fruit during year 2016.
(b) Discuss the accounting treatment on immature palm oil tree and mature palm oil tree.

QUESTION 4
Baa Baa Black Sheep Bhd began a business to grow sheep at Genting Highland on 1 January
2015. With an investment of RM1 million, the company purchased a land for RM300,000 to be
used as farm to grow the sheep. The land purchased was treated as part of biological asset.

On 1 July 2015, Baa Baa Black Sheep Bhd purchased 20 breeding sheep from New Zealand at
the cost of RM2,000 each by cash. The sheep aged 1 year on the day it was purchased.

The market prices of the sheep from an active market are as follows:
Date Fair value RM
30 June 2016 1 year old 2,200
30 June 2016 2 year old 2,500

The cost of sell is estimated to be RM3,000 as at 30 June 2016.

On 11 July 2016, due to outbreak of H1N1 flu destroyed all the sheep and the loss is recognised
in the statement of comprehensive income. The land will be used for recreational purposes. Baa
Baa Black Sheep Bhd received cash compensation from Ministry of Agriculture amounting to
RM50,000 on 30 October 2016, upon condition that the company used the grant to buy breeding
sheep from local farm. On 31 December 2016, the company decided to proceeds with the sheep
farming business by buying the breeding sheep from local farm, instead of from overseas.

Baa Baa Black Sheep Bhd accounting year ends every 30 June each year.

REQUIRED:

(a) Explain with an appropriate recommendation the classification of the land as a biological
asset is in accordance with MFRS 141 Agriculture.

(b) Prepare the journal entries for the above transactions for year ending 30 June 2016.

(c) Prepare journal entry to record the grant received.

2