Mr. Bogan operates a dairy farm in Qubec. Recently, one of his cows gave birth to a
Question:
Mr. Bogan operates a dairy farm in Québec. Recently, one of his cows gave birth to a female calf that will eventually join the dairy herd that produces the milk Mr. Bogan sells. When the calf was born, Mr. Bogan had the veterinarian check the calf. At first the calf drinks its mother’s milk, but later it will graze on grass in the pasture. During the winter, the calf will eat hay that Mr. Bogan grows on another part of his farm. Eventually the calf will be a milk-producing cow.
Required:
a. How would you report the dairy herd on Mr. Bogan’s farm’s balance sheet? Explain.
b. What cost will appear on the farm’s balance sheet for the new calf when she is old enough to produce milk? Explain.
c. From what you've learned about accounting for capital assets, what are the problems that exist for accounting for the dairy herd and the new calf? How would you recommend the herd and new calf be accounted for? Consider this question from the point of view of a banker and a prospective buyer of the farm.
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