agriculture is a key business activity in many parts of the world particularly in de 1572083

Agriculture is a key business activity in many parts of the world, particularly in developing countries. Following extensive discussions with, and funding from, the World Bank, the International Accounting Standards Committee (IASC) developed an accounting standard relating to agricultural activity. IAS 41 Agriculture was published in 2001 to apply to accounting periods beginning on or after 1 January 2003. Sigma prepares financial statements to 30 September each year. On 1 October 2003 Sigma carried out the following transactions:

● Purchased a large piece of land for $20 million.

● Purchased 10,000 dairy cows (average age at 1 October 2003, two years) for $1 million.

● Received a grant of $400,000 towards the acquisition of the cows. This grant was non-returnable. During the year ending 30 September 2004 Sigma incurred the following costs:

● $500,000 to maintain the condition of the animals (food and protection).

● $300,000 in breeding fees to a local farmer. On 1 April 2004, 5,000 calves were born. There were no other changes in the number of animals during the year ended 30 September 2004. At 30 September 2004, Sigma had 10,000 litres of unsold milk in inventory. The milk was sold shortly after the year end at market prices. Information regarding fair values is as follows:

Required:

(a) Discuss how the IAS 41 requirements regarding the recognition and measurement of biological assets and agricultural produce are consistent with the IASC Framework for the Preparation and Presentation of Financial Statements.

(b) Prepare extracts from the statement of comprehensive income and the statement of financial position that show how the transactions entered into by Sigma in respect of the purchase and maintenance of the dairy herd would be reflected in the financial statements of the entity for the year ended 30 September 2004. You do not need to prepare a reconciliation of changes in the carrying amount of biological assets.