Ch35 tb loftus 3e PDF

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Testbank to accompany

Financial reporting 3rd edition by Loftus et al.

Not for distribution. Instructors may assign selected questions in their LMS.

© John Wiley & Sons Australia, Ltd 2020

Testbank to accompany Financial reporting 3e by Loftus et al.

Chapter 35: Agriculture Multiple choice questions 1.

Which of the following are reasons why the IASC felt that agriculture was an industry that needed its own industry specific standard? I. II. III. IV.

a. b. *c. d.

Agriculture was considered to be an emerging industry at that time. The specific exclusion of assets related to agricultural activity from other standards. The nature of agricultural activity had created uncertainty or conflicts when applying traditional accounting models. Accounting guidelines for agricultural activity previously developed by national standard setters had been piecemeal.

I, II and III I, III and IV II, III and IV III and IV only

Answer: c Learning objective 35.1: explain the background to the development of AASB 141/IAS 41. 2.

Which standard was issued in 2011 that amended AASB 141/IAS 41?

*a. b. c. d.

AASB 13 Fair Value Measurement AASB 101 Presentation of Financial Statements AASB 15 Revenue from Contracts with Customers AASB 6 Exploration for and Evaluation of Mineral Resources

Answer: a Learning objective 35.1: explain the background to the development of AASB 141/IAS 41.

© John Wiley and Sons Australia, Ltd 2020

35.1

Chapter 35: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

3.

AASB 141/IAS 41 applies to accounting for which of the following when they relate to agricultural activity? I. II. III. IV.

a. *b. c. d.

Biological assets. Government grants. Agricultural produce. Land related to agricultural activity.

I, II and IV. I, II and III. II, III and IV. I, III and IV.

Answer: b Learning objective 35.2: distinguish between agricultural activities, agricultural produce and biological assets.

4.

Each of the following are agricultural activities except for:

a. b. c. *d.

Oyster farming. Pearl farming. Fish farming. Ocean fishing.

Answer: d Learning objective 35.2: distinguish between agricultural activities, agricultural produce and biological assets. 5.

Which of the following meets the definition of agricultural produce?

*a. b. c. d.

Milk. Cheese. Yoghurt. Dairy cattle.

Answer: a Learning objective 35.2: distinguish between agricultural activities, agricultural produce and biological assets.

© John Wiley and Sons Australia, Ltd 2020

35.2

Testbank to accompany Financial reporting 3e by Loftus et al.

6.

AASB 141/IAS 41 considers that there are three common features to agricultural diversity. These three features are:

I. II. III. IV. a. b. *c. d.

Capability to change. Change transformation. Management of change. Measurement of change.

I, II and III I, II and IV I, III and IV II, III and IV

Answer: c Learning objective 35.2: distinguish between agricultural activities, agricultural produce and biological assets. 7.

AASB 141/IAS 41 defines an agricultural activity as the management by an entity of the biological transformation and harvest of biological assets:

a. b. c. *d.

for sale; into additional biological assets; for conversion into agricultural produce. all of the above.

Answer: d Learning objective 35.2: distinguish between agricultural activities, agricultural produce and biological assets. 8.

Which of the following is a product resulting from agricultural produce?

a. b. *c. d.

Milk. Wool. Sugar. Cotton.

Answer: c Learning objective 35.3: explain the different accounting treatment required before and after harvest.

© John Wiley and Sons Australia, Ltd 2020

35.3

Chapter 35: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

9.

Under AASB 141/IAS 41, which of the following is a biological asset?

*a. b. c. d.

Fruit trees. Picked fruit. Tinned fruit. Processed fruit.

Answer: a Learning objective 35.3: explain the different accounting treatment required before and after harvest. 10. Which of the following statements is incorrect? a. b. c. *d.

Biological transformation is facilitated by management. Management is a key part of the definition of agricultural activity under AASB 141/IAS 41. There is a link between management and control of a biological asset. Management is a key part of the recognition criteria for biological assets and agricultural produce.

Answer: d Learning objective 35.4: explain the recognition criteria for biological assets and agricultural produce. 11. The recognition criteria contained within AASB 141/IAS 41 in relation to recognition of a biological asset or agricultural produce as an asset includes all the following except for: *a. b. c. d.

The asset has physical form. The fair value or cost can be reliably measured. The entity controls the asset as a result of past events. It is probable that future economic benefits associated with the asset will flow to the entity.

Answer: a Learning objective 35.4: explain the recognition criteria for biological assets and agricultural produce.

© John Wiley and Sons Australia, Ltd 2020

35.4

Testbank to accompany Financial reporting 3e by Loftus et al.

12. AASB 141/IAS 41 requires that biological assets be measured on initial recognition and at the end of each reporting period: a. b. c. *d.

at fair value less costs to sell. at fair value less costs to sell at the point of harvest. at fair value less estimated costs to sell at the point of harvest. at fair value less costs to sell, except where the fair value cannot be measured reliably.

Answer: d Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce. 13. Which of the following is not a cost to sell? a. b. *c. d.

Transfer taxes and duties. Levies by regulatory agencies. Transport costs to get assets to a market. Commissions to brokers and dealers.

Answer: c Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce.

14. When determining the fair value of biological assets when there is no market price for that asset in its present condition AASB 141/IAS 41 requires that: a. b. c.

the entity uses sector benchmarks. the entity measures the asset at cost. the entity uses the contract prices for recent sales of similar assets adjusted for the effects of biological transformation. *d. the entity uses the present value of expected net cash flows from the asset discounted at a current market-determined rate. Answer: d Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce.

© John Wiley and Sons Australia, Ltd 2020

35.5

Chapter 35: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

15. Pure Milk owns dairy cattle. The market value of the cattle is calculated by reference to the litres of milk able to be produced and the lactation rate of the cows. The cattle are regularly sold at auction. Costs incurred to transport the cattle to auction are $3000 per truck. Each truck can transport approximately 100 cattle. Number of mature cows held at 30 June 2021 Average litres of production per cow Lactation rate Price per litre

16 000 10 000 litres 70% 30 cents

The market value for each cow at 30 June 2021 is: a. *b. c. d.

$2000. $2100 $3000. $3360.

Answer: b Feedback: 10 000L x 70% x $0.30 = $2100 Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce.

16. The entry required when an animal is born on a pig farm is: a. DR Agricultural produce CR Profit and loss

xx

*b. DR Biological asset CR Profit and loss

xx

c. DR Profit and loss CR Biological asset

xx

xx xx

d. DR Profit and loss xx CR Agricultural produce

xx

xx

Answer: b Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce.

© John Wiley and Sons Australia, Ltd 2020

35.6

Testbank to accompany Financial reporting 3e by Loftus et al.

17. At 30 June 2021 the fair value of Green Valley’s vineyard is $2.25 million. At 30 June 2022 the following information is available: Fair value of vines prior to harvest at 31 March 2022 Fair value of grapes harvested at 31 March 2022 Estimated costs to sell — grapes Estimated costs to sell — vines

$2 400 000 $800 000 $30 000 $40 000

There have been no changes in fair values between 1 April and 30 June 2022. At 30 June 2022, the vines will be recorded in Green Valley’s financial statements at an amount of: a. b. c. *d.

$1 450 000. $1 560 000. $2 400 000. $1 600 000.

Answer: d Feedback: $2 400 000 - $800 000 Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce.

© John Wiley and Sons Australia, Ltd 2020

35.7

Chapter 35: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

18. At 30 June 2021, the fair value of Green Valley’s vineyard is $2.25 million. At 30 June 2022, the following information is available: Fair value of vines prior to harvest at 31 March 2022 Fair value of grapes harvested at 31 March 2022 Estimated costs to sell — grapes Estimated costs to sell — vines

$2 400 000 $800 000 $30 000 $40 000

There have been no changes in fair values between 1 April and 30 June 2022. The entry to recognise the grapes at the point of harvest is: a. DR Agricultural produce — grapes CR Profit and loss

830 000

*b. DR Agricultural produce — grapes CR Profit and loss

770 000

c. DR Agricultural produce — grapes CR Biological asset — vines

800 000

d. DR Agricultural produce — grapes CR Cash CR Biological asset — vines

830 000

830 000 770 000

800 000 30 000 800 000

Answer: b Learning objective 35.5: analyse the meaning of ‘fair value’ when applied to biological assets and agricultural produce.

© John Wiley and Sons Australia, Ltd 2020

35.8

Testbank to accompany Financial reporting 3e by Loftus et al.

19. Whiting Limited operates a fish farm. AASB 141/IAS 41 requires live immature fish to be valued at: a. b. *c. d.

either cost or fair value less estimated costs to sell. cost due to the absence of an active market for such fish. the fair value less costs to sell based on prices of slaughtered immature fish. fair value determined by applying a discount factor to the fair value of live mature fish.

Answer: c Learning objective 35.6: explain the practical implications of measuring these assets at fair value, including interpreting the disclosures made by companies applying the standard. 20. It is common for companies applying AASB 141/IAS 41 to: a.

attempt to ‘bury’ the fair value movements attributable to agricultural assets in ‘other expenses’. b. disclose the fair value movements attributable to agricultural assets as part of ‘abnormal’ items. c. remain silent in the financial statements about the fair value movements attributable to agricultural assets, but highlight such items in ‘financial commentaries’. *d. separately disclose the fair value movements attributable to agricultural assets in the statement of profit or loss and other comprehensive income or the notes. Answer: d Learning objective 35.6: explain the practical implications of measuring these assets at fair value, including interpreting the disclosures made by companies applying the standard. 21. Outback Co received a $360 000 grant from the government on 1 July 2022. One of the conditions attached to the grant was that Outback Co had to continue farming in the same location for the next 3 years; otherwise the grant would have to be returned in full. The entry to record the receipt of the grant on 1 July 2022 is: a. *b. c. d.

DR Cash $360 000; CR Revenue $360 000 DR Cash $360 000; CR Performance obligation $360 000 DR Cash $360 000; CR Revenue $120 000; CR Performance obligation $240 000 No entry is required as the grant is conditional and cannot be recognised until the conditions attached to the grant are met.

Answer: b Learning objective 35.7: examine the interaction between AASB 141/IAS 41 and AASB 120/IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

© John Wiley and Sons Australia, Ltd 2020

35.9

Chapter 35: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

22. Which of the following statements in relation to government grants is correct? a.

Government grants for biological assets measured at cost are accounted for under AASB 41 / IAS 41. b. Government grants for biological assets measured at fair value are accounted for under AASB 120 / IAS 20. *c. Government grants for biological assets measured at fair value are accounted for under AASB 141/IAS 41. d. Government grants for biological assets measured at cost are accounted for under AASB 118 / IAS 18. Answer: c Learning objective 35.7: examine the interaction between AASB 141/IAS 41 and AASB 120/IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. 23. With regards to land used for agricultural purposes, increases in fair value over cost is recognised in equity when the land is: a. b. c. *d.

an investment property measured at cost and accounted for under AASB 140/IAS 40. an investment property measured at fair value and accounted for under AASB 140/IAS 40. not an investment property, is measured at cost and accounted for under AASB 116/IAS 16. not an investment property, is measured at fair value and accounted for under AASB 116/IAS 16.

Answer: d Learning objective 35.8: examine the interaction between AASB 141/IAS 41 and AASB 116/IAS 16 Property, Plant and Equipment and AASB 140/IAS 40 Investment Property. 24. The accounting treatment for land under AASB 116/IAS 16 and AASB 141/IAS 41 differs depending on whether the land is/isn’t an investment property. These differences relate to: I. II. III. a. b. *c. d.

the recording of changes in fair value. the initial measurement of the value of the land. the subsequent measurement of the value of the land.

I only II only I, II and III II and III only

Answer: c Learning objective 35.8: examine the interaction between AASB 141/IAS 41 and AASB 116/IAS 16 Property, Plant and Equipment and AASB 140/IAS 40 Investment Property.

© John Wiley and Sons Australia, Ltd 2020

35.10

Testbank to accompany Financial reporting 3e by Loftus et al.

25. Which of the following are required disclosures under AASB 141/IAS 41?

I. II. III. IV. *a. b. c. d.

Fair value changes attributable to price changes. Fair value changes attributable to physical changes. Aggregate gain or loss on initial recognition of biological assets. Fair value of agricultural produce harvested during the period, at point of harvest. III and IV only. I, II and III only. II, III and IV only. I, II, III and IV.

Answer: a Learning objective 35.9: describe the disclosure requirements of AASB 141/IAS 41.

26. Which of the following is a required disclosure under AASB 141/IAS 41 in relation to government grants? a.

Unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted. *b. The nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and significant decreases expected in the level of government grants. c. The nature and extent of grants recognised, unfulfilled conditions attached to the grant and significant increases expected in the level of government grants. d. The nature and extent of grants recognised, unfulfilled conditions and other contingencies attached to the grant and details of grants applied for but not yet granted. Answer: b Learning objective 35.9: describe the disclosure requirements of AASB 141/IAS 41.

© John Wiley and Sons Australia, Ltd 2020

35.11

Chapter 35: Agriculture Not for distribution in full. Instructors may assign selected questions in their LMS.

27. Jersey Co is a company that farms dairy cattle. Jersey Co owns the farmland on which the cattle are located, having purchased it for $3.5 million in 2019. The land is measured at cost under AASB 116/IAS 16. Details of cattle at 30 June 2021 were as follows: Cows

Heifers

Number

1400

200

Fair value (less estimated costs to sell) per head

$590

$210

During the year ended 30 June 2022 the following occurred: 400 new cows were purchased at $610 each 76 heifers matured into cows 10 heifers died 600 cows were sold for $650 each The price change between a heifer and a cow at the time of maturity during the year was estimated to be $400. The following is relevant at 30 June 2022: The land has been valued at $5 million. Jersey Co has determined that the following are the appropriate values to use for the purposes of transfers and deaths of heifers. Fair value less estimated costs to sell: Cows: Heifers:

$720 / head $300 / head

The fair value of cows as at 30 June 2022 is: *a. b. c. d.

$433 840 $430 440 $413 000 $408 000

Answer: a Feedback: (1400+400+76-600) x $720 = $918 720 Learning objective 35.10: apply the recognition and measurement requirements of AASB 141/IAS 41 to a simple statement of profit or loss and other comprehensive income and statement of financial position.

© John Wiley and Sons Australia, Ltd 2020

35.12

Testbank to accompany Financial reporting 3e by Loftus et al.

28. Jersey Co is a company that farms dairy cattle. Jersey Co owns the farmland on which the cattle are located, having purchased it for $3.5 million in 2019. The land is measured at cost under AASB 116/IAS 16. Details of cattle at 30 June 2021 were as follows: Cows

Heifers

Number

1400

200

Fair value (less estimated costs to sell) per head

$590

$210

During the year ended 30 June 2022 the following occurred: 400 new cows were purchased at $610 each 76 heifers matured into cows 10 heifers died 600 cows were sold for $650 each The price change between a heifer and a cow at the time of maturity during the year was estimated to be $400. The following is relevant at 30 June 2022: The land has been valued at $5 million. Jersey Co has determined that the following are the appropriate values to use for the purposes of transfers and deaths of heifers. Fair value less estimated costs to sell: Cows: Heifers:

$720 / head $300 / head