Chapter #14

Biological Assets

TRUE OR FALSE

1. Any biological asset should be measured initially and at the end of each reporting period,
at its fair value less estimated point-of-sale costs. True

2. According to PAS 41, agricultural produce can always be measured reliably. True

3. The fair value of a biological asset or produce is not necessarily adjusted because of the
existence of a contract to sell the biological assets at a future date. True

4. In some cases, market prices or values may not be available for an asset in its present
condition, and in these cases, the entity can use the present value of the expected net cash
flow from the asset. True

5. Agricultural land is accounted for under PAS 16 Property, Plant and Equipment, including
biological assets that are attached to the land. False

6. PAS 41 Agriculture applies to pure exploitation activities. False

7. Once the biological transformation is complete, the accounting principles imposed on PAS
41 will cease to apply. True

8. Bearer plants related to agriculture activities are under the scope of PAS 41 Agriculture.
False

9. A pregnant ewe and its offspring will be recognized as separate assets. False

10. Bearer plants that are no longer used and sold as scrap will still be covered by PAS 41
Property, Plant and Equipment. True
MULTIPLE CHOICE - THEORIES

1. Which of the following statements are correct regarding biological assets?

I. Biological assets whose fair value cannot be determined reliably shall be
measured at cost less accumulated depreciation and impairment losses.
II. Agricultural produce shall be measured at cost less accumulated depreciation
and impairment losses, when its fair value cannot be estimated reliably.
III. The price in an active market is considered to be the best basis for determining
the fair value of biological assets and agricultural produce.
IV. The change in fair value less cost to sell of biological assets is reported as
income or loss in profit or loss in the period in which the changes arise.
A. I, II and III
B. II, III and IV
C. I, III and IV
D. I, II and IV

2. Which of the following statements is correct regarding biological assets and

agricultural produce?
A. Biological assets whose fair value cannot be determined reliably shall be
measured at cost.
B. Agricultural produce shall be measured at cost less accumulated depreciation and
impairment losses, when its fair value cannot be estimated reliably.
C. The price in an active market is considered to be the best basis for determining
the fair value of biological assets and agricultural produce.
D. The change in fair value less cost to sell of biological assets is taken to equity in
the period in which the changes arise.

3. Monte Company had a plantation forest that is likely to be harvested and sold in 10
years. How should the income be accounted for?
A. The plantation forest should be valued every five years and the increase in value
should be shown on the income statement of recognized gains and losses.
B. Income should be measured annually and reported using a fair value approach
that recognizes and measures biological growth.
C. The eventual sale proceeds should be estimated and matched to the profit and
loss account over the 10-year period.
D. No income should be reported until first harvest and sale in 10 years.

4. Which of the following is considered as bearer plants?

A. Plants cultivated to be harvested as agricultural produce.
B. Plants such as cotton plants, tea bushes, grape vines, fruit trees and oil palms.
 C. Plants cultivated to produce agricultural produce where there is more than a
remote likelihood that the entity will also harvest and sell the plants as agricultural
produce.
D. Annual crops such as wheat and corn.

5. Which of the following is not a characteristic of bearer plants?

A. Used in the production or supply of agricultural produce.
B. Has a remote likelihood of being sold as agricultural produce.
C. Expected to bear produce at least once.
D. All of these are characteristics of bearer plants.

6. Which of the following costs are not included in costs to sell?

A. Commissions to brokers and dealers
B. Levies by regulatory bodies
C. Transfer taxes and duties
D. Transport and other costs necessary to get the asset to a market

7. Biological assets relating to agricultural activity shall be measured using

A. historical cost.
B. historical cost less accumulated depreciation and impairment.
C. fair value approach.
D. net realizable value.

8. Where the fair value of biological assets cannot be determined reliably, the biological
asset should be measured at
A. cost.
B. cost less accumulated depreciation.
C. net realizable value.
D. cost less accumulated depreciation and accumulated impairment losses.

9. When agricultural produce is harvested, the harvest should be accounted for by using PAS
2, Inventories, or another applicable PFRS. Cost at the point of harvest is deemed to be
A. its fair value less cost to sell
B. the historical cost of harvest
C. the historical cost less accumulated impairment losses
D. the market value

10. Animals related to recreational activities, for example, game parks and zoos, including the
natural breeding of animals in zoos, shall be accounted for under what standard?
A. PAS 41, Agriculture.
B. PAS 40, Investment
 C. PAS 16, Property, Plant and Equipment
D. Either PAS 41 or PAS 16

11. Agricultural activity

A. is the aggregate of similar living animals or plants.
B. is the detachment of agricultural produce from a biological asset.
C. comprises the processes of growth, degeneration, production and procreation of
biological asset.
D. is the management by an entity of the biological transformation of biological asset
into agricultural produce or additional biological asset.

12. Where there is a production cycle of more than one year, PAS 41 encourages separate
disclosure of the
A. physical change only.
B. price change only
C. total change in value
D. physical change and price change.

13. Which of the following is accounted for under PAS 41 Agriculture?

A. Sausages, cured hams
B. Processed fruit
C. Apples
D. Sugar

14. Land that is related to agricultural activity is valued

A. at fair value.
B. in accordance with PAS 16 Property, Plant and Equipment or PAS 40, Investment
Property.
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 has been grown on the
land.

15. Agricultural activity includes all the following, except

A. raising livestock
B. annual perennial cropping.
C. floricultural and aquaculture, including fishing.
D. ocean fishing.

16. Agricultural produce is measured at

A. fair value.
B. fair value less cost to sell at the point of harvest
C. net realizable value.
 D. net realizable value less normal profit margin.

17. 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

18. Which statement is incorrect concerning biological assets?

A. Biological assets are living animals and living plants.
B. Agricultural activity is the management by an entity of the biological transformation
of biological asset into agricultural produce or additional biological asset.
C. Biological assets are measured at fair value less cost to sell.
D. Agricultural produce is measured at fair value less cost to sell at the point of harvest
less normal profit margin.

19. Where there is a long aging or maturation process after harvest of agricultural
produce, the accounting for such products should be dealt with by
A. PAS 41, Agriculture
B. PAS 2, Inventories
C. PAS 16, Property, plant and equipment
D. PAS 40, Investment property

20. Which of the following is not dealt with by PAS 41, Agriculture?
A. The accounting for biological assets
B. The initial measurement of agricultural produce harvested from the entity’s
biological assets
C. The processing of agricultural produce after harvesting
D. The accounting treatment of government grants in respect of biological assets

21. Regarding the choice of measurement basis used for valuing biological assets, PAS 41
A. sets out several ways of measuring fair value.
B. recommends the use of historical cost.
C. recommends the use of current cost.
D. recommends the use of present value.

22. Which of the following is an incorrect combination?

Biological asset/
Bearer plants Agricultural produce Product after harvest
A. Trees Felled trees Logs, lumber
B. Dairy cattle Cheese Milk
 C. Pigs Carcass Sausage
D. Tobacco plants Picked tobacco leaves Cured tobacco

23. Which of the following is true about biological assets under PFRS?
A. Biological assets are only found in Biotech companies.
B. Biological assets are living animals or plants and must be disclosed as a separate
item on the statement of financial position.
C. Biological assets must be valued at cost.
D. Biological assets do not generally have future economic benefits.

24. Which of the following values is unlikely to be used in fair value measurement?
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 assets.
D. External independent valuation.

25. An unconditional government grant related to a biological asset that has been
measured at fair value less point-of-sale costs should be recognized as
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.

26. If a government grant is conditional on certain events, then grant should be recognized
as
A. Income when the conditions attached to the grant are met.
B. Income when the grant has been approved.
C. A deferred credit when the conditions attached to the government grant are met.
D. A deferred credit when the grant is approved.

27. Which of the following range of activities implies the management of change in
agricultural activities?
A. Fertilizing the soil
B. Weeding in the case of crop growing
C. Providing health care in the instance of animal husbandry
D. All of the choices are correct.

28. Which of the following is not a basis for the measurement of change in biological
assets?
A. Ripeness of vegetables
B. Weight of animals
 C. Circumference of trees
D. Fishing season

29. Biological assets are often managed in groups, as exemplified by herds of animals, groves
of trees and field of crops. To be considered group
I. The components must be homogeneous in nature
II. There must further be homogeneity in the activity for which the group is deployed.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

30. Cost may sometimes approximate fair value, particularly when:

I. the impact of the biological transformation on price is not expected to be material,
such as for the initial growth in a 30-year pine plantation production cycle.
II. Little biological transformation has taken place since initial cost incurrence, such
as seedlings planted immediately prior to the end of a reporting period or newly
acquired livestock.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

31. Which of the following information should be disclosed under PAS 41?
A. Separate disclosure of the gain or loss relating to biological assets and agricultural
produce.
B. The aggregate gain or loss arising on the initial recognition of biological assets and
agricultural produce and the change in fair value less estimated point-of-sale costs
of biological assets.
C. The total gain or loss from biological assets, agricultural produce, and from
changes in fair value less estimated point-of-sale costs of biological assets.
D. There is no requirement in the Standard to disclose separately any gains or losses.

32. Which among the following is not a required disclosure for biological assets under PAS
41?
A. The aggregate gain or loss on initial recognition of biological assets and from
change in fair value less cost to sell.
B. Restrictions on title of biological assets held by an entity.
C. Number of animals classified as biological assets born during the period.
D. Methods and assumptions applied in determining the fair value of biological assets.
MULTIPLE CHOICE - PROBLEMS

A. Costales Nature Farm purchased 100 lambs at an auction for P200,000 on January 1,
2021. The following information related to the purchase are available:

• Expenses incurred include transportation costs of P2,000.

• Costales would have to incur the same transportation costs if it had sold its lambs
in the auction. Also, there would be 2% auctioneer's fee on the market price of the
lamb payable by the seller.

The following relevant information for 2021 are also available:

 June 30, 2021 - the fair value of the cattle increased to P220,000.

 September 1, 2021 — Costales sold 18 lambs at auction for P40,000 and incurred
transportation charges of P300 and auctioneer's fee of 2%.

 December 15, 2021 - the fair value of the 82 remaining lambs was P 165,640.
Forty-two lambs were slaughtered on that day and the total cost was P8,400.
The fair value of the carcasses on that day was P96,600 and the estimated
transportation cost to sell the carcasses is P840. No other selling costs are
expected.

 December 31, 2021 - the fair value of the remaining 40 lambs was P89,600. The
estimated transportation cost is P800 plus the auctioneer's fee of 2%.

(1) On initial recognition of the biological assets on January 1, 2021, how much will be
debited to the account Biological Assets?
A. P193,000
B. P194,000
C. P196,000
D. P200,000

(2) How much is the loss on initial recognition?

A. P2,000
B. P4,000
C. P6,000
D. P8,000

(3) On June 30, 2021, how much is the gain on changes in fair values?
A. P16,000
B. P17,600
C. P19,600
 D. P20,000

(4) How much net cash will be received on September 1, 2021?

A. P38,900
B. P39,200
C. P39,700
D. P40,000

(5) How much is the debit to inventory on December 15, 2021?

A. P89,712
B. P95,760
C. P98,112
D. P98,500

(6) How much is the net loss recognized in profit or loss December 15, 2021?
A. P2,352
B. P6,048
C. P8,400
D. P9,500

B. Burberry Dairy Products produces milk in its farms. At January 1, 2021, Bur has 125
cows with average age of two years and 75 heifers with average age of one year. On July
1, 2021, Burberry purchased 80 heifers with average age of one year. The unit values
less cost to sell during the year were:
Age January 1. 2021 July 1, 2021 December 31, 2021
1 year old P3,000 P3,100 P3,200
2 years old 4,000 4,500
1.5 years old 3,600
3 years old 5,000

(7) The increase in value of biological assets in 2021 due to change in fair value is
A. P525,500
B. P277,500
C. P192,000
D. P85,500

C. A group of thirty 2-year old cattle was held at January 1, 2021. Five 2-year old cattle
were purchased on January 2, 2021 for P12,500 each and 5 calves were born on the
 same date. No cows or calves were disposed of during the period. Per unit fair values
less costs to sell were:

January 1. 2020 December 31, 2021

2-year old cattle – P12,500 3-year old cattle P15,000
Newborn cattle – 4,000 2-year old cattle 13,000
1-year old cattle 7,000
Newborn cattle 4,500

The company records separately the increase in fair value less cost to sell due to
Physical change and change in fair value less Cost to sell due to price change.

(8) How much shall be taken to profit or loss again arising from change in fair value less
cost to sell due to physical change?
A. P70,000
B. P82,500
C. P90,000
D. P102,500

(9) How much shall be taken to profit or loss as again arising from change in fair
value less cost to sell due to price change?
A. P17,500
B. P20,000
C. P25,000
D. P102,500

D. The Sergio Company has a herd often 2-year old animals on January 1, 2021. One animal
aged 2.5 years was purchased on July 1, 2021 for P10,800 and one animal was born on July
1, 2021. No animals were sold or disposed of during the year. The fair value less cost to sell
per unit were:
2-year old animal, January 1 - P10,000
2.5-year old animal, December 31 - 11,100
2.5-year old animal on July 1 - 10,800
2-year old animal, December 31 - 10,500
Newborn animal, July 1 - 7,000
0.5-year old animal, December 31 - 8,000
 3-year old animal, December 31 - 12,000
Newborn animal, December 31 - 7,200
(10) The December 31, 2021 statement of financial position should report biological assets
of
A. P144,000
B. P140,000
C. P117,800
D. P110,800

(11) The gain arising from change in fair value less cost to sell reported in the 2021 profit
or loss is
A. P5,500
B. P23,700
C. P29,000
D. P29,200

E. At December 31, 2021, the following information was gathered for the biological assets of
San Miguel Poultry.

Price of the biological assets in an active market P3,600,000

Broker's commission 45,000
Levies by the regulatory bodies 12,000
Transport and other costs to get the assets to the market 40,000
Market prices in the previous month for similar assets 2,900,000

(12) At how much should the biological assets be presented in the statement of
financial position?
A. P3,600,000
B. P3,543,000
C. P3,503,000
D. P2,900,000

F. The following information is made available by Monterey Farms in Batangas City relating to its
dairy livestock during 2021.
Carrying amount at January 1 P1,000,000
Fair value less cost to sell of livestock purchased during the year 340,000
Increase in fair value less cost to sell due to physical changes 180,000
Increase in fair value less cost to sell due to price changes 40,000
Fair value less cost to sell of livestock sold during the year 890,000

(13) How much is the biological assets reported as at December 31, 2021?
 A. P110,000
B. P330,000
C. P450,000
D. P670,000

(14) What amount shall be included in gross income of Monterey Farms as a result of the
transactions on its dairy livestock?
A. P890,000
B. P220,000
C. P280,000
D. P40,000

G. Robina Corporation produces milk on its farms located in the grasslands of Quezon Province.
At December 31, 2021, the flock of cattle is as follows:

150 bulls (average age of 3 years), purchased before 2020

100 cattle (average age of 2 years), purchased before 2020

On January 1, 2021, 50 heifers (1 year old) were purchased for a total of P625,000.
Towards the end of 2021, 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, 2020

Age FV less CTS
3 years old P35,000
2 years old 22,000
1 year old 12,500

December 31, 2021

Age FV less CTS
4 years old P45,000
3 years old 38,000
2 years old 24,000
1 year old 13,000

(15) How much was the change in fair value less cost to sell due to price change
recognized for the year 2021?
 A. P3,000,000
B. P2,020,000
C. P675,000
D. P450,000

(16) How much was the change in fair value less cost to sell due to physical change
recognized for the year 2021?
A. P3,000,000
B. P2,020,000
C. P675,000
D. P450,000

(17) At how much should the biological assets be reported at December 31, 2021?
A. P8,075,000
B. P8,050,000
C. P8,500,000
D. P6,030,000

H. A group of thirty 2-year old swine was held at January 1, 2021. Five one-year old swine
were purchased on January 2, 2021 for P8,000 each and ten were born on the same date.
Five 3-year old swine were disposed of at the end of the year. Per unit fair values less
cost to sell were follows:

Age January 1 December 31

3 years P15,000 P16,500
2 years 11,200 11,600
1 year 8,500 8,800
Newborn 6,000 6,500

The company discloses separately the increase in fair value less cost to sell due to
physical change and change in fair value less cost to sell due to price change.

(18) How much is the gain or loss on the initial recognition of biological asses
recognized during 2021?
A. P2,500 gain
B. P2,500 loss
C. P4,000 gain
D. P4,000 loss

(19) How much shall be taken to profit or loss as a gain arising from change in fair
value due to physical change and price change?
Physical Change Price Change
 A. P244,000 P50,000
B. P455,000 P16,500
C. P244,000 P18,500
D. P184,000 P16,000

(20) What amount shall be presented in the statement of financial position on

December 31, 2021 under the caption Biological Assets?
A. P641,000
B. P558,500
C. P558,000
D. P516,000