MODULE 5 – BIOLOGICAL ASSETS

ANSWERS TO ASSESSMENT PROBLEM

1. San Mig Corporation produces milk on its farms located in the grasslands of Quezon Province. At December
31, 2020, the flock of cattle is as follows:
150 bulls (average age of 3 years), purchased before 2019
100 cattle (average age of 2 years), purchased before 2019
On January 1, 2020, 50 heifers (1 year old) were purchased for a total of P625,000. Towards the end of
2020, 40 bulls (4 years old) and 50 cattle (3 years old) were sold at fair value less cost to sell (FV less CTS.
The unit values less estimated cost to sell were as follows:
December 31, 2019
Age FV less CTS
3 years old P35,000
2 years old 22,000
1 year old 12,500
December 31, 2020
Age FV less CTS
4 years old P45,000
3 years old 38,000
2 years old 24,000
1 year old 13,000

a. How much was the change in fair value less cost to sell due to price change recognized for the year 2020?
Change in fair value (FV) less cost to sell (CTS) due to PRICE CHANGE is calculated as the difference in PRICE of the
animal from the beginning to the end of the year, taking into account the AGE AT THE DATE OF ORIGINATION.
Age at beginning of year:
Bulls - 3 years
Cattle – 2 years
Heifers – 1 year
Bulls - 150 x (38,000 – 35,000) 450,000
Cattle – 100 x (24,000 – 22,000) 200,000
Heifers – 50 x (13,000 – 12,500) 25,000
Change in FV less CTS due to price change 675,000

b. How much was the change in fair value less cost to sell due to physical change recognized for the year 2020?
Change in fair value (FV) less cost to sell (CTS) due to PHYSICAL CHANGE is calculated as the difference in AGE of the
animal from the beginning (or date of origination) to the end of the year, taking the FAIR VALUES ONLY AT THE END
OF THE YEAR.
Bulls – from 3 years to four years
Cattle – from 2 years to 3 years
Heifers – from 1 year to 2 years
Bulls – 150 x (45,000 – 38,000) 1,050,000
Cattle – 100 x (38,000 – 24,000) 1,400,000
Heifers – 50 x (24,000 – 13,000) 550,000
Change in FV less CTS due to physical change 3,000,000
c. At how much should the biological assets be reported at December 31, 2020?
a. Animals remaining at year end
Bulls 150 – 40 = 110
Cattle 100 – 50 = 50
Heifers

Bulls 110 x 45,000 4,950,000

Cattle 50 x 38,000 1,900,000
Heifers 50 x 24,000 1,200,000
Biological assets, December 31, 2020 8,050,000

Check:
Beg bal
150 x 35,000 5,250,000
100 x 22,000 2,200,000

Pur (Purchase is recorded at FV less CTS)

50 x 12,500 625,000 Entry: Dr. Biological Assets
Cr. Cash/Accounts Payable

Inc in FV Increase in FV less CTS due to price change and physical change
Price 675,000 are reported in P&L. This serves as the entity’s gross profit.
Phy 3,000,000 Entry: Dr. Biological Assets
Cr. Change in FV less CTS
Cr. Change in FV less CTS

Sold Upon sale, no revenue is recognized

40 x 45,000 (1,800,000) Entry: Dr. Cash/Accounts Receivable
50 x 38,000 (1,900,000) Cr. Biological Assets

End bal 8,050,000

 Answers to Textbook Problems

5-1.
1. A 11. E (Land Impr) 21. A or B
2. C 12. A 22. C
3. D 13. C 23. D
4. B 14. D 24. D
5. A 15. D 25. C
6. D 16. C 26. A or B
7. C 17. B 27. C
8. C 18. C 28. D
9. D 19. A 29. A
10. A 20. D 30. A or B
5-2. (ABC Farms)
(a) Carrying value of Biological Assets, 12/31/18 P2,800,000
Cost of biological assets purchased during 2019 3,200,000
Fair valuation loss on initial recognition ( 150,000)
Change in FV due to biological transformation and
price fluctuations 2,000,000
Decrease in FV due to harvest (1,000,000)
Biological Assets, 12/31/19 P6,850,000
(b) Loss on initial recognition at FV less cost to sell P 150,000
Increase in FV less costs to sell P2,000,000
5-3. (Ranchero Corporation)
(a) Balance of Biological Assets at December 31, 2018
3 years old = 2,000 x P44,000 P88,000,000
2 years old = 1,500 x P35,000 52,500,000 P140,500,000
Increase in fair value
2,000 x (P55,000 – P44,000) P22,000,000
1,500 x (P47,000 – P35,000) 18,000,000 40,000,000
Balance, December 31, 2019 (at FV less cost to sell) P180,500,000
(b) Increase in FV less cost to sell due to
(1) Price Change :
3 year old cows 2,000 x (P47,000 – P44,000) P6,000,000
2 year old heifers 1,500 x (P37,500 – P35,000) 3,750,000
Increase in FV due to Price Change P9,750,000
(2) Physical Change
4 year old cows 2,000 x (P55,000 – P47,000) P16,000,000
3 year old cows 1,500 x (47,000 – P37,500) 14,250,000
Increase in FV due to Physical Change P30,250,000
(c) FV less costs to sell at December 31, 2019
4 year old cows (2,000 x P55,000) P110,000,000
3 year old cows (1,500 x P47,000) 70,500,000
FV less cost to sell at December 31, 2019 P180,500,000
(d) Entry at year-end
Biological Assets 40,000,000
Gain – Increase in FV less CTS due to Price Change 9,750,000
Gain – Increase in FV less CTS due to Physical Change 30,250,000
5-4. (a) Price Change
2 year-old animals on Jan. 1 10 x (P10,500 – P10,000) P5,000
2.5 year-old animal on July 1 1 x (P11,100 – P10,800) 300
Animal born on July 1 1 x (P7,200 – P7,000) 200
Change in FV less CTS due to Price Change P5,500
Physical Change
3 year-old animals on 12/31 10 x (P12,000 – P10,500) P15,000
3 year old animal on 12/31 1 x (P12,000 – P11,100) 900
Born on July 1 (upon birth) 7,000
On December 31 P8,000 – P7,200 800
Change in FV less CTS due to Physical Change P23,700

(b) Entries for the Year

2019
July 1. Biological Assets 10,800
Cash 10,800
Purchased one animal
1 Biological Assets 7,000
Increase in FV less CTS due to Physical Change 7,000
Dec 31 Biological Assets 22,200
Increase in FV less CTS due to Price Change 5,500
Increase in FV less CTS due to Physical Change
(23,700 – 7,000) 16,700
31 Cash {2 x (13,500 – 1,500) 24,000
Biological Assets 24,000
(c) Balance, 1/1/19 (10 animals x P10,000) P100,000
Purchase 10,800
Change in FV less CTS due to Price Change 5,500
Change in FV less CTS due to Physical Change incldg birth 23,700
Sale at FV less CTS (24,000)
Balance, December 31, 2019 P116,000

(d) The balance at December 31, 2019 is composed of the following:

3 year old animals (9 animals x P12,000) P108,000
1 year old animal (1 animal x P8,000) 8,000
Total P116,000

MULTIPLE CHOICE QUESTIONS

Theory Problems
MC1 B MC6 D MC11 B MC17 C MC22 B
MC2 D MC7 B MC12 B MC18 C MC23 B
MC3 C MC8 B MC13 B MC19 C MC24 A
MC4 D MC9 B MC14 C MC20 A MC25 C
MC5 D MC10 A MC15 A MC21 D MC26 A
MC16 C MC27 C