Nicholas's Christmas Tree Farm Ltd. grows pine, fir, and spruce trees. The farm cuts and sells trees during the Christmas season and exports most of the trees to the United States. The remaining trees are sold to local tree lot operators.
It normally takes 12 years for a tree to grow to a suitable size and the average selling price of a tree is $24. The biggest costs to the business are pest control, fertilizer, and pruning trees over the 12-year period. These costs average $12 per tree (assume these are incurred evenly over the 12-year growing cycle).
Instructions
(a) How should this inventory be recorded under ASPE?
(b) How should the costs of pest control, fertilizer, and pruning be recognized under IFRS?
(c) Assume that the fair value of each tree at the end of 2014 is $8 and the opening value was $5. Prepare the journal entries if the costs are capitalized each year.
(d) Assume that the fair value of each tree at the end of 2014 is $8 and the opening value was $5. Prepare the journal entries if the costs are expensed each year.