Finn Berge realized his lifelong dream of becoming a vineyard owner when he was able to purchase the Hillside Vineyard at an estate auction in August 2019 for €750,000. Finn retained the Hillside name for his new business. The purchase was risky because the growing season was coming to an end, the grapes must be harvested in the next several weeks, and Finn has limited experience in carrying off a grape harvest.
At the end of the first quarter of operations, Finn is feeling pretty good about his early results. The first harvest was a success; 300 bushels of grapes were harvested with a value of €30,000 (based on current local commodity prices at the time of harvest). And, given the strong yield from area vineyards during this season, the net realizable value of Finn's vineyard has increased by €15,000 at the end of the quarter. After storing the grapes for a short period of time, Finn was able to sell the entire harvest for €35,000.
Instructions
a. Prepare the journal entries for the Hillside biological asset (grape vines) for the first quarter of operations (the beginning carrying and net realizable value is €750,000).
b. Prepare the journal entry for the grapes harvested during the first quarter.
c. Prepare the journal entry to record the sale of the grapes harvested in the first quarter.
d. Determine the total effect on income for the quarter related to the Hillside biological asset and agricultural produce.
e. Looking to the next growing season, Finn is doing some forecasting, based on the following two developments: (1) demand for the type of grapes his vineyard produces is expected to increase, and (2) there are new producing vineyards coming on line that will increase the supply of similar grapevines in the market. Briefly discuss how these developments are likely to affect the value of Hillside's biological assets and agricultural produce in the next growing season.b