Farmer John Industries Inc. is in the business of producing organic foods for sale to restaurants and in local markets. The company uses IFRS and has a June 30 fiscal year end.
As an experiment, the company has decided to attempt raising organic free-range chickens. On May 1, 2014, Farmer John purchased 100 new hatchlings for cash at a total cost of $1,000. The company incurs feed and labour costs of $150 per month to look after the chicks. Their (acceptable) accounting policy is to capitalize these costs.
On June 30, the company estimated that the chickens would mature in mid-October. At year end they have a fair value of $1,800 and the company would have to transport the chickens to their customers at an average cost of $3 per chicken.
On October 30, all 100 chickens had marured and the company sold and shipped 50 of the chickens to one of its key customers for $30 per chicken. Transportation costs were $3 per chick, as expected.
(a) Prepare the journal entties to record the inventory activity relating to the chickens for the month of May.
(b) Prepare the journal entries to record the inventory activity relating to the chickens for the month of June, including any year-end adjustments required under IAS 41.
(c) How would the result be different if the company used ASPE?