AE121 - Biological Assets PDF

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BIOLOGICAL ASSETSScope of PAS 1 on agriculture:PAS 41 shall be applied to account for the following when they relate to agricultural activity:A. Biological assetsB. Agricultural produceC. Government grant related to a biological assetBiological assets are “living animals and living plantsAgricultura...

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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 asset. 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 Baguio Company has reclassified certain assets as biological assets. The total value of the forest assets is P6, 000,000 which comprises: Freestanding trees Land under trees Roads in forest

5,100,000 600,000 300,000 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. La Trinidad 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, 2019, 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, 2020. 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, 2019? 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, 2020. 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, 2020 because this is lower than the deemed cost of P3,500,000. La Union Company provided the following data: Value of biological assets at acquisition cost on December 31, 2019 Fair valuation surplus on initial recognition at fair value on December 31,2019 Change in fair value to December 31, 2020 due to growth and price fluctuation

600,00 0

Decrease in fair value to harvest

90,000

700,00 0 100,00 0

3. What is the carrying amount of the biological asset on December 31, 2020? 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 2020 income statement? A. 100,000 B. 800,000 C. 710,000 D. 10,000

Change in fair vale due in 2020

100,00 0 (90,000 )

Decrease in fair value due to harvest Net gain firm change in fair value in 2020

10,000

Chocolate 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 January1 Increase due to purchases Gain arising from change in fair value less cost of disposal attributed to price change Gain arising from change in fair value less cost of disposal attributable to physical change Decrease due to sales Decrease due to harvest

5,000,000 2,000,000

400,000

600,000 850,000 200,000

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 Increase due to purchases Gain from change in fair value due to price change Gain from change in fair value due to physical change Decrease due to sales Decrease due to harvest Carrying amount – December 31

5,000,000 2,000,000 400,000 600,000 (850,000) (200,000) 6,950,000

Yummy Company produces milk for sale to local and national ice cream producers. The entity operations on January 1, 2019 by purchasing 650 milk cow for P8,000,000. The entity had the following information available at year-end relating to the cows:

Solution: Question 3 Acquisition cost - December 31, 2019 Increase in fair value on initial recognition Change in fair value in 2020 Decrease in fair value due to harvest Carrying amount - December 31, 2020

Question 4

600,000 700,000 100,000 (90,000) 1,310,0 00

Acquisition cost, January 1,2019 Change in fair value due to growth and price change Decrease in fair value due to harvest Milk harvested during 2019 but not yet sold

8,000,000 2,500,000 250,000 400,000

6. What amount of gain on change in fair value should be recognized for biological asset in 2019? 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 2019? A. 2,250,000 B. 400,000 C. 150,000 D. 0

Income tax expense

55,000

8. What is the net income for 2019? A. 650,000 B. 600,000 C. 130,000 D. 185,000 9. What is the fair value of biological assets on December 31, 2019? A. 550,000 B. 450,000 C. 500,000 D. 400,000

Solution: Solution: Question 6 Question 8 Change in fair value to growth and price change Decrease in fair value due to harvest Net gain from biological asset

2,500,00 0 (250,000) 2,250,0 00

Fair value of milk produced Gain from change in fair value Total income Inventories used

Question 7 Satff cost Inventory

400,00 0

Gain on agricultural produce

400,00 0

Letterman Company provided the following information for the year ended December 31, 2019: Cash Trade and other receivables Inventories Dairy livestock – immature Dairy livestock – mature Property, plant and equipment, net Trade and othe payable Note payable – long term Share capital Retained earnings – January 1 Fair value of milk produced Gain from change in fair value Inventories used Staff costs Depreciation expense Other operating expenses

500,000 1,500,00 0 100,000 50,000 400,000 1,400,00 0 520,000 1,500,00 0 1,000,00 0 800,000 600,000 50,000 140,000 120,000 15,000 190,000

Depreciation expense Other operating expenses

600,00 0 50,000 650,000 (140,00 0) (120,00 0) (15,000) (190,00 0)

Income before income tax Income tax expense

185,000 (55,000)

Net income

130,00 0

Question 9 Dairy livestock – immature Dairy livestock – mature Fair value of biological assets

50,000 400,000 450,000

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...