The Financial Reporting Standard (FRS) 102 is the UK GAAP accounting standard for small and medium-sized entities (SMEs). When it comes to recognizing the cost of newborn animals, FRS 102 provides guidelines that businesses need to follow.
Typically, the cost of newborn animals gets recorded as an expense in the profit and loss account when they are born. Yet, there are specific situations where the cost of newborn animals can be capitalized and acknowledged as an asset.
According to FRS 102, the cost of newborn animals can be capitalized if they meet the following criteria:
1. They are expected to have a useful life of more than one year
2. They are acquired or bred to sell them
3. Their cost can be reliably measured
If you meet these criteria, capitalize the cost of the newborn animals and acknowledge it as an asset on the balance sheet. Spread the cost over the animals’ useful life and record it as depreciation in the profit and loss account.
It’s important to note that if the newborn animals do not meet the criteria for capitalization, they should be recognized as an expense in the profit and loss account of the period in which they are born.
In addition, FRS 102 provides guidance on the valuation of newborn animals. The cost of acquiring or breeding the animals should include all costs that are directly attributable to their acquisition or breeding, such as the cost of feed, veterinary costs, and labour costs.
If the cost of acquiring or breeding the animals cannot be reliably measured, a reasonable estimate should be used. However, the estimate should be based on the best information available at the time and should be reviewed regularly to ensure that it remains reasonable.
In conclusion, the recognition of the cost of newborn animals as per FRS 102 depends on whether they meet the criteria for capitalization. If the criteria are met, capitalize the cost and acknowledge it as an asset. If not met, recognize the cost as an expense in the profit and loss account. It’s crucial to accurately measure the cost and regularly review it to maintain its reasonability.