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BIOLOGICAL ASSETS
Scope of PAS 1 on agriculture: PAS 41 shall be applied to account for the following when they relate to agricultural activity: A. Biological assets B. Agricultural produce C. Government grant related to a biological asset
Biological assets are “living animals and living plants Agricultural produce is the harvested product of the entity’s biological asset’s life processes.
Biological transformation results from the following outcome:
1. Asset changes through: A. Growth - an increase in in quantity or improvement in quality of an animal or plant. B. Degeneration - a decrease in quantity or deterioration in quality of an animal or plant. C. Procreation - creation of additional living animal or plant.
“Cost to sell” are the incremental costs directly attributable to the disposal of an assert. In other words, costs of sells would not otherwise arise, such as commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes and duties.
PAS 41 sets several ways of measuring fair value: A. Quoted price in an active market B. Most recent market transaction price C. Market price for similar asset with adjustment to reflect any differences D. Sector benchmark, such as value of a farmland per hectare, or value of cattle per kilogram E. Present value of expected net cash flows from the asset
QUESTIONS
Maxpein Company has reclassified certain assets as biological assets. The total value of the forest assets is P6, 000,000 which comprises:
Freestanding trees
5,100,000
Land under trees
600,000
Roads in forests
300,000 6,000,000
In the statement of financial portion, what total amount of the forest assets should be classified as biological assets? A. 5,100,000 B. 5,700,000 C. 5,400,000 D. 6,000,000
Solution:
Only the freestanding shall be classified as biological assets.
The land under trees and roads in forests shall be included in property, plant and equipment.
Naih Company is a producer of coffee. The entity is considering the valuation of harvested coffee beans. Industry practice is to value the coffee beans at market value and uses as reference a local publication “Accounting for Successful Farms”
On December 31, 2014, the entity has harvested coffee beans costing P3, 000,000 and with fair value less cost of disposal of P3, 500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were still on hand on December 31, 2015. On such date, the fair value less cost of disposal is P3, 900,000 and the net realizable value is P3, 200,000.
2. What is the measurement of the coffee beans inventory on December 31, 2014? A. 3,000,000 B. 3,500,000 C. 3,200,000 D. 3,900,000
Solution: Fair value measurement stops at the point of harvest and PAS 2 on inventory applies after such date.
Accordingly, the coffee beans inventory shall be measured at the lower cost and net realizable value on December 31, 2015.
The fair value less cost of disposal of P3,500,000 at the point of harvest us the initial cost of coffee beans inventory for purposes of applying PAS 2.
The net realizable value of P3,200,000 is the measurement on December 31, 2015 because this is lower than the deemed cost of P3,500,000.
Malonie Company provided the following data:
Value of biological assets at acquisition cost on December 31, 2014
600,000
Fair valuation surplus on initial recognition at fair value on December 31,2014
700,000
Change in fair value to December 31, 2015 due to growth and price fluctuation Decrease in fair value to harvest
100,000 90,000
3. What is the carrying amount of the biological asset on December 31, 2015? A. 1,400,000 B. 1,310,000 C. 1,300,000 D. 1,490,000
4. What is the gain from change in fair value of biological assets that should be reported in the 2015 income statement? A. 100,000 B. 800,000 C. 710,000 D. 10,000
Solution: Question 3
Acquisition cost - December 31, 2014
600,000
Increase in fair value on initial recognition
700,000
Change in fair value in 2015
100,000
Decrease in fair value due to harvest
(90,000)
Carrying amount - December 31, 2015
1,310,000
Question 4 Change in fair value due in 2015
100,000
Decrease in fair value due to harvest
(90,000)
Net gain firm change in fair value in 2015
10,000
M & M Company is engaged in raising dairy livestock. Information regarding activities to the dairy livestock during the current year is a s follows:
Carrying amount on January 1
5,000,000
Increase due to purchases
2,000,000
Gain arising from change in fair value less cost of disposal attributed to price change
400,000
Gain arising from change in fair value less cost of disposal attributable to physical change
600,000
Decrease due to sales
850,000
Decrease due to harvest
200,000
5. What is the carrying amount of the biological asset on December 31? A. 6,950,000 B. 6,000,000 C. 8,000,000 D. 7,150,000
Solution: Carrying amount - January 1
5,000,000
Increase due to purchases
2,000,000
Gain from change in fair value due to price change
400,000
Gain from change in fair value due to physical change
600,000
Decrease due to sales
(850,000)
Decrease due to harvest
(200,000)
Carrying amount - December 31
6,950,000
Young Company produces milk for sale to local and national ice cream producers. The entity operations on January 1, 2014 by purchasing 650 milk cow for P8,000,000. The entity had the following information available at year-end relating to the cows:
Acquisition cost, January 1, 2014
8,000,000
Change in fair value due to growth and price change
2,500,000
Decrease in fair value due to harvest
250,000
Milk harvested during 2014 but not yet sold
400,000
6. What amount of gain on change in fair value should be recognized for biological asset in 2014? A. 2,500,000 B. 2,250,000 C. 2,900,000 D. 2,650,000
7. What amount of gain on change in fair value should be reported for agricultural produce in 2014? A. 2,250,000 B. 400,000 C. 150,000 D. 0
Solution: Question 6 Change in fair value to growth and price changes
2,500,000
Decrease in fair value due to harvest
(250,000)
Net gain from biological asset
2,250,000
Question 7 Inventory
400,000
Gain on agricultural produce
400,000
Lee Company provided the following information for the year ended December 31, 2014:
Cash
500,000
Trade and other receivables
1,500,000
Inventories
100,000
Dairy livestock - immature
50,000
Dairy livestock - mature
400,000
Property, plant and equipment, net
1,400,000
Trade and other payable
520,000
Note payable - long term
1,500,000
Share capital
1,000,000
Retained earnings - January 1
800,000
Fair value of milk produced
600,000
Gain from change in fair value
50,000
Inventories used
140,000
Staff costs
120,000
Depreciation expense
15,000
Other operating expenses
190,000
Income tax expense
55,000
8. What is the net income for 2014? A. 650,000 B. 600,000 C. 130,000 D. 185,000
9. What is the fair value of biological assets on December 31, 2014? A. 550,000 B. 450,000 C. 500,000
D. 400,000
Solution: Question 8
Fair value of milk produced
600,000
Gain from change in fair value
50,000
Total income
650,000
Inventories used
(140,000)
Staff costs
(120,000)
Depreciation expense
(15,000)
Other operating expenses
(190,000)
Income before income tax
185,000
Income tax expense
(55,000)
Net income
130,000
Question 9
Dairy livestock - immature
50,000
Dairy livestock - mature
400,000
Fair value of biological assets
450,000
10. Biological assets are measured at A. Cost B. Lower of cost or net realizable value C. Net realizable value D. Fair value less costs to sell
11. Agricultural activity includes all of the following, except A. Raising livestock B. Perennial cropping C. Aquaculture D. Ocean fishing
12. Which of the following is unlikely to be used in fair value measurement? A. Quoted price in a market B. The most recent market transaction price C. The present value of the expected net cash flows from the asset D. External independent valuation
13. All of the following would be classified as biological assets, except ? A. Dairy cattle B. B. Chickens C. Eggs D. Trees
14. Which of the following would be classified as agricultural produce? A. Tree B. Bush C. Butter D. Apple
15. Generally speaking, biological assets relating to agricultural activity shall be measured using A. Historical cost B. Historical cost less depreciation less impairment C. A fair value approach D. Net realizable value
Scope of PAS 1 on agriculture: PAS 41 shall be applied to account for the following when they relate to agricultural activity: A. Biological assets B. Agricultural produce C. Government grant related to a biological asset
Biological assets are “living animals and living plants Agricultural produce is the harvested product of the entity’s biological asset’s life processes.
Biological transformation results from the following outcome:
1. Asset changes through: A. Growth - an increase in in quantity or improvement in quality of an animal or plant. B. Degeneration - a decrease in quantity or deterioration in quality of an animal or plant. C. Procreation - creation of additional living animal or plant.
“Cost to sell” are the incremental costs directly attributable to the disposal of an assert. In other words, costs of sells would not otherwise arise, such as commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes and duties.
PAS 41 sets several ways of measuring fair value: A. Quoted price in an active market B. Most recent market transaction price C. Market price for similar asset with adjustment to reflect any differences D. Sector benchmark, such as value of a farmland per hectare, or value of cattle per kilogram E. Present value of expected net cash flows from the asset
QUESTIONS
Maxpein Company has reclassified certain assets as biological assets. The total value of the forest assets is P6, 000,000 which comprises:
Freestanding trees
5,100,000
Land under trees
600,000
Roads in forests
300,000 6,000,000
In the statement of financial portion, what total amount of the forest assets should be classified as biological assets? A. 5,100,000 B. 5,700,000 C. 5,400,000 D. 6,000,000
Solution:
Only the freestanding shall be classified as biological assets.
The land under trees and roads in forests shall be included in property, plant and equipment.
Naih Company is a producer of coffee. The entity is considering the valuation of harvested coffee beans. Industry practice is to value the coffee beans at market value and uses as reference a local publication “Accounting for Successful Farms”
On December 31, 2014, the entity has harvested coffee beans costing P3, 000,000 and with fair value less cost of disposal of P3, 500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were still on hand on December 31, 2015. On such date, the fair value less cost of disposal is P3, 900,000 and the net realizable value is P3, 200,000.
2. What is the measurement of the coffee beans inventory on December 31, 2014? A. 3,000,000 B. 3,500,000 C. 3,200,000 D. 3,900,000
Solution: Fair value measurement stops at the point of harvest and PAS 2 on inventory applies after such date.
Accordingly, the coffee beans inventory shall be measured at the lower cost and net realizable value on December 31, 2015.
The fair value less cost of disposal of P3,500,000 at the point of harvest us the initial cost of coffee beans inventory for purposes of applying PAS 2.
The net realizable value of P3,200,000 is the measurement on December 31, 2015 because this is lower than the deemed cost of P3,500,000.
Malonie Company provided the following data:
Value of biological assets at acquisition cost on December 31, 2014
600,000
Fair valuation surplus on initial recognition at fair value on December 31,2014
700,000
Change in fair value to December 31, 2015 due to growth and price fluctuation Decrease in fair value to harvest
100,000 90,000
3. What is the carrying amount of the biological asset on December 31, 2015? A. 1,400,000 B. 1,310,000 C. 1,300,000 D. 1,490,000
4. What is the gain from change in fair value of biological assets that should be reported in the 2015 income statement? A. 100,000 B. 800,000 C. 710,000 D. 10,000
Solution: Question 3
Acquisition cost - December 31, 2014
600,000
Increase in fair value on initial recognition
700,000
Change in fair value in 2015
100,000
Decrease in fair value due to harvest
(90,000)
Carrying amount - December 31, 2015
1,310,000
Question 4 Change in fair value due in 2015
100,000
Decrease in fair value due to harvest
(90,000)
Net gain firm change in fair value in 2015
10,000
M & M Company is engaged in raising dairy livestock. Information regarding activities to the dairy livestock during the current year is a s follows:
Carrying amount on January 1
5,000,000
Increase due to purchases
2,000,000
Gain arising from change in fair value less cost of disposal attributed to price change
400,000
Gain arising from change in fair value less cost of disposal attributable to physical change
600,000
Decrease due to sales
850,000
Decrease due to harvest
200,000
5. What is the carrying amount of the biological asset on December 31? A. 6,950,000 B. 6,000,000 C. 8,000,000 D. 7,150,000
Solution: Carrying amount - January 1
5,000,000
Increase due to purchases
2,000,000
Gain from change in fair value due to price change
400,000
Gain from change in fair value due to physical change
600,000
Decrease due to sales
(850,000)
Decrease due to harvest
(200,000)
Carrying amount - December 31
6,950,000
Young Company produces milk for sale to local and national ice cream producers. The entity operations on January 1, 2014 by purchasing 650 milk cow for P8,000,000. The entity had the following information available at year-end relating to the cows:
Acquisition cost, January 1, 2014
8,000,000
Change in fair value due to growth and price change
2,500,000
Decrease in fair value due to harvest
250,000
Milk harvested during 2014 but not yet sold
400,000
6. What amount of gain on change in fair value should be recognized for biological asset in 2014? A. 2,500,000 B. 2,250,000 C. 2,900,000 D. 2,650,000
7. What amount of gain on change in fair value should be reported for agricultural produce in 2014? A. 2,250,000 B. 400,000 C. 150,000 D. 0
Solution: Question 6 Change in fair value to growth and price changes
2,500,000
Decrease in fair value due to harvest
(250,000)
Net gain from biological asset
2,250,000
Question 7 Inventory
400,000
Gain on agricultural produce
400,000
Lee Company provided the following information for the year ended December 31, 2014:
Cash
500,000
Trade and other receivables
1,500,000
Inventories
100,000
Dairy livestock - immature
50,000
Dairy livestock - mature
400,000
Property, plant and equipment, net
1,400,000
Trade and other payable
520,000
Note payable - long term
1,500,000
Share capital
1,000,000
Retained earnings - January 1
800,000
Fair value of milk produced
600,000
Gain from change in fair value
50,000
Inventories used
140,000
Staff costs
120,000
Depreciation expense
15,000
Other operating expenses
190,000
Income tax expense
55,000
8. What is the net income for 2014? A. 650,000 B. 600,000 C. 130,000 D. 185,000
9. What is the fair value of biological assets on December 31, 2014? A. 550,000 B. 450,000 C. 500,000
D. 400,000
Solution: Question 8
Fair value of milk produced
600,000
Gain from change in fair value
50,000
Total income
650,000
Inventories used
(140,000)
Staff costs
(120,000)
Depreciation expense
(15,000)
Other operating expenses
(190,000)
Income before income tax
185,000
Income tax expense
(55,000)
Net income
130,000
Question 9
Dairy livestock - immature
50,000
Dairy livestock - mature
400,000
Fair value of biological assets
450,000
10. Biological assets are measured at A. Cost B. Lower of cost or net realizable value C. Net realizable value D. Fair value less costs to sell
11. Agricultural activity includes all of the following, except A. Raising livestock B. Perennial cropping C. Aquaculture D. Ocean fishing
12. Which of the following is unlikely to be used in fair value measurement? A. Quoted price in a market B. The most recent market transaction price C. The present value of the expected net cash flows from the asset D. External independent valuation
13. All of the following would be classified as biological assets, except ? A. Dairy cattle B. B. Chickens C. Eggs D. Trees
14. Which of the following would be classified as agricultural produce? A. Tree B. Bush C. Butter D. Apple
15. Generally speaking, biological assets relating to agricultural activity shall be measured using A. Historical cost B. Historical cost less depreciation less impairment C. A fair value approach D. Net realizable value
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