Mayhill Farms, Inc.
Mayhill Farms, Inc. (MHF) is a corporation involved in agricultural production and has a June 30 financial year-end. It is not publicly traded, but is required to prepare annual financial statements for its bank. Historically, the bank has required that these statements comply with US GAAP rules. Recently, MHF was purchased by BBR China, a Chinese corporation that uses IFRS to prepare its financial statements.
MHF typically produces two products: beef cattle and corn. These products have a life cycle of less than one year. The following information is available as of June 30:
► MHF had 400 acres of field corn planted. The corn will not be harvested until the fall. The accumulated cost of the corn is $95,000. The estimated selling costs are $4,500.
► MHF had a herd of cattle, including heifers and steers that have not yet been weaned. MHF does not anticipate keeping any of the heifers for its breeding herd. The accumulated cost of the heifers and steers was $50,000. The expected selling costs were $2,000. The livestock’s local market price for these heifers and steers was $70,000.
As a result of the purchase of Mayhill Farms, Inc. by BBR, some items of inventory were restated to conform to the new IFRS standards. Mr. Chung, the CEO of the US Agricultural division of BBR sent you an e-mail asking you to write a letter to the Board of Directors of BBR explaining the differences between inventory accounting between IFRS and US GAAP, specifically with regards to the items MHF currently has. The Board consists of some members that have a reasonably good understanding of accounting and some that know very little about accounting. Prepare a letter to the Board that explains the following:
► Determine the inventory valuation for MHF on June 30 using both US GAAP and IFRS and provide a brief explanation of how the valuation is determined for each (e.g., “lower of cost or market”). Use the following table to present your information:
|Crop/Animal||US GAAP Value $||US GAAP Valuation Method||IFRS Valuation $||IFRS Valuation Method|
Other Assignment Guidance
Use single-spaced (except for tables), 1” margins, 12-point font in memo format.
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