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IAS 41 Revision question 2 (NBAA, NOV 2018)



Miti Safi na Nyuki Brothers (MSNB) is a Limited Company that was incorporated to invest in forest and bee resources in general and to collect forestry and beekeeping revenues. As at 30th June 2018, it had a forest plantation in the Southern Highland part of Tanzania in Njombe region consisting of 250,000 Eucalyptus trees that were planted 2 years earlier.
Maturity and ideal harvesting age of Eucalyptus trees are dependent on the intended purpose or market. The harvesting age significantly varies from 3 to 4 years (construction poles), 8 to 15 years (transmission poles) to as late as 20 years for timber production. The company’s weighted average cost of capital is 9% per annum. The accountants of the MSNB were unable to value the 250,000 Eucalyptus trees for inclusion in the company’s statement of financial position as biological assets as only mature Eucalyptus trees for timber production had established fair values by reference to a quoted price in an active market. The fair value (inclusive of current transport costs) for a mature tree for timber production of the same grade as in the plantation is: As at 1st July 2017: TZS 6,000 As at 30th June 2018: TZS 7,000



REQUIRED:

(i) Determine the amount of the biological asset to be reported as at 1st July 2017 and 30th June 2018.
(ii) Determine the total fair value change of the immature trees during the year ended 30th June 2018.
(iii) Determine the gain or loss due to changes in fair values as a result of the effects of change in market price, and
(iv) Determine the gain or loss due to changes in fair values as a result of the physical change (growth) of the trees in the forest plantation.

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