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 100,000
Decrease in fair value to harvest 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