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Since 1977

FAR OCAMPO/OCAMPO
FAR.3404-Accounting for Agricultural Activity MAY 2023

DISCUSSION PROBLEMS
1. Agricultural activity is the management by an entity of 7. Which of the following is an appropriate combination of
the biological transformation and harvest of biological a biological asset and its agricultural produce?
assets for sale, or for conversion into agricultural Biological assets Agricultural produce
produce, or into additional biological assets. Which of
a. Sheep Yarn
the following distinguishes agricultural activity from
other activities? b. Trees in a timber Logs
a. Capability to change. plantation
b. Management of change. c. Dairy cattle Cheese
c. Measurement of change. d. Pigs Carcass
d. All of these.
8. Which of the following is an agricultural produce?
2. In relation to agricultural activity, which of the a. Sausage c. Sugar
following refers to ‘management of change’? b. Thread d. Felled tree
a. Living animals and plants are capable of biological
transformation.
b. Management facilitates biological transformation LECTURE NOTES:
by enhancing, or at least stabilizing, conditions
necessary for the process to take place.
c. The change in quality brought about by biological
transformation or harvest is measured and
monitored as a routine management function.
d. The detachment of produce from a biological asset
or the cessation of a biological asset’s life
processes.

3. Biological transformation results in which of the

following outcomes?
I. Growth (an increase in quantity or improvement
in quality of an animal or plant)
II. Degeneration (a decrease in the quantity or
deterioration in quality of an animal or plant)
III. Procreation (creation of additional living animals
or plants)
IV. Production of agricultural produce.
a. I, II, III and IV c. I and II only
b. I, II and III only d. I only
4. Which of the following activities involving living
animals or plants are agricultural activities?
I. Harvesting from unmanaged sources.
II. Managing recreational activities.
III. Development of organisms for research purposes.
a. I, II and III c. III only
b. II and III only d. None of these
5. Biological asset is
a. A living animal or plant.
b. A harvested produce from a living animal or plant.
c. An identifiable non-monetary asset without
physical substance.
d. Tangible item that is held for use in the production
or supply of goods or services, for rental to others,
or for administrative purposes; and is expected to
be used during more than one period.
6. Which of the following are biological assets?
a. Dogs used in rendering security services.
b. Elephants in an animal theme park.
c. Plants displayed in an entity’s administrative office.
d. None of these.
9. Biological assets that have attained harvestable
specifications or are able to sustain regular harvests.
a. Consumable biological assets
b. Bearer biological assets
c. Mature biological assets
d. Immature biological assets
10. Consumable biological assets include
a. Grape vines
b. Fruit trees
c. Trees from which firewood is harvested while the
tree remains
d. Trees being grown for lumber
11. Bearer biological assets include
a. Livestock intended for the production of meat
b. Livestock held for sale
c. Livestock from which milk is produced
d. Crops such as maize and wheat
12. Bearer plant is a living plant that:
a. Is used in the production or supply of agricultural
produce.
b. Is expected to bear produce for more than one
period.
c. Has a remote likelihood of being sold as
agricultural produce, except for incidental scrap
sales.
d. All of the above.
13. Which of the following are bearer plants?
a. Trees grown for use as lumber
b. Trees that are cultivated both for their fruit and
their lumber
c. Annual crops
d. Cacao-bearing trees

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LECTURE NOTES: 18. In accordance with PIC Q&A No. 2018-4, to determine
that fair value cannot be reliably measured, an entity
must demonstrate
a. Quoted market prices for the biological asset are
not available.
b. Alternative fair value measurements for the
biological asset are determined to be clearly
unreliable.
c. Both a and b.
d. Either a or b.

19. Cost may sometimes approximate fair value,

particularly when:
14. An entity grows grapevines, harvests the grapes and a. Little biological transformation has taken place
produces wine. To which of the following does PAS 41 since initial cost incurrence.
apply? b. The impact of the biological transformation on
I. The grapevines price is not expected to be material.
II. The grapes growing on the grapevines c. Either a or b.
III. The harvested grapes d. Neither a nor b.
IV. The production of wine
20. Cost may approximate fair value in which of the
a. I, II, III and IV following?
b. I, II and III only a. Fruit tree seedlings planted immediately prior to
c. I and II only the end of a reporting period.
d. II only b. The initial growth in a 30-year pine plantation
production cycle.
15. Mr. and Mrs. De Leon have a lifelong dream of having c. Either a or b.
a farm upon their retirement. So, Mr. De Leon d. Neither a nor b.
promised his wife that he would set up a business
related to this. Being a man who always delivers on 21. Agricultural produce should be measured at
his promises, he established Emong Farms Corp. a. Fair value
At the end of the reporting period, Ellery (Emong’s b. Fair value less costs to sell at the point of harvest
accountant) is considering the proper classification of c. Cost
the following items: d. Lower of cost and net realizable value
Fruit trees 22. Which of the following shall be included in profit or loss
(including the fruits still attached for the period in which it arises?
to the trees valued at P200,000) P900,000 I. The gain on initial recognition of biological assets
Harvested fruits 400,000 at fair value.
Strawberry vines II. Changes in fair value of biological assets during a
(including the strawberries still period.
attached to the vines valued at III. A gain on initial recognition of agricultural produce
P120,000) 700,000 at fair value.
Cucumber vines
(including the cucumbers still a. I, II and III c. II only
attached to the vines valued at b. I and II only d. None of these
P250,000) 300,000
Dairy cattle 500,000 23. The measurement and disclosure requirements of PFRS
Harvested milk 50,000 13 apply to:
Pigs 100,000 a. Share-based payment transactions within the
scope of PFRS 2 Share-based Payment.
How much should be classified as biological assets? b. Leasing transactions accounted for in accordance
a. P 600,000 c. P1,220,000 with PFRS 16 Leases.
b. P1,170,000 d. P1,800,000 c. Measurements that have some similarities to fair
value but are not fair value, such as net realizable
value in PAS 2 Inventories or value in use in PAS
16. An entity shall recognize a biological asset or 36 Impairment of Assets.
agricultural produce when, and only when: d. None of these.
a. The entity controls the asset as a result of past
events. 24. In accordance with PFRS 13, fair value of an asset is
b. It is probable that future economic benefits a. The price that would be received to sell an asset in
associated with the asset will flow to the entity. an orderly transaction between market participants
c. The fair value or cost of the asset can be measured at the measurement date.
reliably. b. The amount for which an asset could be exchanged
d. All of the above. between knowledgeable, willing parties in an arm’s
length transaction.
17. Biological assets should be measured on initial c. The price paid to acquire the asset.
recognition and at subsequent reporting dates at d. The incremental cost directly attributable to the
a. Fair value disposal of an asset, excluding finance cost and
b. Fair value less costs to sell income tax.
c. Cost less any accumulated depreciation and any
accumulated impairment losses
d. Lower of cost and net realizable value

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25. Costs to sell exclude Selling price in a binding contract to sell 5,200
a. Commissions to brokers and dealers Estimated commissions to brokers and 500
b. Levies by regulatory agencies and commodity dealers
exchanges. Estimated transport and other costs
c. Transfer taxes and duties. necessary to get asset to the market 300
d. Transport and other costs necessary to get assets
The entity’s biological assets should be valued at
to a market.
a. P4,600 c. P4,300
b. P4,500 d. P4,200
26. If the transaction price differs from fair value, the
entity shall
a. Recognize the resulting gain or loss in profit or
31. Secret Corp. is engaged in raising dairy livestock. Data
loss.
provided for the current year follows:
b. Recognize the resulting gain or loss in other
comprehensive income. Carrying amount on Jan. 1, P2,500,000; Increase due
c. Not recognize the resulting gain or loss. to purchases, P1,000,000; Gain arising from change in
d. Recognize the asset at the transaction price. fair value less costs to sell attributable to price change,
P200,000; Gain arising from change in fair value less
27. Which statement is incorrect regarding fair value of an costs to sell attributable to physical change, P300,000;
asset in accordance with PFRS 13? Decrease due to sales, P400,000; Decrease due to
a. Fair value is a market-based measurement, not an harvest, P100,000; Fair value less cost to sell (at the
entity-specific measurement. point of harvest) of milk harvested, P1,800,000.
b. An entity shall take into account the characteristics
of the asset, such as the condition and location of The carrying amount of the biological assets of Secret
the asset, if market participants would take those Corp. on Dec. 31 is
characteristics into account when pricing the asset a. P3,500,000 c. P3,900,000
at the measurement date. b. P3,600,000 d. P4,000,000
c. A fair value measurement assumes that the
transaction to sell the asset takes place either in
the principal market for the asset or in the absence 32. The following pertains to the biological assets owned
of a principal market, in the most advantageous by Ngitngit Farms, Inc.:
market for 
the asset. Carrying amount, Jan. 1 P 800,000
d. The price in the principal (or most advantageous) Carrying amount, Dec. 31 1,080,000
market used to measure the fair value of the asset Purchases 230,000
shall be adjusted for transaction costs. Sales 110,000
The amount to be recognized in the current period
28. To increase consistency and comparability in fair value
profit or loss related to these biological assets is
measurements and related disclosures, PFRS 13
a. P280,000 c. P 50,000
establishes a fair value hierarchy that categorizes into
b. P390,000 d. P160,000
three levels the inputs to valuation techniques used to
measure fair value. Which of the following provides
the most reliable evidence of fair value?
Use the following information for next three questions.
a. Quoted prices in active markets for identical assets
that the entity can access at the measurement A herd of 10 2-year-old animals was held at Jan. 1 of the
date. current period. On July 1, one animal aged 2.5 years was
b. Quoted prices for similar assets in active markets. purchased for 108 and one animal was born. No animals
c. Quoted prices for identical or similar assets in were sold or disposed of during the period. Per-unit fair
markets that are not active. values less costs to sell were as follows:
d. Inputs other than quoted prices that are
observable for the asset. 2–year-old animal on Jan. 1 100
Newborn animal at July 1 70
29. The following pertains to Smile Company’s biological 2.5-year-old animal on July 1 108
assets: New born animal on Dec. 31 72
0.5-year-old animal on Dec. 31 80
Price of the asset in the principal market P18,000 2–year-old animal on Dec. 31 105
Price of the asset in a different market 19,000 2.5-year-old animal on Dec. 31 111
Selling price in a binding contract to sell 20,000 3–year-old animal on Dec. 31 120
Estimated commissions to brokers 1,800
Estimated transport and other costs 33. The carrying amount of biological assets as of
necessary to get asset to the market 1,200 December 31 is
The entity’s biological assets should be valued at a. P1,292 c. P1,338
a. P17,200 c. P16,000 b. P1,400 d. P1,320
b. P16,200 d. P15,000
34. The increase in fair value of biological assets in the
30. The following pertains to Wild Company’s biological current period due to price change is
assets: a. P 55 c. P 53
b. P222 d. P212
Fair value based on quoted price in an
active market for similar asset P5,100 35. The increase in fair value of biological assets in the
Fair value based on quoted price in an current period due to physical change is
active market for identical asset 5,000 a. P 70 c. P237
Fair value based on unobservable inputs b. P229 d. P167
for the asset 4,900

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36. Which statement is correct regarding disclosure of
changes in fair value less costs to sell of biological
assets?
a. Where the production cycle is more than one year,
an entity is required to disclose physical and price
changes separately.
b. Where the production cycle is less than one year,
an entity is encouraged to disclose physical and
price changes separately.
c. A change in fair value of a biological asset due to
harvesting is a physical change.
d. Changes in fair value less costs to sell due to
climatic, disease and other natural risks should be
disclosed as extraordinary items.
37. An entity cultivates cattle for the fresh meat industry.
It slaughters its cattle and butchers the meat into cuts
before selling them to its meat wholesaler customers.
When the fair value less costs to sell of the entity’s
herd is P1,500,000, the entity slaughtered 40 per cent
of its herd (10 cattle) incurring slaughter costs of
P5,000. The quoted price of a carcass is P70,000 and
the costs to sell are estimated at P200 per carcass.
The gain on initial recognition of agricultural produce
to be recognized in profit or loss is
a. P93,000 c. P695,000
b. P98,000 d. P698,000
41. Which statement is incorrect regarding the required
disclosures in PAS 41?
a. An entity shall disclose the aggregate gain or loss
arising during the current period on initial
recognition of biological assets and agricultural
produce and from the change in fair value less
costs to sell of biological assets.
b. An entity shall provide a description of each group
of biological assets.
c. The disclosures may take the form of a narrative or
quantified description.
d. An entity is required to provide a quantified
description of each group of biological assets,
distinguishing between consumable and bearer
biological assets or between mature and immature
biological assets, as appropriate.
42. An entity shall disclose:
a. The existence and carrying amounts of biological
assets whose title is restricted, and the carrying
amounts of biological assets pledged as security
for liabilities.
b. The amount of commitments for the development
or acquisition of biological assets.
c. Financial risk management strategies related to
agricultural activity.
d. All of these

- done -
Use the following information for next three questions.
At the end of the reporting period a tomato grower’s vines
are bearing developed ripe tomatoes. The fair value less
costs to sell of the vines with the soon-to-be harvested
tomatoes attached is measured at P24,000. The initial cost
of the vines was P5,500 and the cost of growing them
(planting, irrigation and fertilization) was P7,250.

The entity harvested its tomatoes three days after the end
of the reporting period. The cost of harvesting the
tomatoes is P1,000. The quoted price per kilogram of
tomatoes is P50 and costs to sell are estimated at 1 per
cent of quoted price. The entity harvested 500 kilograms
of tomatoes.

The life of a tomato vine is about 6 months. After harvest,

the vine has come to the end of its life and its fair value is
negligible.

38. The vines with the soon-to-be harvested tomatoes

attached should be classified as
a. Property, plant and equipment
b. Biological assets
c. Both a and b.
d. Neither a nor b.

39. The fair value adjustment gain to be recognized in

profit or loss at the end of the reporting period is
a. Nil c. P11,250
b. P10,250 d. P18,500

40. The fair value adjustment gain to be recognized in

profit or loss on initial recognition of agricultural
produce is
a. Nil c. P23,750
b. P750 d. P24,750

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ILLUSTRATIVE PROBLEM

PROBLEM NO. 1 – Agricultural activity

_____ 1. Pharma company growing its own plants in order to produce drugs.

_____ 2. Dairy company grows its own bacteria and cultures and then adds them to its yogurts.

_____ 3. Jewelry producer producing its own pearls by planting foreign objects (such as pieces of shells or
parasites) into the soft bodies of living oysters. Then, the oyster produces a pearl by secreting
crystalline substance around the object to protect itself.

_____ 4. An entity operating a zoo and is making money from showing animals off to the public.

_____ 5. An entity operating zoo with an active program of breeding animals.

_____ 6. An entity catching fish in the ocean in relation to its sardines business.

_____ 7. An entity using dogs in rendering its security services.

_____ 8. An entity using cart-horses to transport people and goods.

_____ 9. An entity is engaged in deforestation.

_____ 10. An entity is engaged in floriculture.

REQUIRED:

YES OR NO. Write YES if the item is considered as agricultural activity. If not, write NO.

ANSWERS:

1. YES
2. YES
3. YES
4. NO
5. YES
6. NO
7. NO
8. NO
9. NO
10. YES

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