Inventory

Tarheel Farm, Inc. Background Tarheel Farm, Inc. (TFI) is a corporation involved in agricultural production and has a June 30 financial year-end. It is not publicly traded, but is required to prepare annual financial statements for its bank. Historically, the bank has required that these statements comply with US GAAP rules. Currently, the bank is allowing its clients to report using IFRS instead of US GAAP, if they prefer. TFI typically produces three products: beef cattle, corn and winter wheat. Recently, TFI also started growing a number of hibiscus plants. All four of these products have a life cycle of less than one year. The following information is available as of June 30: TFI had 400 acres of field corn planted. The corn will not be harvested until the fall. The accumulated cost of the corn is $95,000. The estimated selling costs are $4,500. The current land costs are $5,000 per acre. Although there is no current market value available for land growing a corn crop on it, TFI is certain that this land would sell for more than $2,200,000. TFI had 6,000 bushels of winter wheat harvested and stored in its grain bins. The accumulated cost of the wheat is $27,000. The current market price at the local elevator is $6.10 per bushel. The market price of wheat has increased 10 cents per bushel since the wheat was harvested. The transportation costs from the farm to the elevator are about 5 cents per bushel. TFI had a herd of cattle, including heifers and steers that have not yet been weaned. TFI does not anticipate keeping any of the heifers for its breeding herd. The accumulated cost of the heifers and steers was $50,000. The expected selling costs were $2,000. The livestocks local market price for these heifers and steers was $70,000. Finally, TFI has 500 hibiscus plants. The accumulated costs are $10 per plant and TFI does not anticipate any significant selling costs. Due to the rarity of this beautiful plant, there is no local market for this product. TFI sold some of these plants two months ago for $25 a plant. TFI does not believe that the market for this product has changed substantially since that time. Required Obtain and review ASC 905, Agriculture, and IAS 41, Agriculture. Review and discuss what the general rules are for agricultural produce using US GAAP and IFRS. Determine the inventory valuation for TFI on June 30 using both US GAAP and IFRS.

Inventory case studies

2012 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4135I

Inventory
The Cost of Inventory Required Obtain and review ASC 330-10-30, paragraphs 1 through 8, and IAS 2, paragraphs 10 through 16. Provide a discussion of the general principle for cost inclusion into inventory for both US GAAP and IFRS. Are these principles similar? Provide an analysis of what costs are specifically included and excluded in inventory for both US GAAP and IFRS. You may ignore issues of interest capitalization into inventory. Provide a discussion of which standard is most principle-based and which one is most rules-based.

Inventory case studies

2012 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4135I