Shearing Sheep (Agricultural Produce)
Recording the harvest of wool from live sheep.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Inventory (Wool) | Asset (+) | 300.00 | - |
| Gain on Harvest (Produce) | Revenue (+) | - | 300.00 |
💡 Accountant's Note
Wool is 'Agricultural Produce.' The gain is recognized at the moment of shearing at its fair value.
Practitioner & Systems Framework
💻 ERP Architecture
Wool is harvested once or twice a year (main shearing and possibly a mid-year crutching). At shearing, the weight of greasy wool shorn per mob is recorded by the shearing contractor. The fair value per kilogram is based on the current EMI (Eastern Market Indicator) or local wool market price for the relevant micron range. Once in inventory, wool is valued at the lower of this initial fair value and NRV — and NRV testing is important because wool prices can be volatile between shearing and the next wool auction. Shearing contractor costs (cost of shearing, shed hands, wool classing) are operating expenses, not capitalized into the wool inventory value, because the IAS 41 gain already captures the fair value at the point of harvest.
⚠️ Audit Flags
(1) Fair value measurement — is the micron-specific wool price applied (finer wool commands a significant premium over broader wool)? Using an average market price rather than the grade-specific price can mistate the gain. (2) Shearing contractor costs — confirm these are expensed, not capitalized into wool inventory. (3) Wool in transit to the broker — wool in transit at period-end is still the farmer's inventory until the broker accepts it; cut-off testing is required.
📄 Required Documentation
Shearing records (mob, date, quantity shorn, average micron), wool classer's report, wool market price at shearing date (EMI or broker price guide), shearing contractor invoice, and wool storage/transit records.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.