Q8IFRS - Intermediate Accounting (Kieso)

Question

Keyser’s Fleece Inc. holds a drove of sheep. Keyser shears the sheep on a semiannual basis and then sells the harvested wool into the specialty knitting market. Keyser has the following information related to the shearing sheep at January 1, 2017, and during the first six months of 2017. Shearing Sheep Carrying value (equal to net realizable value), January 1, 2017 $74,000 Change in fair value due to growth and price changes 4,700 Change in fair value due to harvest (575) Wool harvested during the fi rst 6 months (at NRV) 9,000 Prepare the journal entry(ies) for Keyser’s biological asset (shearing sheep) for the first six months of 2017

Step-by-Step Solution

Answer

In the journal entry, Biological Asset—Shearing Sheep will be debited and Unrealized Holding Gain or Loss—Income will be credited by $4,125, respectively.

Step1: Journal entry for biological asset

Journal entries are as follows:

Date	Description	Debit	Credit
	Biological Asset—Shearing Sheep	$4,125
	Unrealized Holding Gain or Loss—Income		$4,125
	(To record unrealized holding gain on biological asset)

Step 2: Calculation of Unrealized Holding Gain or Loss—Income

Unrealized Holding Gain or Loss—Income is calculated as follows:

$$\begin{gathered} \mathbf{Unrealized}\mathbf{ }\mathbf{Holding}\mathbf{ }\mathbf{Gainor}\mathbf{ }\mathbf{Loss}\mathbf{-}\mathbf{Income}\mathbf{=}\mathbf{Change}\mathbf{ }\mathbf{in}\mathbf{ }\mathbf{Fair}\mathbf{ }\mathbf{Value}\mathbf{ }\mathbf{due}\mathbf{ }\mathbf{to}\mathbf{ }\mathbf{Growth}\mathbf{ }\mathbf{and}\mathbf{ }\mathbf{Price}\mathbf{ }\mathbf{Changes}\mathbf{-}\mathbf{Change}\mathbf{ }\mathbf{in}\mathbf{ }\mathbf{Fair}\mathbf{ }\mathbf{Value}\mathbf{ }\mathbf{Due}\mathbf{ }\mathbf{to}\mathbf{ }\mathbf{Harvest} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{700}\mathbf{+}\left(\mathbf{\$}\mathbf{575}\right) \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{125} \end{gathered}$$