UNIT 5

AUDIT OF BIOLOGICAL ASSETS

AND AGRICULTURAL PRODUCE
Estimated Time: 3.0 HOURS

Discussion questions 5-1

1. Describe the following agriculture-related terms. You should provide pictures to the
class.
a. Agricultural activity
b. Biological assets
c. Agricultural produce
d. Bearer biological asset
e. Consumable biological asset
f. Bearer biological asset
g. Biological transformation
2. Provide an example of an audit program for biological assets.
3. What audit procedures address the existence and rights and obligations assertions of
biological assets?
4. What audit procedures address the valuation assertion of biological assets?

Discussion questions 5-2

1. Do some research on recent changes in IAS 41 or PAS 41. Document findings and
present to class.
2. Does the revised PAS 41 allow recognition at cost method? Under what
circumstances? Are there special disclosures required?
3. Select a company engaged in Agricultural Activity, provide pictures or screenshots,
and enumerate the biological assets and agricultural produce held by this company
based on the latest available financial statements. How does this company comply
with the recognition and measurement principles of PAS 41?

Problem 5-1
Pikachu Fuzz has a herd of 12 two-year old animals on January 1, 2012. One animal
aged 2.5 years was purchased on July 1, 2012 for P108, and one animal was born on
July 1, 2012. No animals were sold or disposed of during the year. The fair value less
cost to sell per unit is as follows:

2 – year old animal on January 1 100

2.5 – year old animal on July 1 108
New born animal on July 1 70
2 – year old animal on December 31 105
2.5 – year old animal on December 31 111
New born animal on December 31 72
3 – year old animal on December 31 120
0.5 – year old animal on December 31 80

1. What is the fair value of the biological assets on December 31, 2012?
2. What is the gain from change in fair value of biological assets to be recognized in
2012?
3. What is the gain from change in fair value due to price change?

Auditing Practice I Third Term, AY 2013-2014

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Problem 5-2
Amadeo Farms Company, an audit client, has a coffee bean plantation. Harvested
coffee beans are processed further before these are sold to various interested buyers.
The following were the financial information from the client-prepared schedule related to
the coffee bean plantation:
As of December 31, 2012:
Biological assets – coffee P2,500,000
Agricultural produce – coffee bean 1,000,000
Inventories 1,200,000

The following additional information were gathered by the auditor in the course of the
audit:
• The biological assets – coffee had fair value less costs to sell of P2,000,000 as of
December 31, 2012. The amount provided in the client-prepared schedule was
based on the fair value less costs to sell as of November 30, 2010 and capitalized
fertilizers and other costs amounting to P250,000.
• The agricultural produce – coffee beans in the client-prepared schedule included
P300,000 coffee beans which were already processed. The processed coffee
beans underwent processing last December 15, 2012. The value of these coffee
beans reflected the fair value less costs to sell of P250,000 as of December 1,
2012. Processing costs amounted to P50,000. These coffee beans had fair value
less costs to sell of P275,000 as of December 15, 2012 (just right before these
had undergone processing). As of December 31, 2012, these processed coffee
beans had net realizable value of P320,000.
• The unprocessed coffee beans had fair value less costs to sell of P760,000 as of
December 31, 2012.
• The inventories of P1,200,000 as of December 31, 2012 were properly valued at
their net realizable values.

1. Proposed adjusting journal entry related to item a.

2. Proposed adjusting journal entry related to item c.
3. Amount of inventory to be recognized from the December 15 processing on that
date.
4. Adjusted balance of inventory as of December 31, 2012.

Auditing Practice I Third Term, AY 2013-2014

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Problem 5-3
Baba Black Sheep has 120 heads of sheep in January 1, 2012 composed of the
following:

Wool Livestock – Class A (55 heads) P660,000

Wool Livestock – Class B (40 heads) 380,000
Wool Livestock – Class C (25 heads) 137,500

On July 1, 2012, the company purchased five Class A sheep at P15,000 each, 10 Class
B sheep at P13,000 each, and three Class C sheep at P8,100 each. At the end of the
third quarter, four kids and nine kids out of Class A sheep and Class B sheep,
respectively, were born. During that time, the fair value of the kid less costs to sell is
P6,200 each for both classes. Close to the end of the year, the company decided to sell
five Class B sheep for P9,800 each after a disease struck causing eight Class B sheep to
die. Because their locations are adjacent, the disease affected also the Class A sheep
causing three Class A sheep to die (including one kid). On December 31, 2012, the fair
values less costs to sell of each class of sheep revealed: Class A, P15,480; Class B,
P12,350; Class C, P8,400; and the kids, P7,105. It is the practice of the company to
group the kid and the adult sheep in one subsidiary account and to employ FIFO costing
method.

1. Carrying value (before adjustments to fair value less costs to sell) of Wool
Livestock – Class A at December 31, 2012.
2. Carrying value (before adjustments to fair value less costs to sell) of Wool
Livestock – Class B at December 31, 2012.
3. Carrying value (before adjustments to fair value less costs to sell) of Wool
Livestock – Class C at December 31, 2012.
4. Amount to be debited or credited to Wool Livestock – Class A at December 31,
2012 to adjust the carrying value due to effects in the fair value less costs to sell.
5. Amount to be debited or credited to Wool Livestock – Class B at December 31,
2012 to adjust the carrying value due to effects in the fair value less costs to sell.

*The client uses the term kid to describe an immature sheep.

Auditing Practice I Third Term, AY 2013-2014

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Problem 5-4
In the audit of JUNE Egg Farms Inc. for the year 2012, you obtained the following
information: June is engaged in egg production for supply to various customers. The
company has 360 heads of egg-laying chickens in January 1, 2012 composed of the
following:

Poultry Chicken - mature (330 heads) P31,350

Poultry Chicken - immature (30 heads) 2,100

Additional information:
1. On December 31, 2011, June has 400 dozens of eggs on hand with carrying
value of P16,500.
2. On May 1, 2012, the company purchased 100 heads of mature chicken to
increase its production by 40%. Fair value less costs to sell during that time was
P99 per head.
3. At the end of the second quarter of 2012, 20 heads of immature chickens were
sold for P74 per head to accommodate the space for another 20 heads of mature
chickens bought during that month. The fair value less costs to sell of the mature
chickens during that month was P99.80.
4. On October 15, the company incurred P12,500 expense for the medicines bought
to control avian pests. An avian pest disease struck the poultry killing 20 mature
chickens and 5 immature chickens. The fair values less costs to sell of the
mature chickens and immature chickens during that month were P102 and P75
per head, respectively.
5. During the year, June produced 10,000 dozens of egg with total fair value less
costs to sell of P460,000 and sold 10,350 dozens of eggs for P645,840. The
company uses the FIFO method and the perpetual inventory system.
6. On December 31, 2012, the fair values less costs to sell of each class of chicken
were determined to be: Mature chickens – P104.50 per head and Immature
Chickens – P75.80 per head.

1. Total amount of changes in fair value of biological assets to be recognized for

the year in the income statement (prior to item 6 above).
2. Correct amount of Egg Inventory at year-end.
3. Adjusting entry to be made at year-end to update the Poultry Chicken-Mature
account ending balance.
4. Adjusting entry to be made at year-end to update the Poultry Chicken-
Immature account ending balance.
5. Correct amount of one-line item biological assets to be presented in the
balance sheet at year-end.

Auditing Practice I Third Term, AY 2013-2014

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Problem 5-5
APRIL Company is engaged in milk production for supply to various customers. As of
December 31, 2011, April held 35 mature goats able to produce milk and 15 immature
goats being raised to produce milk in the future. The books of April disclosed the
following:

DAIRY LIVESTOCK – MATURE

2012 Debit Credit
BEGINNING balance P 437,500
02.01 Purchase of 7 mature goats 89,600
07.01 Death of 2 mature goats P 26,000
10.01 Sold 3 mature goats 39,450

DAIRY LIVESTOCK – IMMATURE

2012 Debit Credit
BEGINNING balance P 93,000
02.01 Purchase of 3 immature goats 19,500
07.01 Death of 3 immature goats P 21,000
09.01 Birth of 2 kids (immature goats) 14,100

In the course of your audit, you also obtained the following information regarding the fair
values less costs to sell of the goats (mature and immature) for the year under audit:

Month Mature Immature

January P 12,500 P 6,200
February 12,800 6,500
March 12,800 6,600
April 12,900 6,800
May 12,700 6,700
June 12,750 6,800
July 13,000 7,000
August 13,100 7,050
September 12,900 7,000
October 13,200 7,100
November 13,150 7,150
December 13,250 7,300

The client uses FIFO method for accounting for the physical “in” and “out” of the
biological assets.

1. Amount to be debited or credited to dairy livestock – mature at year-end 2012 to

reflect gain or loss on change in fair value as per PAS 41 (indicate whether debit or
credit).
2. Amount to be debited or credited to dairy livestock – immature at year-end 2012 to
reflect gain or loss on change in fair value as per PAS 41 (indicate whether debit or
credit).
3. Total amount of changes in fair value of dairy livestock to be recognized in the 2012
financial statements (after considering answers to requirements 1 and 2).
4. Total number (combined mature and immature) of dairy livestock to be disclosed in
the 2012 financial statements.

Auditing Practice I Third Term, AY 2013-2014

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