GOVERNMENT ACCOUNTING

CHAPTER 8: Agriculture

PROBLEM 8-1: TRUE OR FALSE

FALSE1. Living animals and plants are always accounted for as biological assets.
TRUE 2. Biological assets are initially and subsequently measured at fair value less costs to sell.
TRUE 3. Agricultural produce is measured at fair value less costs to sell only at the point of harvest.
TRUE 4. An essential element of agricultural activity is the management of the biological transformation of
biological assets.
TRUE 5. Entity A’s dairy cattle gave birth to a calf. The fair value less costs to sell of the new born calf is
P10,000. Entity A recognizes a gain of P10,000 from the initial recognition of the calf.
TRUE 6. A loss can arise from the initial measurement of a biological asset.
FALSE 7. Fair value is quoted price in an active market less transaction costs.
TRUE 8. Entity A acquires a biological asset for P100, equal to fair value, and incurs transaction cost of P10
on
the purchase. If the asset’s cost to sell is P20, Entity A will recognize a loss of P30 on the initial
recognition of the purchased asset.
FALSE 9. Entity A recognizes a gain of P100 from the change in FVLCS of its biological assets during the
period.
If the change in FVLCS due to price change is P70, the change in FVLCS due to physical change
must
be P40.
TRUE 10. If there are more than one active markets for a biological asset, the entity shall use the price in the
market expected to be used when determining fair value.

PROBLEM 8-2: MULTIPLE CHOICE

1. According to the GAM for NGAs, a biological asset is
a. an animal or plant c. a living animal or plant
b. an asset used in farming d. a harvested product
2. The common features of agricultural activities include all of the following, except:
a. capability to change c. measurement of change
b. management of change d. wind of change
3. Which of the following is an agricultural produce?
a. carabao c. extra rice
b. harvested palay d. powdered milk
4. According to the GAM for NGAs, biological assets are measured as follows:
Initial measurement Subsequent measurement
a. fair value less costs to sell fair value less cost to sell
b. cost cost less accumulated depreciation
c. cost cost less accumulated depreciation
and impairment losses
d. fair value less costs to sell cost
5. Which of the following are not considered costs to sell?
a. commissions to brokers
b. levies by regulatory agencies and commodity exchanges
c. transfer taxes and duties
d. transport costs
6. According to the GAM for NGAs, if there is no active market for a biological asset
a. the entity shall measure the biological asset at cost less accumulated depreciation
b. the entity shall measure the biological asset at cost less accumulated depreciation and
accumulated impairment losses
c. the entity shall use a contract price in determining the fair value
 d. the entity shall estimate the market price using the guidance set forth in the GAM for NGAs

7. Agricultural produce after the point of harvest is accounted for as

a. inventory c. prepaid assets
b. PPE d. investment property
8. The carrying amount of a group of biological assets of Entity A is P100,000 before any year-end
adjustment. If the year-end fair value is P120,000 while the year-end estimate of costs to sell is P5,000,
which of the following statements is correct?
a. Entity A will recognize a gain of P15,000 in surplus or deficit.
b. Entity A will recognize a gain of P15,000 directly in equity.
c. Entity A will recognize a gain of P10,000 in surplus or deficit.
d. Entity A will recognize a gain of P25,000 in surplus or deficit.
9. Which of the following need not be disclosed in relation to the accounting for biological assets?
a. consumable and bearer biological assets
b. mature and immature biological assets
c. the amount of change in fair value less costs to sell due to physical changes and due to price
changes
d. the gain or loss on initial recognition of agricultural produce separately from that of
biological assets
10. Entity A is determining the measurement of its biological assets at the end of the period. Entity A’s
biological assets consist of trees in a plantation forest. There is no separate active market for these
trees. However, Entity A was able to gather the following information:
 FVLCS of land, land improvements and trees as a package, P10M
 FVLCS of land, P8M
 FVLCS of land improvements, P500,000
How much is the valuation of the trees in Entity A’s year-end statement of financial position?
a. P10,000,000 c. P1,500,000
b. P2,000,000 d. P1,000,000

PROBLEM 8-3: FOR CLASSROOM DISCUSSION

1. Living animals and plants are accounted for as biological assets
a. only if they are harvested for sale.
b. only if they relate to agricultural activity.
c. in all cases.
d. all of these.
2. The essential element of an agricultural activity is
a. the management of the biological transformation of biological assets.
b. the assets are alive.
c. it involves harvesting activity.
d. the conversion of raw materials into finished goods.
3. Which of the following is a biological asset?
a. land used in farming c. fruit cocktail
b. picked fruits d. trees in a plantation forest
4. Which of the following statements is correct regarding the measurement of assets related to agricultural
activities?
a. Biological assets are initially and subsequently measured at fair value.
b. No gain or loss shall be recognized on the initial recognition of a biological asset.
c. Agricultural produce is initially and subsequently measured at fair value less costs to sell.
d. The gain or loss arising from the initial measurement of biological asset or agricultural
produce is recognized in surplus or deficit.
 5. According to the GAM for NGAs, biological assets are whose fair value cannot be reliably determined
on initial recognition are measured as follows:
Initial measurement Subsequent measurement
a. fair value less costs to sell fair value less cost to sell
b. cost cost less accumulated depreciation
c. cost cost less accumulated depreciation
and impairment losses
d. fair value less costs to sell cost
Use the following information for the next three questions:
A group of Entity A’s biological assets has a carrying amount of P100,000 before year end adjustments.
Information at year-end is as follows:
Active Market #1 Active Market #2
Quoted price P130,000 Quoted price P135,000
Transport costs 10,000 Transport costs 12,000
Costs to sell 2,000 Costs to sell 3,000
6. If Entity A expects to transact in Active Market #1, how much is the fair value?
a. 130,000 c. 118,000
b. 120,000 d. 123,000
7. If Entity A expects to transact in Active Market #2, how much is the carrying amount of the biological
assets in the year-end statement of financial position?
a. 135,000 c. 120,000
b. 132,000 d. 123,000
8. If Entity A expects to transact in Active Market #1, how much is the gain or loss from the year-end
remeasurement?
a. 18,000 c. 32,000
b. 28,000 d. 23,000
Use the following information for the next two questions:
On January 1, 20x1, Entity A has one 1-year old biological asset with carrying amount of P1,000.
The following transactions occurred during the period:
 On July 1, 20x1, one 1-year old biological asset is acquired for P1,100, equal to the FVLCS on this
date.
 On October 1, 20x1, one biological asset is born. The FVLCS of a newborn on this date is P500.
The FVLCS on December 31, 20x1 are as follows:
Age FVLCS
newborn P600
3 months old P800
1 year old P1,200
1.5 years old P1,500
2 years old P2,000
9. How much is the change in FVLCS due to price changes?
a. 400 c. 1,800
b. 800 d. 2,400
10. How much change in FVLCS due to physical changes?
a. 600 c. 1,600
b. 800 d. 1,800