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.

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“Cost to sell” are the incremental costs directly attributable to the disposal of an assert.

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In other words, costs of sells would not otherwise arise, such as commissions to brokers and dealers, levies by

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regulatory agencies and commodity exchanges, and transfer taxes and duties.

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PAS 41 sets several ways of measuring fair value:
A. Quoted price in an active market
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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
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kilogram
E. Present value of expected net cash flows from the asset
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QUESTIONS

Maxpein Company has reclassified certain assets as biological assets. The total value of the forest assets is P6,
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000,000 which comprises:

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Freestanding trees 5,100,000

Land under trees 600,000
Roads in forests 300,000
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6,000,000
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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.
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 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

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Solution:

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Fair value measurement stops at the point of harvest and PAS 2 on inventory applies after such date.

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Accordingly, the coffee beans inventory shall be measured at the lower cost and net realizable value on

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December 31, 2015.
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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.
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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.
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Malonie Company provided the following data:

Value of biological assets at acquisition cost on

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December 31, 2014 600,000

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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
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Decrease in fair value to harvest 90,000

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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
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 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:

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Carrying amount on January 1 5,000,000

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Increase due to purchases 2,000,000

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Gain arising from change in fair value less cost of disposal

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attributed to price change 400,000

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Gain arising from change in fair value less cost of disposal
attributable to physical change
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Decrease due to sales 850,000
Decrease due to harvest 200,000
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5. What is the carrying amount of the biological asset on December 31?

A. 6,950,000
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B. 6,000,000
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C. 8,000,000
D. 7,150,000
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Solution:
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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
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Decrease due to sales (850,000)

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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?
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 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

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Inventory 400,000

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Gain on agricultural produce 400,000

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Lee Company provided the following information for the year ended December 31, 2014:
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Cash 500,000
Trade and other receivables 1,500,000
Inventories 100,000
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Dairy livestock - immature 50,000

Dairy livestock - mature 400,000
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Property, plant and equipment, net 1,400,000

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Trade and other payable 520,000

Note payable - long term 1,500,000
Share capital 1,000,000
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Retained earnings - January 1 800,000

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Fair value of milk produced 600,000

Gain from change in fair value 50,000
Inventories used 140,000
Staff costs 120,000
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Depreciation expense 15,000

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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
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 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

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Dairy livestock - immature 50,000

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Dairy livestock - mature 400,000

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Fair value of biological assets 450,000
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10. Biological assets are measured at
A. Cost
B. Lower of cost or net realizable value
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C. Net realizable value

D. Fair value less costs to sell
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11. Agricultural activity includes all of the following, except

A. Raising livestock
B. Perennial cropping
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C. Aquaculture
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D. Ocean fishing

12. Which of the following is unlikely to be used in fair value measurement?

A. Quoted price in a market
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B. The most recent market transaction price

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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. Chickens
C. Eggs
D. Trees

14. Which of the following would be classified as agricultural produce?

A. Tree
B. Bush
C. Butter
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 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

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 TOA06- Biological Assets
1. Biological assets are measured at
a. Cost
b. Lower of cost or net realizable value
c. Net realizable value
d. Fair value less cost to sell
2. Agricultural produce is measured at
a. Fair value
b. Fair value less costs to sell at the point of harvest
c. Net realizable
d. Net realizable value less normal profit margin
3. Agricultural activity includes all of the following, except
a. Raising livestock
b. Perennial cropping
c. Aquaculture
d. Ocean fishing
4. Biological transformation results from asset changes through all of the following, except
a. Growth
b. Degeneration
c. Procreation

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d. Production of agricultural produce

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5. When the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured at

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a. Cost

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b. Cost less accumulated depreciation

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c. Cost less accumulated depreciation and accumulated impairment losses
d. Net realizable value
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6. Which of the following costs should not be included in costs to sell?
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a. Commissions to brokers and dealers
b. Levies by regulatory agencies
c. Transfer taxes and duties
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d. Transport costs
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7. Which of the following is unlikely to be used in fair valuemeasurement?

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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
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8. Land that is related to agricultural activity is measured

a. At fair value.
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b. In accordance with PAS 16 or PAS 40.

c. At fair value in combination with the biological asset that is being grown on the land.
d. At the resale value separate from the biological asset that is being grown on the land.
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9. An unconditional government grant related to a biological asset that has been measured at fair value less cost to
sell shall be recognized as
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a. Income when the grant becomes receivable.

b. A deferred credit when the grant becomes receivable.
c. Income when the grant application has been submitted.
d. A deferred credit when the grant has been approved.
10. All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial
statements, except
a. The entity controls the asset as a result of past event.
b. It is probable that future economic benefits relating to the asset will flow to the entity.
c. An active market for the asset exists.
d. The fair value or cost of the asset can be measured reliably.

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