A 14-year-old who fatally stabbed Bridgette 'Biddy' Porter, 10, wrote a disturbing diary entry about how she restrained herself from murdering her little sister in the same way she killed six chickens.

Biddy had been staying at a property in Gunnedah, in north-east NSW, when the teenager, known as XR for legal reasons, stabbed her to death while in the midst of a psychotic episode on July 8, 2020.

XR, now age 20, was originally charged with murder, but the NSW Supreme Court found she was not legally responsible due to her then-undiagnosed schizophrenia. She remains in a mental health facility.

A coroner is now examining Biddy's death and the police investigation to determine whether systemic failures contributed to the tragedy, or if XR's declining mental health could have been detected sooner.

Over the first two days of the inquest, XR's mother and father were separately asked a number of questions about an incident in June 2019 when XR filmed herself using a skewer to kill chickens on the family's farm.

Both parents said the chicken incident didn't raise any red flags because they lived on a farm where animals were culled. They also said XR was reprimanded because she didn't have permission to kill the birds, but not for the act of killing.

On Wednesday, XR's mother was asked about one of her daughter's diary entries about a chicken that appeared to have been tortured. It read: 'When it finally died, I hid its body and continued the indulging activity each day.

'Such a shame I wasn't more discreet with the number of them I killed because Mum found out, or should I say [my little sister] came and she was shocked sh*tless. 

'It took so much willpower not to do the same to her.'

The inquest previously heard XR filmed the chicken killings to show her friends at school, and took various body parts to science class. 

XR's mother told the inquest on Wednesday that her youngest daughter never mentioned seeing XR kill the chickens, and agreed it was likely XR had made that part up. 

It is unclear whether XR actually believed her sister had walked in on the chicken incident, or if she knowingly fabricated the event in her diary.

Her sister later told police that XR used to scratch and punch her, and that she was sometimes scared of XR. When their mother was asked about this during the inquest, she maintained that the younger sister was the real antagonist.

XR's mother was repeatedly asked about the chicken incident on Wednesday, and she eventually asked the inquest why it was such a focus.

Stewart O'Connell, representing Biddy's parents, asked XR's mother: 'You don't see anything at all wrong with the chicken incident?'

The mother replied: 'They were farm animals to be culled. I was upset because that was my job to do, not hers, and I don't understand why it's such a big red flag.'

She was also asked about a 'violent killing story' that XR wrote and read to her.

The mother told the inquiry: 'There was one story that she wrote at school, and she did read it to me.

'My justification for that was Stephen King is a famous, very well-known author and his graphic, violent stories are famous, and he makes a lot of money for it.'

The letter involving the chickens and XR's little sister was not the only time XR's grasp on reality appeared distorted.

The inquest heard that on another occasion, XR told her grandmother that she was upset because she had written a letter about how she was going to kill her sister.

XR told her grandmother her sister had found the letter and shown it to their parents, which resulted in XR getting into a lot of trouble.

The inquiry heard the letter has never been seen and may never have existed. XR's sister later told police she never came across any letter, and neither of her parents had ever seen it.

However, the inquiry also heard XR did detail similar murder fantasies in her diary.

In June 2020, just weeks before Biddy's death, XR wrote a number of disturbing entries about killing people.

Counsel assisting the coroner, Peggy Dwyer, told the inquest: 'In that diary, she fantasised about killing people all the time, including her parents, family and friends.'

On the afternoon of July 7, 2020, the day before the tragedy, XR had tried to play 'serial killers' with her younger sister and Biddy, which involved chasing Biddy with a knife and scaring her.

XR got in trouble for running with a knife. Her father confiscated her PlayStation and three of her knives, and XR was so angry that she punched a hole in her bedroom wall.

When her father was asked about the hole on Tuesday, he said it was a small hole and he saw it as a normal expression of frustration. 

After punching the wall, XR wrote in her diary: 'I wanted to kill them both, I was that angry.'

The inquest heard that XR wrote that she felt she was 'going crazy' and that she had walked into her parents' room earlier because she was going to stab her father.

She wrote: 'It doesn't matter how many times I tell Mum and Dad that I want to kill someone, they don't take me seriously.'

XR then phoned a friend in distress. The friend later told police XR was crying and saying she didn't know what to do. The friend told XR to text her and go to sleep, promising to talk the next day. 

Ms Dwyer told the inquest there was no suggestion the friend did anything wrong. 

The friend was also 14, and she had wanted to tell someone about XR but didn't know how, and she was distraught when Biddy was killed.

XR's grandmother also gave evidence on Wednesday. She told the inquiry that she saw a lot of red flags in her granddaughter's behaviour - particularly when she heard about the chickens.

She told her daughter, XR's mother, that XR appeared to be 'mentally disturbed', but was repeatedly told by both parents to stop making inquiries.

The grandmother said the chicken incident was 'not normal' and that XR's problems needed to be dealt with by a specialist. 

'She was a very clever little girl and she talked her way out of things, and this is how she manipulated her parents, and that's what I said to my daughter,' she told the inquest.

'I said, "You can't trust what she's saying to you, you need someone smarter than her".'

The inquest heard XR's mother and grandmother are not on speaking terms.

The inquiry continues.