ACCA Strategic Business Reporting (SBR) Practice Exam

After agricultural produce is harvested, how is it subsequently valued?

1. At the original cost incurred

2. At the initial fair value less costs to sell

3. At the market price of similar products

4. At the estimated selling price

The correct answer is: At the initial fair value less costs to sell

The valuation of agricultural produce after it is harvested is based on the initial fair value less the costs to sell. This reflects the fair value approach outlined in relevant accounting standards for agricultural activities, such as IAS 41, Agriculture. When agricultural produce is harvested, it is initially recognized at its fair value, which represents the market price at that point, minus any estimated costs to sell. This method ensures that the financial statements accurately reflect the most relevant and timely valuation of the assets. By considering the costs of sale, which include transport and other selling expenses, this approach provides a realistic estimate of the net revenue that can be realized from the agricultural produce. In contrast, using the original cost incurred does not provide a current reflection of value considering market conditions. Valuing at market prices of similar products is also less appropriate because it does not take into account the specific characteristics and condition of the harvested crops. Lastly, estimating selling price alone without deducting selling costs would not yield a true net realizable value, making the other options less suitable as they do not align with the fair value framework established for agricultural products.