Sewa Dairy Limited prepares financial statements on 31st March each year. On 1st April 20X0 the Company carried out the following transactions:…

Extract from the Statement of Profit and Loss of Sewa Diary Limited for the period ended on 31st March, 20X1 WN Amount Income Change in fair value of purchased dairy cow WN 2 2,00,000 Government Grant WN 3 10,00,000 Change in the fair value of newly born calves WN 4 3,36,000 Fair Value of Milk WN 5 96,000 Total Income (A) 16,32,000 Expenses Maintenance Costs WN 2 8,50,000 Breeding Fee WN 2 4,60,000 Total Expense (B) (13,10,000) Net Income (A-B) 3,22,000 Extracts from Balance Sheet of Sewa Diary Limited As at 31st March, 20X1 ₹ Property, Plant and Equipment: Land WN 1 60,00,000 Biological assets other than bearer plants: Dairy Cow WN 2 22,00,000 Calves WN 4 3,36,000 25,36,000 Inventory: Milk WN 5 96,000 Working Notes: 1. Land: The purchase of the land is not covered by Ind AS 41. The relevant standard which would apply to this transaction is Ind AS 16. Under this standard, the land would initially be recorded at cost and depreciated over its useful economic life, which is usually considered to be infinite. Hence, no depreciation would be appropriate. Under Cost Model, no recognition would be made for post-acquisition changes in the value of land. 2. Dairy Cows: Under the 'fair value model' laid down in Ind AS 41 the mature cows would be recognised in the Balance Sheet at 31st March, 20X1 at the fair value of 200 x 11,000 = 22,00,000. Increase in price change 200 x (10,500 - 10,000) = 1,00,000 Increase in physical change 200 x (11,000 – 10,500) = 1,00,000 The total difference between the fair value of matured herd and its initial cost (₹ 22,00,000 -20,00,000 = a gain of 2,00,000) would be recognised in the profit and loss along with the maintenance cost and breeding fee of 8,50,000 and - 4,60,000 respectively. 3. Grant: Grant relating to agricultural activity is not subject to the normal requirement of Ind AS 20. Under Ind AS 41 such grants are credited to income as soon as they are unconditionally receivable rather than being recognised over the useful economic life of the herd. Therefore,10,00,000 would be credited to income of the company. 4. Calves: They are a biological asset and the fair value model is applied. The breeding fee is charged to income and an asset of 120 x 2,800 = 3,36,000 recognised in the Balance sheet and credited to Profit and loss. 5. Milk: This is agricultural produce and initially recognised on the same basis as biological assets. Thus, the milk would be valued at 3,200 x 30 = 96,000. This is regarded as 'cost' for the future application of Ind AS 2 to the unsold milk.