FINANCIAL ACCOUNTING AND REPORTING
FAR09 Biological Assets
9.1.
Introduction and Key Definitions ........................................................................ 1
9.2.
Recognition and Measurement............................................................................. 2
9.3.
Government Grants ................................................................................................... 3
9.4.
Presentation and Disclosure.................................................................................. 3
FAR09 Biological Assets
9.1. Introduction and Key Definitions




The objective of PAS 41 is to establish standards of accounting for agricultural activity.
PAS 41 shall be applied to account for the following when they relate to agricultural activity:
a. biological assets, except for bearer plants;
b. agricultural produce at the point of harvest; and
c. government grants covered by paragraphs 34 and 35.
PAS 41 does not apply to:
a. land related to agricultural activity (see PAS 16 and PAS 40)
b. bearer plants related to agricultural activity (see PAS 16). However, PAS 41 applies to the produce on
those bearer plants.
c. government grants related to bearer plants (see PAS 20)
d. intangible assets related to agricultural activity (see PAS 38)
The following are the key definitions from PAS 41:
Biological asset
A living animal or plant
Bearer plant
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; and
c. has a remote likelihood of being sold as agricultural produce, except for
incidental scrap sales
The following are not bearer plants:
a. plants cultivated to be harvested as agricultural produce
b. plants cultivated to produce agricultural produce when there is more
than a remote likelihood that the entity will also harvest and sell the
plant as agricultural produce, other than as incidental scrap sales
c. annual crops
Agricultural produce
Agricultural activity
Biological
transformation
Harvest

The harvested produce of the entity’s biological assets
The management by an entity of the biological transformation and harvest
of biological assets for sale or for conversion into agricultural produce or
into additional biological assets
a. Capability of change
b. Management of change
c. Measurement of change
Harvesting from unmanaged sources (such as ocean fishing and
deforestation) is not an agricultural activity.
Comprises the processes of growth, degeneration, production, and
procreation that cause qualitative or quantitative changes in a biological
asset
Detachment of produce from a biological asset or the cessation of a
biological asset’s life processes
The following table provides examples of biological assets, agricultural produce, and products that are the
result of processing after harvest:
Biological assets
Products that are the result of
processing after harvest
Sheep
Wool
Yarn, carpet
Trees in a timber plantation
Felled trees
Logs, lumber
Dairy cattle
Milk
Cheese
Pigs
Carcass
Sausages, cured hams
Cotton plants
Harvested cotton
Thread, clothing
Sugarcane
Harvested cane
Sugar
Tobacco plants
Picked leaves
Cured tobacco
Tea bushes*
Picked leaves
Tea
Grape vines*
Picked grapes
Wine
Fruit trees*
Picked fruit
Processed fruit
Oil palms*
Picked fruit
Palm oil
Rubber trees*
Harvested latex
Rubber products
*Some plants, for example, tea bushes, grape vines, oil palms and rubber trees, usually meet the
definition of a bearer plant and are within the scope of PAS 16. However, the produce growing on bearer
plants, for example, tea leaves, grapes, oil palm fruit and latex, is within the scope of PAS 41.
FAR08 INVENTORIES
Agricultural produce
1
Case Study 1
An entity, on adoption of PAS 41, has reclassified certain assets as biological assets. The total value of the group’s forest
assets is P2,000,000 comprising:
Freestanding trees
P1,700,000
Land under trees
200,000
Roads in forests
100,000
Required
Show how the forests would be classified in the financial statements.
Case Study 2
Entity X owns vineyards that include a large number of vines. These vineyards are held only for production purposes.
The grapes are harvested by X and processed to make wine afterwards with X’s technical equipment. Finally, X sells
the wine to its customers.
Required
Assess which standard applies to the accounting of the bold and underlined items in X’s financial statements and
explain their measurement by X.
9.2. Recognition and Measurement
Requirements for
recognition
1.
2.
3.
Measurement of
biological assets
Measurement of
agricultural
produce
Gains and losses
the entity controls the asset as a result of past events;
it is probable that future economic benefits associated with the asset will flow to the
entity; and
the fair value or cost of the asset can be measured reliably.
•
•
•
Initial – fair value less costs to sell
Subsequent – fair value less costs to sell
When fair value cannot be measured reliably – cost less any accumulated depreciation
and any accumulated impairment losses
•
•
•
Initial – fair value less costs to sell at the point of harvest
Subsequent – lower of cost or net realizable value (PAS 2)
Point-of-sale costs include brokers’ and dealers’ commissions, any levies by regulatory
authorities and commodity exchanges, and any transfer taxes and duties. They exclude
transport and other costs necessary to get the assets to a market.
•
Recognize in profit or loss the following:
a. Gain or loss on changes in fair value less cost to sell
b. Gain or loss on initial recognition of agricultural produce
c. Gain or loss on initial recognition of biological asset
•
Gain or loss from changes in fair value less cost to sell
a. Due to price change
(FVLCS, end, Age as of beg.) – (FVLCS, beg, Age as of beg.) x Quantity
b. Due to physical change
(FVLCS, end, Ages as of end) – (FVLCS, end. Age as of beg.) x Quantity
Case Study 3
ABC Dairy produces milk for local ice cream producers. The entity began operations on January 1, 2019 by purchasing
milking cows for P2,000,000. The entity controller had the following information available at year-end relating to the
milking cows:
Carrying amount - January 1
P2,000,000
Change in fair value due to growth and price changes
400,000
Decrease in fair value due to harvest
50,000
Milk harvested during the year but not yet sold
150,000
Required
What amount of gain on biological asset should be reported in 2019?
What amount of gain on agricultural produce should be recognized in 2019?
FAR08 INVENTORIES
2
Case Study 4
ABC Company has a herd of 100 2-year old animals on January 1, 2019. Ten animals aged 2.5 years were purchased on
July 1, 2019 for P10,800 each and ten animals were born on July 1, 2019. No animals were sold or disposed of during
the year. The fair values less cost to sell per unit were:
2-year old animal on January
P10,000
2.5-year old animal on July
10,800
New born animal on July
7,000
2-year old animal on December 31
10,500
2.5-year old animal on December 31
11,100
Newborn animal on December 31
7,200
3-year old animal on December 31
12,000
0.5-year old animal on December 31
8,000
Required
a. What is the carrying amount of the biological assets on December 31, 2019?
b. What is the gain from change in fair value that should be reported for 2019?
c. Prepare the necessary journal entries for the described various transactions.
9.3. Government Grants
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

PAS 20 is applied only to a government grant related to a biological asset measured at its cost less any
accumulated depreciation and any accumulated impairment losses.
For biological assets measured at fair value less costs to sell, PAS 41 is applied.
PAS 41 does not deal with government grants that relate to agricultural produce. These grants may include
subsidies. Subsidies are normally payable when the produce is sold and would therefore be recognized as
income on the sale.
Unconditional government grant
Recognize income when the grant becomes receivable
Conditional government grant
Recognize income only when the conditions of the grant
are met
Conditional government grant –
Recognize income proportionately or using the straightpiecemeal satisfaction
line method
Case Study 5
Entity X owns olive plantations, which contain a large number of olive trees. The olive trees are biological assets and
are measured at fair value less costs to sell. On January 1, 2019, a government grant of P2,000,000 for the olive trees
becomes receivable. The grant is paid to X on the same date.
Consider the following independent situations:
Situation 1: The government grant is unconditional.
Situation 2: Payment of the government grant is subject to the condition that X operates the olive plantations at least
until December 31, 2020. If this condition is not met, the whole grant of P2,000,000 has to be paid back. Assume that
X finally meets this condition.
Situation 3: Payment of the government grant is subject to the condition that X operates the olive plantations at least
until December 31, 2020. If this condition is not met, the terms of the grant allow part of it to be retained according to
the time that has elapsed. Assume that X finally meets this condition.
Required
How much income from the government grant should be recognized for the years 2019 and 2020 in the given
independent situations?
9.4. Presentation and Disclosure
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Biological assets are aggregated and presented as one-line item under the heading “Biological Assets”,
classified as non-current asset.
After point of harvest, agricultural produce is presented under “Inventories” and are classified as current
assets.
Fair value less costs to sell of agricultural produce on initial recognition is separately presented from
gains or losses on changes in fair values of biological assets on the face of the statement of profit or loss
and other comprehensive income.
The following should be disclosed in the notes to the financial statements:
a. Carrying amount of biological assets
b. Description of an enterprise's biological assets, by broad group
c. Change in fair value during the period. There can be physical change through growth, and there can
be a price change. Separate disclosure of these two elements is encouraged but not required.
d. Fair value of agricultural produce harvested during the period
FAR08 INVENTORIES
3
e.


Description of the nature of an enterprise's activities with each group of biological assets and nonfinancial measures or estimates of physical quantities of output during the period and assets on hand
at the end of the period
f. Information about biological assets whose title is restricted or that are pledged as security
g. Commitments for development or acquisition of biological assets
h. Financial risk management strategies
i. Methods and assumptions for determining fair value
j. Reconciliation of changes in the carrying amount of biological assets, showing separately changes in
value, purchases, sales, harvesting, business combinations, and foreign exchange differences
Disclosure of a quantified description of each group of biological assets, distinguishing between
consumable and bearer assets or between mature and immature assets, is encouraged but not required.
If fair value cannot be measured reliably, additional required disclosures include:
a. Description of the assets
b. An explanation of the circumstances
c. If possible, a range within which fair value is highly likely to fall
d. Gain or loss recognized on disposal
e. Depreciation method
f. Useful lives or depreciation rates
g. Gross carrying amount and the accumulated depreciation, beginning and ending
Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions,
and significant decreases in the expected level of grants.
Quizzer – Problem 1
1.
Jessie Company sold some of their biological assets to Kendrick Company for P200,000 on July 1, 2019. The sale
was made at Jessie’s farm. However, if the biological assets are being sold at an auction, they could have been sold
at a higher price but the company has to incur transportation costs of P2,000. Jessie Company paid P6,000
commission in relation to the sale. Kendrick Company incurred P3,000 as transport cost in bringing the asset to
their own farm.
Question 1: At what amount should Kendrick Company recognize the assets initially?
A. P192,000
B. P194,000
C. P196,000
D. P200,000
Question 2: What amount of loss should Kendrick Company recognize on initial recognition related to the asset?
A. None
B. P3,000
C. P6,000
D. P9,000
2.
The following information pertains to the biological asset and agricultural produce of Lady Gaga Company. The
fair value of the company’s vineyard was P25,000,000. As of June 30, 2019, Lady Gaga Company determines the
following:
Fair value of the grapes harvested at March 31, 2019
P5,000,000
Estimated point-of-sale costs of the grapes
100,000
Estimated point-of-sale costs of the vines
200,000
Fair value of the vines as of March 31, 2019, prior to harvest
31,000,000
Lady Gaga Company determines that there is no change in fair value of the vines between March 31, 2019 and
June 30, 2019. What total amount of gain should Lady Gaga Company report in its June 30, 2019 as a result of the
change in the fair value of the biological asset and agricultural produce?
A. P800,000
B. P1,000,000
C. P4,900,000
D. P5,700,000
3.
Mariah Company is in business of deer farming. A herd of one hundred deer is held throughout the financial year of
2019. The only change during the year is the increase in their physical attributes due to aging from two to three
years. The relevant data are as follows:
Fair value of a 2-year old deer at January 1, 2019
P3,000
Fair value of a 2-year old deer at December 31, 2019
3,300
Fair value of a 3-year old deer at December 31, 2019
4,800
How much is the increase in the fair value of the biological asset due to physical change?
A. P30,000
B. P150,000
C. P180,000
D. P480,000
FAR08 INVENTORIES
4
4.
Nelly Company commences cultivation of oil palm crop on January 1, 2019. Costs (planting materials, labor and
other planting costs) were incurred in 2019 to develop a 10-hectare oil palm crop amounted to P4,000,000. On
December 31, 2019, the fair value of the land with a one-year old crop was valued at P24,000,000. The fair value of
an equivalent raw agricultural land was valued at P18,000,000. What is the amount of profit from plantation
operation for the year ended December 31, 2019?
A. None
B. P2,000,000
C. P4,000,000
D. P6,000,000
Quizzer – Theory 1
1.
Which of the following may be classified as a biological asset?
A. breast milk
B. cheese curls
C. mama monkey
D. dead mama monkey
2.
Which of the following may be classified as an agricultural produce?
A. duck
B. table egg
C. egg powder
D. cake
3.
Which of the following is not one of the common features of agricultural activities?
A. accounting change
C. management of change
B. capability to change
D. measurement of change
4.
A biological asset is initially and subsequently measured at
A. fair value
C. cost
B. fair value less costs to sell
D. fair value less costs to complete
5.
Which of the following is not a biological asset that is accounted for under IAS 41 Agriculture?
A. animals that are being grown to be butchered for their meat
B. animals held to produce milk
C. plants grown to produce fruit over a long period of time
D. plants grown to be harvested and sold
6.
According to IAS 41, this refers to the management by an entity of the biological transformation of biological
assets for sale, into agricultural produce, or into additional biological assets.
A. Agricultural activity
C. Biological transformation
B. Agricultural management
D. Biological activity
7.
Agricultural activity covers a diverse range of activities. Such diverse range of activities have common features
which includes all of the following except
A. Capability to change
C. Recognition of change
B. Management of change
D. Measurement of change
8.
It is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.
A. Harvest
B. Death
C. Decease
D. Cultivation
9.
When there is a long aging or maturation process after harvest, the accounting for such products should be dealt
with by
A. IAS 41
B. IAS 2
C. IAS 16
D. IAS 40
10. According to IAS 41, which of the following would be classified as a product that is the result of processing after
harvest?
A. Cotton
B. Wool
C. Bananas
D. Cheese
11. Which of the following items would be classified as agricultural produce, according to IAS 41 Agriculture?
A. Tree
B. Bush
C. Butter
D. Apple
12. According to IAS 41, which of the following items would be classified as biological assets?
I. Oranges
II. Chickens
III. Eggs
IV. Trees
A. I, II
B. III, IV
C. II, IV
D. I, IV
13. Are the following statements about classification according to IAS 41 Agriculture true or false?
I. Sugar should be classified as agricultural produce.
II. Wool should be classified as agricultural produce.
A. False, False
B. False, True
C. True, False
D. True, True
14. Which of the following is not dealt with by IAS 41?
A. The accounting for biological assets.
B. The initial measurement of agricultural produce harvested from the entity’s biological assets.
FAR08 INVENTORIES
5
C. The processing of agricultural produce after harvesting.
D. The accounting treatment of government grants received in respect of biological assets.
15. Which of the following is correct regarding the applicability of IAS 41?
A. IAS 41 applies to biological assets and agricultural produce at the point of harvest even if they do not relate to
agricultural activities.
B. IAS 41 applies to unconditional government grant related to biological assets measured at cost.
C. IAS 41 applies to land on which tree recognized as biological assets are planted.
D. IAS 41 applies to living plants and animals only when such items relate to agricultural activity.
16. IAS 41 applies to which of the following when they relate to agricultural activity
I. Biological assets
II. Agricultural produce after the point of harvest
III. Agricultural produce at the point of harvest
IV. An unconditional government grant related to a biological asset measured at its fair value less costs to
sell
V. An unconditional government grant related to a biological asset measured at cost
VI. Land related to agricultural activity
VII. Intangible assets related to agricultural activity
A. I, II, IV
B. I, III, IV
C. I, II, III, IV, V
D. I, II, IV, VI, VII
17. According to IAS 41, this refers to the harvested product of the entity’s biological assets.
A. biological produce
B. agricultural products C. agricultural produce D. biological assets
18. It is a living animal or plant.
A. biological product
B. biological asset
C. agricultural product
D. mutant assets
19. It comprises the processes of growth, degeneration, production, and procreation that cause qualitative or
quantitative changes in a biological asset.
A. agricultural activity
B. biological activity
C. genetic mutation D. biological transformation
20. Agricultural activity covers a diverse range of activities which includes all of the following except
A. processing of grapes into wine by a vintner who has grown the grapes
B. raising livestock, forestry, and annual or perennial cropping
C. cultivating orchards and plantations
D. floriculture and aquaculture (including fish farming)
21. Agricultural activity may include
A. ocean fishing
B. deforestation C. animal hunting in the forest
D. fish pond operation
22. According to IAS 41 Agriculture, which of the following criteria must be satisfied before a biological asset can be
recognized in an entity's financial statements?
I. The entity controls the asset as a result of past events
II. It is probable that economic benefits relating to the asset will flow to the entity
III. An active market for the asset exists
IV. The asset forms a homogenous biological group
A. I, II
B. I, II, IV
C. I, II, III
D. I, II, III, IV
23. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income should be
accounted for in which of the following way?
A. No income should reported annually until first harvest and sale in 30 years
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 30-year
period.
D. The plantation forest should be valued every 5 years and the increase in value should be shown in the
statement of recognized gains and losses
24. When agricultural produce is harvested, the harvest should be accounted for by using PAS 2 Inventories, or
another applicable PFRS. For the purpose of that Standard, cost at the date of harvest is deemed to be
A. the fair value less cost to sell at point of harvest
B. the historical cost of the harvest
C. the historical cost less accumulated impairment losses
D. market value
25. A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less costs to
sell of a biological asset should be included in
A. The net profit or loss for the period
C. A separate revaluation reserve
B. The statement of recognized gains and losses
D. A capital reserve within equity
FAR08 INVENTORIES
6
26. Land that is related to agricultural activity is valued
A. At fair value
B. In accordance with IAS 16, Property, Plant and Equipment, or IAS 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 has been grown on the land
27. An unconditional government grant related to a biological asset that has been measured at fair value less cost to
sell 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
28. Biological assets and agricultural produce are initially recognized at
A. cost
C. fair value less costs to sell
B. fair value
D. lower of cost or fair value less costs to sell
29. Biological assets are
A. Living animals only
B. Living plants only
C. Both living animals and living plants
D. Neither living animals nor living plants
30. Agricultural activity
A. is the aggregation 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 a biological asset.
D. is the management by an entity of the biological transformation and harvest of biological asset or sale or for
conversion into agricultural produce or additional biological asset.
31. The following provides examples of biological assets, agricultural produce and products that are the result of
processing after harvest. Which is an incorrect combination?
Biological asset
Agricultural produce Product after harvest
A. Trees
Felled trees
Logs, lumber
B. Dairy cattle
Cheese
Milk
C. Pigs
Carcass
Sausage
D. Vines
Grapes
Wine
32. All of the following items are classified as biological assets, except
A. Dairy cattle
B. Chickens
C. Eggs
D. Trees
33. All of the following are classified as agricultural produce, except
A. Sugar
B. Wool
C. Cotton
D. Milk
34. Which of the following is classified as agricultural produce?
A. Tree
B. Bush
C. Butter
D. Apple
35. Which of the following is classified as a product that is the result of processing after harvest?
A. Cotton
B. Apple
C. Bananas
D. Cheese
36. Agricultural activity includes all of the following, except
A. Raising livestock
C. Floriculture and aquaculture, including fishing
B. Annual perennial cropping
D. Ocean fishing
37. 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 events.
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.
38. 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
39. Agricultural produce is harvested product of an entity’s biological asset and measured at
A. Fair value
C. Net realizable value
B. Fair value less cost to sell at the point of harvest
D. Net realizable value less normal profit margin
40. Costs to sell include all of the following, except
A. Commissions to brokers and dealers
B. Levies by regulatory agencies
FAR08 INVENTORIES
C. Transfer taxes and duties
D. Transport costs
2
41. Where the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured
at
A. Cost
B. Cost less accumulated depreciation
C. Cost less accumulated depreciation and accumulated impairment losses
D. Net realizable value
42. Which of the following statements in relation to agricultural produce is true?
I. In all cases, an entity shall measure agricultural produce at the point of harvest at fair value less cost to sell.
II. The prevailing view is that the fair value of agricultural produce at the point of harvest can always be
measured reliably.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
43. A gain or loss arising on the initial recognition of biological asset and from a change in fair value less cost to sell of
a biological asset shall be included in
A. the profit or loss for the period
C. a separate revaluation reserve
B. other comprehensive income
D. a general reserve
44. When agricultural produce is harvested, the harvest should be accounted for as “inventory”. For this purpose, the
cost at the date of harvest is deemed to be the
A. Fair value less cost to sell at the point of harvest
C. Historical cost less impairment
B. Historical cost of the harvest
D. Market value
45. Land that is related to agricultural activity is measured
A. At fair value
B. At fair value in combination with the biological asset that is being grown on the land
C. At the resale value separate from the biological asset that is being grown on the land
D. In accordance with IAS 16 Property, plant and equipment or IAS 40 Investment property
FAR08 INVENTORIES
3
Dagupan
Accountancy Review
- DARe
1.
Biological Assets and
Investments
FAR – QUIZ 3
FAR Quiz #3
Forester Company on adoption of PAS 41 has reclassified certain assets as biological assets. The total value of the forest
assets is P6,OOO,000 which comprises:
Freestanding trees
Land under trees
Roads in forests
5,100,000
600,000
_ 300,000
6,000,000
In Forester Company's statement of financial portion, how much of the forest assets shall be classified as biological
assets?
a. 5,100,000
c. 5,400,000
b. 5,700,000
d. 6,000,000
2.
Colombia Company is a producer of coffee. The entity is considering the valuation of its 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, 2018, the entity has harvested coffee beans costing P3,000,000 and with fair value less cost to sell 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 31,2018. On such date, the fair value less cost to sell is P3,900,000 and the net realizable value is P3,200,000.
The coffee beans inventory shall be measured at
a. 3,000,000
c.
b. 3,500,000
d.
3,200,000
3,900,000
Use the following information for the next two questions.
Joan Company provided the following data:
Value of biological asset at acquisition cost on December 31,2017
Fair valuation surplus on initial recognition at fair value on December 31, 2017
Change in fair value to December 31, 2018 due to growth and price fluctuation
Decrease in fair value due to harvest
P 600,000
700,000
100,000
90,000
3.
What is the carrying amount of the biological asset on December 31, 2018?
a. 1,400,000
c. 1,300,000
b. 1,310,000
d. 1,490,000
4.
What is the gain from change in fair value of biological asset that should be shown in the 2018 income statement?
a. 100,000
c. 710,000
b. 800,000
d. 10,000
Use the following information for the next three questions.
Honey Company has a herd of 10 2-year old animals on January 1, 2018. One animal aged 2.5 years was purchased on
July 1, 2018 for PI08, and one animal was born on July 1, 2018. No animals were sold or disposed of during the year. The
fair value less to sell per unit is as follows:
2 - year old animal on January I
1.5 - year old animal on July 1
New born animal on July 1
2 - year old animal on December 31
2.5 - year old animal on December 31
Newborn animal on December 31
2 - year old animal on December 31
0.5 - year old animal on December 31
100
108
70
105
111
72
120
80
5.
What is the fair value of the biological assets on December 31,2018?
a. 1,400
c. 1,440
b. 1,320
d. 1,360
6.
What is the gain from change in fair value of biological assets to be recognized in 2018?
a. 222
c. 300
b. 292
d. 332
7.
What is the gain from change in fair value due to price change?
a. 292
c. 237
b. 222
d. 55
8.
At the beginning of current year, Claudia Company purchased marketable equity securities to be held as “trading” for
P5,000,000. The entity also paid commission, taxes and other transaction cost amounting to P200,000. The securities
had a market value of P5,500,000 at year-end. No securities were sold during the year. The transaction costs that
would be incurred on the disposal of the investment are estimated at P100,000.
What amount of unrealized gain or loss on these securities should be reported in the income statement for the current
year?
a. 500,000 unrealized gain
c. 400,000 unrealized gain
b. 500,000 unrealized loss
d. 400,000 unrealized loss
1 of 6
Dagupan Accountancy Review - DARe - October 2019 CPA Exam
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Dagupan
Accountancy Review
- DARe
9.
FAR – QUIZ 3
Biological Assets and
Investments
On December 31, 2014, Charlton acquired an investment for P500,000 plus a purchase commission of P10,000. The
investment is designated as financial asset at fair value through other comprehensive income. On December 31, 2014,
quoted market price of the investment is P500,000. If the investment were sold, a commission of P15,000 would be paid.
On December 31, 2014, the investment should be carried at
a. P510,000
c. P485,000
b. P495,000
d. P500,000
10. Information about Echague Company’s portfolio securities measure at fair value through other comprehensive income
is as follows:
Aggregate cost – December 31, 2013
Unrealized gains– December 31, 2013
Unrealized losses – Dec. 31, 2013
Net realized gains during 2013
P9,000,000
500,000
2,000,000
300,000
On January 1, 2013 Echague reported an unrealized loss of P400,000 as a component of shareholders’ equity. In its
December 31, 2013 shareholders’ equity, Echague should report what amount of unrealized loss?
a. P2,000,000
c. P1,500,000
b. P1,100,000
d. P1,200,000
11. Mia Company acquired an equity investment a number of years ago for P3,000,000 and classified it as at fair value
through other comprehensive income. On December 31, 2015, the cumulative loss recognized in other comprehensive
income was P400,000 and the carrying amount of the investment was P2,600,000.
On December 31, 2016, the issuer of the equity instrument was in severe financial difficulty and the fair value of the equity
investment had fallen to P1,200,000.
What cumulative amount of unrealized loss should be reported as component of other comprehensive income in the
statement of changes in equity for the year ended December 31, 2016?
a. 1,400,000
c. 1,000,000
b. 1,800,000
d.
0
Use the following information for the next two questions.
Pompey Inc. carries the following marketable equity securities on its books at December 31, 2012 and 2013. All securities
were purchased during 2012 and there were no beginning balances in any market adjustment accounts.
Financial Assets through Profit or Loss:
Cost
C Company
E Company
R Company
Total
P 500,000
260,000
700,000
P1,460,000
Financial Assets through OCI:
Cost
T Company
S Company
Total
P4,200,000
1,000,000
P5,200,000
Fair value
12/31/12
12/31/13
P 260,000
P 400,000
400,000
400,000
600,000
500,000
P1,260,000
P1,300,000
Fair value
12/31/12
12/31/13
P3,600,000
P3,600,000
1,200,000
1,400,000
P4,800,000
P5,000,000
12. The net amount to be recognized in the 2013 profit or loss is
a. P240,000
b. P200,000
c.
d.
P160,000
P 40,000
13. The net amount to be recognized in 2013 as other comprehensive income is
a. P240,000
c. P160,000
b. P200,000
d. P 40,000
14. Lasam Company received dividends from its investments in ordinary shares during the year 2013 as follows:

A share dividend of 20,000 shares from A Company when the market price of A’s shares was P30 per share.

A cash dividend of P2,000,000 from B Company in which Lasam owns a 20% interest.

A cash dividend of P1,500,000 from C Company in which Lasam owns a 10% interest.

10,000 ordinary shares of D Company in lieu of cash dividend of P20 per share. The market price of D Company’s
shares was P180. Lasam holds originally 100,000 ordinary shares of D Company. Lasam owns 5% interest in D
Company.

A liquidating dividend of P2,000,000 from E Company. Lasam owns a 5% interest in E Company.

A dividend in kind of one ordinary share of X Company for every 5 ordinary shares of F Company held. Lasam holds
200,000 F Company shares which have a market price of P50 per share. The market price of X Company’s ordinary
share is P30 per share.
What amount of dividend income should Lasam report in its 2013 income statement?
a. P4,500,000
c. P6,300,000
b. P5,700,000
d. P5,900,000
15. On August 1, 2014, Dasol Co. acquired 80, P1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1,
2014, and mature on April 30, 2018, with interest paid each October 31 and April 30. The bonds will be added to Dasol’s
held for trading portfolio. The preferred entry to record the purchase of the bonds on August 1, 2014 is
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A.
Trading securities
P79,400
Cash
P79,400
B. Trading securities
P77,600
Interest Receivable
1,800
Cash
P79,400
C. Trading securities
P77,600
Interest Revenue
1,800
Cash
P79,400
D. Trading securities
P80,000
Interest Revenue
1,800
Discount on Debt Securities
P 2,400
Cash
79,400
16. On January 1, 2014, Joseph Corporation purchased P1,000,000 10% bonds for P927,880 (including broker’s commission
of P20,000). Joseph’s business model is to hold the investment to collect contractual cash flows. The bonds were
purchased to yield 12%. Interest is payable annually every December 31. The bonds mature on December 31, 2018.
On December 31, 2014 the bonds were selling at 99. How much is the carrying amount the investment in bonds on
December 31, 2014?
A. P961,626
C. P939,226
B. P916,534
D. P990,000
17. On June 30, 2014, Aileen Corp. purchased a two-year bond at par. The bond had a stated principal amount of
P10,000,000, which Aileen Corp. will receive on June 30, 2016. The stated coupon interest rate was 10% per year, which
is paid semiannually on December 31 and June 30. The bonds are designated as financial asset at fair value through
profit or loss. On December 31, 2014, the bonds are quoted at 101.1. How much should be recognized in profit or loss
as of December 31, 2014 related to this bond investment?
A. P167,468
C. P110,000
B. P 78,567
D. P
0
18. On January 1, 2014, SMB Company acquired the entire issue of Beerman’s P6,000,000 12% serial bonds. The bonds were
purchased to yield 10%. Bonds of P2,000,000 mature at annual intervals beginning December 31, 2014. Interest is
payable annually on December 31. What is the carrying amount of the investment in bonds on December 31, 2014?
A. P6,105,650
C. P4,304,622
B. P4,105,650
D. P3,820,702
19. On January 1, 2013, Alameda Company purchased bonds with face value of P 5,000,000. The business model of the
entity in managing the financial asset is to collect contractual cash flows that are solely payments of principal and
interest and also to sell the bonds in the open market. The entity paid P 4,600,000 plus transaction costs of P 142,000. The
bonds mature on December 31, 2016 and pay 6 % interest annually on December 31 of each with 8% effective yield.
The bonds are quoted at 105 on December 31, 2014. The bonds are sold at 110 on December 31, 2014.
The gain on sale on these bonds in the 2014 income statement.
A. 500,000
C. 592,931
B. 250,000
D. 758,000
20. On October 1, 2013, Alaska Company purchased 4,000 of the P 1,000 face value, 10% bonds of Philadelphia Company
for P 4,400,000 which includes accrued interest of P 100,000. The bonds, which mature on January 1, 2020, pay interest
semi-annually on January 1 and July 1. Alaska uses the straight line method of amortization and appropriately
recorded the bonds as held to maturity.
The carrying amount of the bonds shown in Alaska’s December 31, 2013 statement of financial position at
A. 4,284,000
C. 4,300,000
B. 4,288,000
D. 4,400,000
21. On July 1, 2013, Charlize Company paid P 1,198,000 of 10%, 20-year bonds with a face amount of P 1,000,000. Interest is
paid on December 31 and June 30. The bonds were purchased to yield 8%. Charlize uses the effective interest method
to recognize interest income from this held for collection investment.
The carrying amount of bonds in December 31, 2013 statement of financial position is
A. 1,207,900
C. 1,195,920
B. 1,198,000
D. 1,193,050
22. On January 1, 2013, Panasonic Company purchased as a held for collection investment P 5,000,000 face value of Sony
Company’s 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1,
2018 and pay interest annually on December 31. Panasonic uses the interest method of amortization.
The carrying amount (rounded to nearest P 100) should Panasonic report in its December 31, 2014 statement of financial
position is
A. 4,680,020
C. 4,618,000
B. 4,662,000
D. 4,562,000
Use the following information for 23 - 24:
On January 1, 2013, Rockford Company purchased 5-year bonds with face value of P 8,000,000 and stated interest of
10% per year payable semi annually January 1 and July 1. The bonds were acquired to yield 8%. Present value factors
are:
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4%
0.6756
23. What is the purchase price of the bonds?
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A. 7,382,400
B. 8,617,600
C.
D.
8,648,800
7,351,200
24. What is the carrying value of the bond investment on December 31, 2013?
A. 8,594,752
C. 8,538,542
B. 8,540,704
D. 8,302,848
25. On January 1, 2013, Angelina Company purchased serial bonds with face value of P 3,000,000 and stated 12% interest
payable annually every December 31. The bonds are to be held for collection with a 10% effective yield. The bonds
mature at an annual instalment of P 1,000,000 every December 31.
The rounded present value of 1 at 10% for:
One period
0.91
Two periods
0.83
Three periods
0.75
What is the present value of the serial bonds on January 1, 2013?
A. 3,106,800
C. 3,045,000
B. 3,060,000
D. 3,149,400
26. On October 1, 2014, North Company purchased a debt security having a face value of P3,000,000 with an interest rate
of 10% for P3,200,000 including the accrued interest. A total of P 50,000 was incurred and paid by North Company
which is in relation to the acquisition of the debt instrument. North Company’s business model in managing the financial
asset is to collect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in
the open market. The bonds mature on January 1, 2019, and pay interest semi-annually on January 1 and July 1. On
December 31, 2014, the bonds had a market value of P3,400,000.
What is the carrying amount of the investment in debt security to be reported in the december 31, 2014 statement of
financial position?
A. P 3,125,000
C. P 3,200,000
B. P 3,400,000
D. P3,250,000
27. Melrose Company purchased a held to maturity instruments with a face value of P 5,000,000 on July 1, 2014. The 5-year
12% bonds were issued on January 2, 2014 and will mature on January 2, 2019. Interest is payable annually every
December 30. Melrose rate of interest for a similar debt instrument at the time of acquisition is 10% that is also the
market rate of interest for a similar debt instrument at the time the instrument was issued.
PV factor of 12% after 5 years
0.567
PV factor of 10% after 5 years
0.621
PV factor of annuity of 12% after 5 years 3.605
PV factor of annuity of 10% after 5 years 3.791
What is the fair value of the debt instrument at the time of acquisition?
A. P 5,348,580
C. P 5,648,580
B. P 5,626,000
D. P 5,679,600
28. On July 1, 2013, Korn Corporation acquired a held for collection security in Conrad Company’s 10-year 12% bonds, with
face value of P 5,000,000, for P 5,386,300. Interest is payable semi-annually on January 1 and July 1. The bonds mature
on July 1, 2018. Bonds effective rate is 10%. On December 31, 2014, Korn Corporation sold its debt instrument for P
5,500,000.
The gain that Korn Corporation recognize as a result of the disposal is
A. P 144,485
C. P 210,434
B. P 176,604
D. P 245,956
29. On July 1, 2009, Diamond, Inc, paid P1,000,000 for 100,000 ordinary shares (40%) of Ashley Corporation. At that date the
net assets of Ashley totaled P2,500,000 and the fair values of all of Ashley's identifiable assets and liabilities were equal to
their book values. Ashley reported net income of P500,000 for the year ended December 31, 2009, of which P300,000
was for the six months ended December 31, 2009. Ashley paid cash dividends of P250,000 on September 30, 2009.
Diamond does not elect the fair value option for reporting its investment in Ashley. In its income statement for the year
ended December 31, 2009, what amount of income should Diamond report from its investments in Ashley?
a. P 80,000
c. P120,000
b. P100,000
d. P200,000
30. On January 1, 2009, Solana Co. purchased 25% of Orr Corp.'s ordinary shares; no goodwill resulted from the purchase.
Solana appropriately carries this investment at equity and the balance in Solana’s investment account was P480,000 at
December 31, 2009. Orr reported net income of P300,000 for the year ended December 31, 2009, and paid dividends
totaling P120,000 during 2009. How much did Solana pay for its 25% interest in Orr?
a. P435,000
c. P510,000
b. P525,000
d. P585,000
31. Investor company acquired a 40% interest in an associate for P3,000,000. The investor is part of a consolidated group.
In the financial period immediately following the date on which it became an associate, the investee took the following
action:

revalued assets up to fair value by P500,000

generated profits of P1,600,000

declared a dividend of P300,000
The balance in the investor’s account of ‘Shares in associate’, after equity accounting has been applied, is:
a. P3,000,000
c. P3,720,000
b. P3,960,000
d. P3,840,000
32. On January 1, 2009, Julius Corporation acquired 25% of the shares of Caesar, Inc. for P425,000. At this date all the
identifiable assets and liabilities of Caesar, Inc. were recorded at amounts equal to fair value, and the equity of Caesar
consisted of the following:
Share capital
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General reserve
Asset revaluation surplus
Retained earnings
300,000
200,000
200,000
In 2009, Caesar reported net income of P250,000. P50,000 of the asset revaluation surplus was realized in 2009. Caesar
paid a P40,000 dividend and transferred P30,000 to general reserve. What is the carrying amount of the investment in
Caesar, Inc. as of December 31, 2009?
a. P477,500
c. P465,000
b. P490,000
d. P482,500
33. Intor Company acquired 20% of the ordinary shares of Intee Company on January 1, 2008. At this date, all the
identifiable assets and liabilities of Intee were recorded at fair value. An analysis of the acquisition showed that
P200,000 of goodwill was acquired. Intee Company recorded a profit of P1,000,000 for 2009 and paid dividend of
P700,000 during the same year. The following transactions have occurred between the two entities.



In December 2009, Intee sold inventory to Intor for P1,500,000. This inventory had previously cost Intee P1,000,000 and
remains unsold by Intor in December 31, 2009.
In November 2009, Intor sold inventory to Intee at a before tax profit of P300,000. Half of this was sold by Intee before
December 31, 2009.
In December 2008, Intee sold inventory to Intor for P1,800,000. This inventory had cost Intee P1,200,000. At December
31, 2008, this inventory remained unsold by Intor. However, it was all sold by Intor in 2009.
Ignoring income tax, Intor company shall report a "share of profit of associate" in 2009 at
a. P200,000
c. P160,000
b. P190,000
d. P140,000
Use the following information for questions 1 to 4.
Buyong, Inc. completed the construction of a building at the end of 2007 for a total cost of P100 million. The building is
estimated to be economically useful for 25 years. The building was constructed for the purpose of earning rentals under
operating leases. The tenants began occupying the building after its completion. The company opted to use the fair value
model to measure the building. An independent valuation expert was used by the company to estimate the fair value of the
building on an annual basis. According to the expert the fair values of the building at the end of 2012, 2013 and 2014 were
P104 million, P118 million and 116 million, respectively.
The company’s business expanded in 2013. As a result, the company started to use the building in its operations on January
1, 2014. Because of the change in use, the company reclassified the building from investment property to property, plant
and equipment.
34. How much should be recognized in profit or loss in 2012 as a result of the completion of the building at the end of 2012?
a. P18,000,000
c. P4,000,000
b. P16,000,000
d. P
0
35. The depreciation expense in 2013 is
a. P4,000,000
b. P4,720,000
c. P4,160,000
d. P
0
36. How much should be recognized in profit or loss in 2013 as a result of the fair value changes?
a. P18,000,000
c. P14,000,000
b. P12,000,000
d. P
0
37. How much is the carrying amount of the building on December 31, 2014?
a. P118,000,000
c. P113,083,333
b. P116,000,000
d. P113,280,000
38. Han, Inc. owns a building purchased on January 1, 2010 for P100 million. The building was used as the company’s head
office. The building has an estimated useful life of 25 years. In 2014, the company transferred its head office and
decided to lease out the old building. Tenants began occupying the old building by the end of 2014. On December
31, 2014, the company reclassified the building as investment property to be carried at fair value. The fair value on the
date of reclassification was P70 million. How much should be recognized in the 2014 profit or loss as a result of the
transfer from owner-occupied to investment property?
a. P14,000,000
c. P10,000,000
b. P 4,000,000
d. P
0
39. The following information relates to noncurrent investment that Maddela Corporation placed in trust as required by the
underwriter of its bonds:
Bonding sinking fund balance, January 1, 2013
2013 additional investment
Dividends on investment
Interest income
Administration costs
Carrying amount of bonds payable
P4,500,000
900,000
150,000
300,000
100,000
6,000,000
What amount should Maddela report in its December 31, 2013 statement of financial position related to its noncurrent
investment for bond sinking fund requirements?
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A. P5,750,000
B. P5,850,000
C. P5,950,000
D. P3,950,000
40. On March 1, 2013, Saguday Company adopted a plan to accumulate P20,000,000 by September 1, 2013. Saguday
plans to make four annual deposits to a fund that will earn interest at 10% compounded annually. Saguday made the
first deposit on September 1, 2013. Future amount factors at 10% for 4 periods are:
Ordinary annuity of 1
4.64
Annuity of 1 in advance
5.11
Saguday should make four annual deposits of (rounded to the nearest P100)
A. P5,000,000
C. P4,310,000
B. P3,913,900
D. P4,102,000
41. On January 1, 2013, Carly Company decided to begin accumulating a fund for asset replacement five years later. The
company plans to make five annual deposits of P30,000 at 9% each January 1 beginning in 2013. The following 9%
interest factors may be used.
Future Value of Ordinary
Present Value of
Annuity of 1 at 9%
Periods
Ordinary Annuity
4
3.2397
4.5731
5
3.8897
5.9847
6
4.4859
7.5233
What will be the balance in the fund on January 1, 2018?
A. P195,700
C. P179,540
B. P163,500
D. P150,000
42. During 2013, Stone Co. pays an insurance premium of P31,800 on a P900,000 life insurance policy covering the
president. The cash surrender value of the policy will increase from P165,000 to P175,200 during 2013. Dividends
received from the insurance company during 2013 totaled P6,300. Insurance expense for 2013 is
A. P31,800.
C. P21,600.
B. P25,500.
D. P15,300.
43. Casiguran Corp. took out a P5,000,000 insurance policy on the life of its president on January 1, 2005. Given below are
data on this policy:
2012
2013
Annual dividend
P 3,880
P4,210
Cash surrender value, 12/31
138,030
189,350
Annual premium
121,040
121,040
The life insurance expense for Casiguran Corp. for 2013 would be
A. P64,100
C. P116,830
B. P65,510
D. P121,040
😊 END 😊
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Biological assets
1. Biological assets:
a. Are found only in land
b. Are measured only at cost
c. Are living animals or living plants and must be disclosed as a separate line item in statement
of financial position.
d. Are ornamental and do not have an economic benefit
2. Agricultural activity includes all, except
a. Ocean fishing
b. Aquaculture
c. Raising live stock
d. Perennial cropping
3. Agricultural produce harvested from bearer plant is measure at
a. Fair value
b. Fair value less cost of disposal at the point of harvest
c. Cost
d. Fair value plus cost of disposal at the point of harvest
4. Which of the following criteria must not be satisfied before a biological asset can be recognized?
a. The entity controls the asset as a result of past event.
b. It is probable that future economic benefits relating to the assets will flow to the entity.
c. The fair value can be measured reliably.
d. An active market for the asset exists.
5. Statement I: In all cases, an entity do not measure agricultural produce at fair value less cost of
disposal at the point of harvest.
Statement II: Bearer plants are considered as noncurrent assets
a. Statement I is false
b. Statement II is false
c. Both statements are true
d. Both statements are false
6. Alex and Ria corp. provided the fillowing assets in a forest plantation and farm:
Free standing plants
16,050,000
Land under trees
500,000
Roads in the Forest
500,000
Animals related to recreational activities
1,000,000
Bearer plants
3,000,000
Bearer animals
1,500,000
Agricultural produce growing on bearer plants
Agricultural produce harvested
Plants with dual use
What amount should be recorded as biological assets?
a. 19,750,000
b. 10,200,000
c. 18,050,000
d. 22,950,000
800,000
1,000,000
1,400,00
7. You do note company is engaged in raising dairy livestock. The entity provided the following
information regarding activities relating to the dairy livestock during the current year:
Carrying amount on January 1
6,000,000
Increase due to purchases
3,000,000
Gain arising from change in fair value less cost of
disposal attributable to price change
500,000
Gain arising from change in fair value less cost of
disposal attributable to physical change
700,000
Decrease due to sales
950,000
Decrease due to harvest
200,000
What is the carrying amount of the biological asset on December 31?
a. 9,250,000
b. 9,050,000
c. 6,050,000
d. 7,000,000
8. Hopey Company has different kinds of farm animals at the beginning of current year.
During the current year, several acquisitions occurred related to these farm animals.
Carrying amount on January 1:
15 Horses
(1 year old)
1,000,000
10 Diary cattle (2 year old)
400,000
8 Carabaos
(2.5 years old)
200,000
20 Hogs
(3 years old)
500,000
Purchases on June 30.
4 Dairy cattle (1 year old)
150,000
6 Carabaos
(6 months old)
100,000
Fair value less cost of disposal on December 31:
15 Horses
(1 year old)
1,200,000
10 Diary cattle (2 years old)
8 Carabaos
(2.5 years old)
20 Hogs
(3 years old)
4 Diary cattle (1 year old)
6 Carabaos
(6 months old)
Fair value less cost of disposal on December 31:
15 Horses
(2 year old)
10 Diary cattle (3 years old)
8 Carabaos
(3.5 years old)
20 Hogs
(4 years old)
4 Diary cattle (1.5 year old)
6 Carabaos
(1 year old)
520,000
250,000
550,000
170,000
110,000
1,350,000
580,000
290,000
600,000
200,000
140,000
There were no farm animals sold during the year and neither were there any newborns nor deaths.
. What is the gain from change in fair value attributable to price change?
a. 450,000
b. 810,000
c. 360,000
d. 0
9. in relation to no. 8, What is the gain from change in fair value attributable to physical change?
a. 450,000
b. 810,000
c. 360,000
d. 0
10. Pasar lagi ta ani company planted trees on its land. The entity purchased the land two years ago at
cost of Php 1,000,000.
The trees were considered bearer plants and had accumulated cost of Php 500,000 on December
31,2016.
By January 1, 2017; the trees had matured and were expected to bear produce for a period of 5 years.
On December 31, 2017, the trees produced fruit and the fair value less cost of disposal on such date was
Php 50,000. There was no harvest during 2017.
On December 31, 2018, the fruits were harvested and the fair value less cost of disposal on such date
was Php 75,000.
What is the carrying amount of the biological asset on December 31, 201?
a. 550,000
b. 450,000
c. 50,000
d. 0
Answers:
1. C
2. A
3. B
4. D
5. a
6. 16,050,000
1,500,000
800,000
1,400,000
19,750,000
7.
.
Carrying amount – January 1
Increase due to purchases
Gain from change in fair value due to price change
Gain from change in fair value due to physical change
Decrease due to sales
Decrease due to harvest
Carrying amount –December 31
6,000,000
3,000,000
500,000
700,000
(950,000)
(200,000)
9,050,000
8.
Fair value – December 31 (same age)
Carrying amount (2,100,000+250,000)
Price Change
2,800,000
2,350.000
450,000
9.
Fair value – December 31 (different age)
Fair value – December 31 (Same age)
Physical Change
10. 50,000
3,160,000
2,800,000
360,000
Angeles University Foundation
Angeles City
College of Business and Accountancy
Investment Property
Biological Assets
Agriculture
Prepared by:
Kim Veatrice P. Cunanan
BSMA-3C
Submitted to:
Sir Patrick Cura
College Instructor
Date submitted:
October 12, 2016
I.
Multiple Choice
1. Which of the following statements best describes investment property?
a. Property held for sale in the ordinary course of business
b. Property held for use in the production
c. Property held to earn rentals or for capital appreciation
d. Property held for capital appreciation
Answer: C
Source: Financial Accounting 1 by Valix
Topic: Investment Property
2. Investment of property includes all of the following, except?
a. Land held for long-term capital appreciation.
b. Land held for currently undetermined use.
c. Building held by finance leased.
d. Property held for sale in the ordinary course of business.
Answer: D
Source: Financial Accounting 1 by Valix
Title: Investment Property
3. Which of the following is an investment property?
a. Property being constructed or developed on behalf of third parties.
b. Property that is being constructed and developed as investment property.
c. Property held for future development and subsequent use as owner-occupied
property.
d. Owner-occupied awaiting disposal.
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Investment Property
4. Which of the following statements best describes owner-occupied property?
a. Property held for sale in the ordinary course of business
b. Property held for use in the production and supply of goods and service and property
held for administrative purposes
c. Property held to earn rentals
d. Property held for capital appreciation
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Investment Property
5. Biological Assets
a. Are found only in Biotech entities.
b. Are living animals or living plants and must disclosed as a separate line item in the
statement of financial position.
c. Must be measured at cost.
d. Do not generally have future economic benefits.
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Biological Asset
6. It is the management by an entity of the biological transformation and harvest of
biological assets for sale or for conversions into agricultural produce or into additional
biological asset.
a. Agricultural activity
b. Biological activity
c. Economic activity
d. Developmental activity
Answer: A
Source: Financial Accounting 1 by Valix
Topic: Agriculture
7. Biological assets are measured at
a. Cost
b. Lower cost and net realizable value
c. Net realizable value
d. Fair value less cost of disposal
Answer: D
Source: Financial Accounting 1 by Valix
Topic: Biological Asset
8. Agriculture produce is measured at
a. Fair value
b. Fair value less cost o disposal at the point of harvest
c. Net realizable value
d. Net realizable value less normal profit margin
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Biological asset
9. Agriculture produce is
a. The harvested product from biologica asset.
b. Valued at the time of harvest at the cost of production.
c. Valued at each reporting period at fair value less cost of disposal.
d. All of the choices are correct regarding agricultural produce.
Answer: A
Source: Financial Accounting 1 by Valix
Topic: Biological Asset
10. Agriculture activity results in which of the following type of asset?
a. Biological asset only
b. Agricultural produce only
c. Both biological asset and agricultural produce
d. Neither biological asset nor agricultural produce
Answer: C
Source:Financial Accounting 1 by Valix
Topic: Biological Asset
11. If an entity owns and manages a hotel, services provided to guest are a significant
component of the arrangement as a whole. In such case, the hotel is classified as
a. Investment property
b. Owner occupied property
c. Partly investment property
d. Neither investment property or owner occupied property
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Invesment Property
12. Which statement is incorrect concerning initial measurement of an investment property?
a. The investment property shall be measured initially at fair value.
b. Start up cost
c. If payment for an investment property is deferred.
d. Interest held under a lease
Answer: A
Source: Financial Accounting 1 by Valix
Topic: Invesment property
13. Agricultural activity includes all of the following, except?
a. Raising livestock
b. Perennial cropping
c. Aquaculture
d. Ocean fishing
Answer: D
Financial Accounting 1 by Valix
Biological Asset
14. Biological transformation results from asset changes through all of the following, except?
a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce
D.
Financial Accounting 1 by Valix
Biological Asset
15. Directly attributable expenditures related to investment property include
a. Professional fees for legal services, property and transfer taxes and other transaction
costs.
b. Start up costs.
c. Operating losses incurred before the investment
d. Abnormal amounts of wasted material, labor and other resources incurred in
constructing or developing the property.
A.
Financial Accounting 1 by Valix
Invesment Property
16. What is the best evidence of fair value of an investment property?
a. Quoted price in an active market for identical asset.
b. Quoted price in an active market for a similar asset.
c. Quoted price in an inactive market for a identical asset
d. Unobservable input price for the asset.
A.
Financial Accounting 1 by Valix
Invesment property
17. It is a market in which transactions for the asset or liability take place with sufficient
regularity and volume to provide pricing information on an ongoing basis.
a. Active market
b. Principal market
c. Global market
d. Financial market
A
Financial Accounting 1 by Valix
Biological Asset
18. Generally speaking, biological assets relating to agricultural activity shall be measured
using
a. Historical asset
b. Historical cost less depreciation less impairment
c. A fair value approach
d. Net realizable value
C
Financial Accounting 1 by Valix
Biological Asset
19. An entity had a plantation forest that is likely to be harvested and sold in 30years. The
income shall be accounted for in which of the following?
a. No income shall be reported annually until first harvest and sale in 30years.
b. Income shall be measured annually and reported using a fair value
c. The eventual sale proceeds shall be estimated and matched to the profit
d. The plantation forest shall be measured every 5 years.
B
Financial Accounting 1 by Valix
Biological Asset
20. Subsequent to initial recognition, the investment property shall be measured at
a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment losses
c. Revalued amount
d. Either fair values or cost less any accumulated depreciation and any accumulated
impairment losses
D
Financial Accounting 1 by Valix
Invesment Property
21. When the entity uses the cost model, transfers between investments property, owner
occupied property and inventory shall be made at
a. Fair value
b. Carrying amount
c. Cost
d. Assessed value
B
Financial Accounting 1 by Valix
Invesment Property
22. A transfer from investment property carried at fair value to owner occupied property shall
be accounted for at
a. Fair value, which becomes the deemed cost
b. Carrying amount
c. Historical cost
d. Fair value
A
Financial Accounting 1 by Valix
Investment Property
23. Under IFRS, assets classified as investment property are
a. Held for rental income
b. To be sold for a quick profit
c. Held for rental income or to be sold for a quick profit
d. Held for sale in the ordinary course
C
Financial Accounting 1 by Valix
Investment Property
24. What is the measurement basis for valuing biological assets and agricultural produce?
a. Historical cost
b. Current cost
c. Present value
d. Fair value
D
Financial Accounting 1 by Valix
Biological Asset
25. If an inventory is transferred to investment property that is to be carried at fair value, the
re-measurement to fair value is
a. Included in profit or loss
b. Included in other comprehensive income
c. Included in retained earnings
d. Accounted for as revaluation surplus
A
Financial Accounting 1 by Valix
InvesmentPorperty
II.
Identification
______________ 1.The amount at which an asset is currently presented in the statement of
financial position.
Carrying Amount
Wiley IFRS 2014
_______________2. The amount of cash or cash equivalents paid or the fair value of other
consideration given to acquire an asset at the time of its acquisition or construction or, where
applicable, the amount attributed to that asset when initially recognized.
Cost
Wiley IFRS 2014
_______________3.The price that would be the price that would be received to sell an asset or
paid to transfer a liability on an orderly transaction between market participants at the
measurement date.
Fair value
Wiley IFRS 2014
_______________4. An asset held by an entity for purposes of accretion of wealth through
distributions of interest, royalties, dividends, and rentals.
Investment
Wiley IFRS 2014
_______________5.Property (land or a building) to earn rentals or for capita appreciation
purposes or both, as opposed to being held as.
Investment property
Wiley IFRS 2014
_______________6. Where the fair value of the biological asset cannot be determined reliably,
the biological asset shall be measure at
Fair value model
Wiley IFRS 2014
_______________7. A gain or loss arising on the initial recognition of a biological asset and
from change in the fair value less cost of disposal of a biological asset shall be included in
Profit or loss
Wiley IFRS 2014
______________8. Where there is a long aging or maturation process after harvest, the
accounting for such products shall be dealt with by
PAS 2, Inventories
Wiley IFRS 2014
______________9. When the agricultural produce is harvested, the harvest shall be accounted
for as inventory. For the purpose, cost at the date of harvest is deemed to be
Current Cost
Wiley IFRS 2014
______________10. Gain or loss from the disposal of investment property shall be determined
as the difference between the
Historical Cost
Wiley IFRS 2014
III.
TRUE OR FALSE
1. An investment property shall be measured initially at cost.
True
Financial Accounting 1 by Valix
invesment property
2. Building used in business is considered an investment property.
False
Financial Accounting 1 by Valix
Investment Property
3. Dairy Cattle, chickens and tress are classified as biological asset.
True
Financial Accounting 1 by Valix
Biological Asset
4. Apple would be classified as agricultural produce.
True
Financial Accounting 1 by Valix
Biological Asset
5. Bilogical transformation comprises the processes of growth, degeneration, production
and procreation that cause changes in a biological asset.
True
Financial Accounting 1 by Valix
Biological Asset
III Problems
1. Forester Company provided the following assets in a forest plantation:
Freestanding tress
Land under trees
Roads in forests
Animals related to recreational activities
Bearer plants-rubber trees and grape vines
5,100,000
600,000
300,000
1,000,000
1,500,000
What total amount of the assets should be classified as biological assets?
a.
b.
c.
d.
5,100,000
7,600,000
6,600,600
8,500,000
Solution:
Only the freestanding trees should be classified as biological assets. The land
under trees and roads in forests should be included in PPE. Under IFRS, the
animals related to recreational activities and the bearer plants are accounted for
as property, plant and equipment.
Answer: A
Practical Accounting 1by Valix
Biological Assets
2. Micko Company provided the following data:
Value of biological asset at acquisition asset on December 31, 2015
600,000
Fair valuation surplus on initial recognition at fair value on December 31, 2015
700,000Change in fair value to December 31, 2016 due to growth and price
fluctuation 100,000Decrease in fair value due to harvest in 2016 90,000
What is the carrying amount of the biological asset on December 31, 2016?
a.
b.
c.
d.
1,400,000
1,310,000
1,300,000
1,490,000
What is the gain from change in fair value of biological asset that should be reported in the 2016
income statement?
a.
b.
c.
d.
100,000
800,000
710,000
10,000
Solution:
Acquisition cost –December 31,2015
Increasen
in
Fair
700,000Change
in
100,000
(90,000)Carrying
amount
1,310,000
value
fair
–
600,000
on
initial
recognition
value
in
2016
Decrease in fair value due to harvest
December
31,
2016
Change in fair value in 2016
Decrease in fair value due to harvest in 2016
Net gain from change in fair value in 2016
100,000
(90,000)
10,000
Answer: B & D
Practical Accounting 1 by Valix
Biological Asset
3. Nagmahal Company is engaged to raising dairy livestock. The entity provided the
following information during the current year.
Carrying amount on January 1
5,000,000
Increase due
2,000,000
Gain arising from change in fair value less cost
400,000
Attributable to physical change
600,000
Decrease due to sales
850,000
Decrease due to harvest
200,000
What is the carrying amount of the biological asset on December 31?
a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000
Solution:
Carrying amount- January 1
Increase due to purchases
Price change
Physical change
Decrease due to sales
Decrease due to harvest
5,000,000
2,000,000
400,000
600,000
(850,000)
(200,000)
Carrying amount – December 31
6,950,000
A.
Practical Accounting one by Valix
biological asset
Problem 4
Nasaktan Company produced milk for sale to local and national ice cream producers. The entity
began operations at the beginning of current year by purchasing 650 milk cows for 8,000,000.
The entity provided the following information for the current year:
Acquisition cost, January 1
Change in fair value due to growth and price changes
8,000,000
2,500,000
Decrease in fair value due to harvest
Milk harvested but not yet sold
250,000
400,000
What amount of gain on change in fair value should recognized for biological asset in the
current year?
a. 2,500,000
b. 2,250,000
c. 2,900,000
d. 2,650,000
What amount of gain on change in fair value should be reported for agricultural produce
in the current year?
a. 2,250,000
b. 400,000
c. 150,000
d. 0
Solution:
Change in fair value due to growth and price changes
Decrease in fair value due to harvest
Net gain from biological asset
Inventory
Gain on agricultural produce
2,500,000
(250,000)
2,250,000
400,000
400,000
Problem 5
Nag-accounting company provided the following information for the year ended December
31,2015:
Cash
Trade and other receivables
inventories
Nag-accounting livestock-immature
Mature
Property, plant and equipment
Trade and other payables
500,000
1,500,000
100,000
50,000
400,000
1,400,000
520,000
Note payable long term
Share capital
1,500,000
1,000,000
What is the net income for 2015?
a. 650,000
b. 600,000
c. 130,000
d. 185,000
What is the fair value of biological asset on December 31?
a.
b.
c.
d.
550,000
450,000
500,000
400,000
Solution:
Fair value of milk produced
Gain from change in fair value
600,000
50,000
Total income
650,000
used
(140,000)
costs
(120,000)
Depreciation expense
(120,000)
Other, operating expenses
(205,000)
Income before income tax
Income tax expense(55,000)
income
Livestock-immature
livestock-mature
Fair value of biological assets
Inventories
Staff
185,000
Net
130,000
50,000
400,000
450,000
Answer: C &B
Practical Accounting one by Valix
Biological Assets
Problem 6
Colombia 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, 2015. The entity considering the valuation of 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, 2016.
On such date, the fair value less cost of disposal is 3,900,000 and net realizable value is
3,200,000.
What is the measurement of the coffee beans inventory on December 31, 2016?
a.
b.
c.
d.
3,000,000
3,500,000
3,200,000
3,900,000
Solution:
Fair value measurement stops at the point of harvest and PAS 2 on inventory applies after such
date.
Accordingly, the coffee beans inventory shall be measured at the lower of cost and net
realizable value on December 31, 2016.
The fair value less cost of disposal of 3,500,000 at the point of harvest is the initial cost of coffee
beans inventory for purposes of applying PAS 2.
The net realizable value of 3,200,000 is the measurement on December 31,2016 because this
is lower than the deemed cost of 3,500,000.
Answer: C
Practical Accounting one by Valix
Biological Asset
Problem 7
Honey Company has a herd of 102 year old animals on January 1, 2015. One animal aged 2.5
years was purchased on July 1, 2015 for 108, and one animal was born on July 1, 2015. No
animals were sold or disposed of during the year. The fair value less cost of disposal per units is
as follows:
2-year old animals on
January 1 2.5 year old animal on July 1
New born animal on July 1
2-year old animal on December 31
2.5-year old animal on December 31
Newborn animal on December 31
100
108
70
105
111
72
3 year old animal on December 31
0.5 year old animal on December 31.
120
80
1. What is the fair value of the biological assets on December 31?
a. 1,400
b. 1,320
c. 1,440
d. 1,360
2. What amount of gain from change in the fair value of biological assets should be
recognized in the current year?
a. 222
b. 292
c. 300
d. 332
3. What is the gain from change in fair value due to price change?
a. 292
b. 222
c. 237
d. 55
Solutions:
Fair value of 3-year old animals on December 31 (11xP120)
Fair value of 0.5 year old animal on December 31, the new born (1xP80)
Total fair value- December 31
1,320
80
1,400
Fair value of 10 animals on January 1 (10x100)
Acquisitions cost of one animal on July 1
Total carrying amount- December 31
1000
108
1,108
Fair value on December 31
Carrying amount
Gain from change in fair value
1,400
1,108
292
Gain form change in fair value due to price change:
10 2-year old animals (105-100=5x10)
1 2.5 year old animal (111-108=3x1)
new born on July 1 (72-70=2x1)
total
50
31
2
55
Gain from change in fair value due to physical change:
10 3 year old animals acquired January 1 (120-105=15x10)
1 3 year old animals acquired July 1 (120-111=9x1)
1 newborn on July 1 (80-72=8x1)
150
9
8
1 new born (70x1)
Total:
70
237
Price change
Physical change
total gain
55
237
292
Answer: A,B,D
Practical Accounting one by Valix
Biological Assets
Problem 8
Farmland Company produces milk on its farms. The entity producers 20% of the community
milk that is consumed farmland Company owns 5 farms and had a stock of 2,100 cows and
1.050 heifers.
The farms produce 800,000 kg of milk a year and the average inventory held is 15,000 kg of
milk. However, on December 31, 2015 the entity is currently holding 50,000kg of milk in powder.
On December 31, 2015 the biological assets are:
Purchased before January 1, 2015
3 year old
2,100 cows
Purchased on January 1, 2015
2 year old
300 heifers
Purchased on July 1, 2015
1.5 year old
750 heifers
No animals were born on sold during the current year. The unit fair value less cost of disposal is
as follows.
January 1, 2015
1-year old
3,000
2-year old
4,000
July 1, 2015
1-year old
3,000
December 31, 2015
1-year old
3,200
2-year old
4,500
1.5- year old
3,600
3-year old
5,000
The entity has had problem during the year. Contaminated milk was sold to customers. As a
result, milk consumption has gone down.
The entity’s business is spread over different parts of the country. The only region affected by
the contamination was Batangas.
1. What was the fair value of biological assets on January 1, 2015?
a. 9,300,000
b. 3,000,000
c. 3,750,000
d. 3,375,000
2. What is the fair value of biological assets on July 1, 2015?
a. 2,250,000
b. 3,000,000
c. 3,750,000
d. 3,375,000
3. What is the fair value of biological assets in December 31, 2015?
a. 14,550,000
b. 15,750,000
c. 15,225,000
d. 11,850,000
4. What is the increase in fair value of biological assets on December 31, 2015?
a. 3,000,000
b. 5,250,000
c. 4,950,000
d. 6,150,000
5. What is the increase in fair value of biological assets due to physical change?
a. 1,260,000
b. 1,740,000
c. 3,000,000
d. 1,440,000
Solutions:
(2,100x4,000)
(300x3,000)
Total fair value-January 1
Heifers purchased 1year old
8,400,000
900,000
9,300,000
2,250,000
(2,100x5,000)
10,500,000
300x4,500
1,350,000
750x3,600
2,700,000
Total
14,550,000
Answer: A,A,A,A,B
Practical Accounting one by Valix
Biological Assets
Problem 9
Galore Company ventured into construction of a condominium on Makati which is rated as the
largest state of the art structure. The entity board of directors decided that instead of selling the
condominium, the entity would hold this property for purposes of earning rentals by letting out
space to business executives in the area.
The construction of the condominium was completed and the property was placed in service on
January a,2015. The cost of the construction was 50,000,000. The useful life of the
condominium is 25 years and its residual value is 5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2015
55,000,000
December 31, 2016.
53,000,000
December 31, 2017
60,000,000
1. Under the cost model what amount should be reported as depreciation of investment
property for 2015?
a. 1,800,000
b. 2,000,000
c. 2,220,000
d. 0
2. Under the fair value model, what amount should be recognized as gain from change in
fair value in 2015?
a. 5,000,000
b. 3,000,000
c. 7,000,000
d. 0
Solution:
Cost of investment property
50,000,000
Residual value
(5,000,000)
Depreciable amount
45,000,000
Annual depreciation 45,000,000/25)
1,800,000
Journal entry on December 31, 2015
Investment property
5,000,000
Gain from change in fair value
5,000,000
Fair value- December 21
55,000,000
cost- January 1
50,000,000
_
___________
Gain from change in fair value 2015 5,000,000
Journal entry on December 2016
Loss from change in fair value
Investment property
2,000,000
2,000,000
Fair value – December 2016
53,000,000
carrying amount – December 2015
55,000,000
__________
loss Gain from change in 2016
(2,000,000)
Answer: A,A
Practical Accounting One by Valix
Cost Model & Fair Value model
Problem 10
Fortitude Company purchased cattle at an auction for 200,000 on July 1, 2014. Cost of
transporting the cattle back to the company’s farm was 2,000 and the company would have to
incur cost similar transportation cost if it was to sell the cattle in the auction, in addition an
auctioneer’s fee of 2% sales price. What amount should the biological assets be initially
recognized?
a. 194,000
b. 196,000
c. 198,000
d. 200,000
Solution:
Fair Value
200,000
Transportation costs
(2,000)
Auctioneers fee
(4,000)
_
_________
Adjusted fair value
194,000
Answer: A
Practical Accounting One by Conrado O. Uberta
Cost at Initial Recognition
Problem 11
Solo Company acquired forest assets for a lump sum amount of 20,000,000 which is equal to
the lump sum value of the group of assets. At the time of purchase the company in unable to
determine the fair value of the trees separately since no active market was clearly available.
The other assets in the group had a determinable fair value. The forests assets are listed below
and their related fair value:
Land under trees
2,000,000
Roads in forest
1,000,000
1. What amount should the biological asset is initially recorded?
2. What amount should the non-current non-depreciable asset be usually recorded?
3. What amount should the non current depreciable asset be initially recorded?
Solution:
Total fair value of the group
20,000,000
Less: Fair value of other assets:
Land
2,000,000
Roads
1,000,000
Fair value of biological asset __________
3,000,000
17,000,000
Answer: 17,000,000
2,000,000
1,000,000
Practical Accounting One by Conrado O. Uberta
Cost at Initial Recognition
Problem 12
Central Farm Corporation reported the following lists of biological asset and agricultural produce
for the year ended December 31, 2014:
Assets
Fair Value
Diary cattle
3,000,000
Beef cattle
5,000,000
Sheep
2,000,000
Calves on dairy cattle
1,000,000
Calves on beef cattle
1,500,000
Lambs
800,000
Milk on dairy cattle
500,000
Carcass on beef
600,000
Wool
400,000
1. What amount of biological asset should Central Farm Company report in its December
31, 2014 statement of financial problem?
2. What amount should central farm company report as inventory related to the above
biological assets?
Solution:
Mature biological assets:
Dairy cattle
3,000,000
Beef cattle
5,000,000
Sheep
2,000,000
P10,000,000
Immature biological assets:
Calves on dairy cattle
1,000,000
Beef cattle
1,500,000
Lambs
800,000
Total fair value of biological assets
3,300,000
P13,300,000
Answer: 13,300,000
1,500,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
Problem 13
Fortune Company purchased Dairy cattle at an auction for 300,000 on July 1, 2014. Cost of
transporting the cattle back to the company’s farm was 3,000 and the company would have to
incur cost similar transportation cost, in addition an auctioneer’s fee of 2% of sales price.
On December 31, 2014, after taking into account and location, the fair value of the biological
asset had increased to 500,000.
1. What amount should the biological assets be initially recognized?
2. What amount should be the biological assets be reported in the December 31, 2014
statement of financial position?
3. What amount of gain or loss should the company include in the statement of
comprehensive income due to the change in the fair value of the biological assets?
Solution:
1. Fair value
300,000
Transportation costs
(3,000)
Auctioneer’s fee
(6,000)
Adjusted fair value
291,000
2. Fair Value
500,000
transport cost
(3,000)
Auctioneer’s fee
(10,000)
Adjusted fair value
487,000
3. Fair value on December 31, 2014
487,000
July 1, 2014
(291,000)
Increase in fair value
196,000
Answer: 291,000
487,000
196,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
Problem 14
Vortex Company’s standing cane fair value as of January 1, 2014 was 2,700,000 and as
December 31, 2014 was 2,250,000. The fair value of the agricultural produce harvested during
the period was 2,100,000 on the respective dates of harvest.
What net amount of gain or loss should Cortex Company report in its December 31, 2014 profit
or loss related to the biological asset and agricultural produced?
Solution:
Total value fair end of year
Biological asset
450,000
Agricultural produced
420,000
Less: fair value start of year
870,000
560,000
Net increase in fair value to profit or loss
310,000
Answer: 310,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
Problem 15
On December 31, 2014, Sony Company reported the following information involving its
biological assets:
Biological assets, at cost on December 31, 2012
6,000,000
Fair value surplus
7,000,000
Change in fair value to December 31, 2014
1,000,000
Decrease in fair value due to harvest 2014
900,000
1. What amount should the biological asset be reported in the December 31, 2014 balance
sheet?
2. What amount of net gain should Sony Company report in its December 31, 2014 income
statement?
Solution:
Biological assets, cost on December 31, 2014
6,000,000
Fair value surplus
7,000,000
Change in fair value
1,000,000
Decrease in fair value
(900,000)
Fair value as of December 31, 2014
13,100,000
Change in fair value to December 31, 2014
1,000,000
Decrease in fair value due to harvest during 2014
(900,000)
Net change in fair value – reported in income statement
100,000
Answer: 13,100,000
100,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
Problem 16
Rainbow Company has the following information pertaining to its biological assets for the year
2014:
A herd of 100, 2-year old animals was held at January 1, 2014. Ten animals aged 2.5 were
purchased on july 1, 2014 for 5,400 and ten animals were born on July 1, 2014. No animals
were sold or disposed of during the period. Per unit fair value less estimated point-of-sale costs
were as follows:
2 year old animal at January 1, 2014
5,000
Newborn animal at July 1, 2014
3,500
2-5 year old animal at July 1, 2014
5,400
Newborn animal at December 31, 2014
3,600
0.5 year old animal at December 31, 2014
4,000
2.0 year old animal at December 31, 2014
5,250
2.5 year old animal at December 31, 2014
5,550
3 year old animal at December 31, 2014
6,000
1. How much of the increase in the fair value of the biological assets due to price change?
2. How much of the increase in the fair value of the biological assets due to physical change?
3. What is the fair value of the biological assets as of December 31, 2014?
Solutions:
Increase in fair value less estimated point of sale cost due to price change:
100 (5,250-5,000)
25,000
10(5,550-5,400)
1,500
10(3,600-3,500)
1,000
Total
27,500
100 (6,000-5250)
75,000
10(6,000-5,500)
4,500
10(4,000-3,600)
4,000
10x3,500
35,000
Total
118,500
Answer: 27,500
118,500
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
Problem 17
Eragon Company and its subsidiaries own the following properties
At year-and
Land help by eragon for undetermined use
A vacant building owned by eragon and to be
Leased uot under an operating lease
Property helps by a subsidiary of eragon, a real
Estate film,in the ordinary of eragon couse of business
Property help by eragon for use in production
Building owned by a subsidiary of erafon and
For which the subsidiary provides sucrity
And maintenance service to the lessees
Land leased by eragon to a subsidiary under an
Operating lease
Property under construction for use as investment
Property
Land help for future factory site
Machinery leasd uot by eragon to an unrelated
Party under an operating lease
1 what the total investment property that should be reported in the
Consolidated statement of financial position of the parent and
Its subsidiaries?
a.
b.
c.
d.
12,000,000
15,500,000
10,500,000
9,5000,000
2 what total amount should be considered as owner-occupied
Property and include in property, plant and equipment in the
5,000,000
3,000,000
2.000.000
4,000,000
1,500,000
2,500,000
6,000,000
3,500,000
1,000,000
Consolidated statement of financial position?
a.
b.
c.
d.
11,000,000
13,000,000
10,500,000
8,500,000
Solution 43-2
Question 1 answer b
Land for undetermined use
Vacant building to be leased out under an operating lease
Building owned and for which the subsidiary provide
Security and maintenance service to the lessees
Property under construction for use as investment property
5,000,000
3,000,000
1,500,000
6,000,000
Total investment property
15,500,000
Question 2 answer a
Property help for use in production
Land lease by parent to subsidiary under
An operating lease
Land help for future use as factory site
Machinery lease out to an unrelated party under
An operating lease
4,000,000
2,500,000
3,500,000
1,000,000
Total operating, plant ang equipment
11,000,000
The property by a subsidiary in the ordinary cause of business is include in
Inventory.
The land leased by the parent to the subsidiary under an operating lease is owned-occupied
Property for purpose of consolidated financial statement.
However, from the perspective of separate financial statement of the parent,the
Land its an investment property.
The machinery leased out to a un related party is owned-occupied property investment
Because investment property include only land and building and not movable
property, like machinery.
B&A
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
PROBLEM 18
Bona company purchased an investment property on January 1,2013 for P2,2000,000
The property had a useful life of 40, years and on December 31,2015 had a fair value of
P3, 000,000.
On December 31, 2015,the property was sold for net proceeds of
P2, 900,000. The entity used the cost model to account for the
Investment property.
Bona company purchased an investment property on January 1,2013 for P2,2000,000
The property had a useful life of 40, years and on December 31,2015 had a fair value of
P3, 000,000.
On December 31, 2015, the property was sold for net proceeds of
P2, 900,000. The entity used the cost model to account for the
Investment property.
1 what is the carrying amount of the investment property on December 31,2015?
a.
b.
c.
d.
2.200.000
2.035.000
2.145.000
2.090.000
2 What is the gain or loss to be recognized for the year ended December31,2015 regarding
The disposal of property?
a.
b.
c.
d.
865,000 gain
810,000 gain
100,000 loss
700,000 gain
Solution 43-3
Question 1 answer b
Cost-January 1, 2013
Accumulated depreciation (2,200,000/40 x 3 years)
Carrying amount-December 31,2015
2,200,000
( 165,000)
2,035,000
Question 2 answer a
Sale price
Carrying amount-December 31,2015
Gain on disposal of property
2,900,000
2,035,000
865,000
1 what is the carrying amount of the investment property on December 31,2015?
e.
f.
g.
h.
2.200.000
2.035.000
2.145.000
2.090.000
2 What is the gain or loss to be recognized for the year ended December31,2015 regarding
The disposal of property?
e.
f.
g.
h.
865,000 gain
810,000 gain
100,000 loss
700,000 gain
Solution
Question 1
Cost-January 1, 2013
Accumulated depreciation (2,200,000/40 x 3 years)
2,200,000
( 165,000)
Carrying amount-December 31,2015
2,035,000
Question 2
Sale price
Carrying amount-December 31,2015
Gain on disposal of property
2,900,000
2,035,000
865,000
B,A
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset
Problem 19
Dayanara Company owned three properties which are classified as investment
Property.
Initial
Cost
Property 1
Property 2
Property 3
2,700,000
3,450,000
3,300,000
Fair value
12/31/2015
3,200,000
3,050,000
3,850,000
Fair value
12/31/2016
3,500,000
2,850,000
3,600,000
Each property was acquired three years ago useful life 25 years. the accounting policy
It’s to use to fair value model for investment property.
What is the gain or loss to be recognize for the year ended
December 31, 2016?
a.
b.
c.
d.
189,000 loss
150,000 loss
300,000 gain
450,000 loss
Solution
Fair value
12/31/2015
Property 1
Property 2
Property 3
Net loss change an fair value
3,200,000
3,050,000
3,850,000
fair value
12/31/2016 gain(loss)
3,500,000
2,850,000
3,600,000
300,000
(200,000)
(250,000)
(150,000)
Answer: B
Practical Accounting One by Conrado O. Uberta
FINANCIAL ACCOUNTING
THEORY & PRACTICE
INVENTORIES – COST ESTIMATION & BIOLOGICAL ASSETS
QUIZZER
FINANCIAL ACCOUNTING
INVENTORY VALUATION
Essay Questions
Inventory Estimation Methods
1. What are the reasons for making an estimate of inventory?
1. Determination of inventory loss due to fire and other catastrophe or theft of
merchandise.
2. Proof of the reasonable accuracy of a physical count. This is popularly known as the
"gross profit test."
3. Preparation of interim statements or statements of less than one year. Interim
statements are usually for a quarter.
However, year-end statements require physical count, not a mere estimate of inventory value.
Gross profit method
2. Explain the gross profit method of estimating the cost of ending inventory.
Under the gross profit method, the ending inventory is computed as "goods available for sale
minus cost of sales".
The cost of sales is determined through the use of the gross profit rate and this is the reason
the gross profit method is called as such.
This method is based on the major assumption that the rate of gross profit remains
approximately the same from period to period and therefore the ratio of cost of goods sold to
net sales is relatively constant from period to period.
Retail inventory method
3. Explain the retail method of estimating the cost of ending inventory.
The retail inventory method came to its name because the selling price or retail price is tagged
to each item and therefore the ending inventory is stated at selling price.
The ending inventory is computed as follows:
Goods available for sale at selling price minus net sales equals ending inventory at selling
Essay Questions: Inventory – Cost Estimation
Page 4
Inventory – Cost Estimation
price which is multiplied by the cost ratio to get the inventory at cost.
The cost ratio under the retail method is computed by dividing the goods available for sale at
cost by the goods available for sale at selling price.
4.
What are the four applications of the retail inventory method?
1. Conservative approach - The cost ratio is determined by including markups and
excluding markdowns in computing the goods available for sale at retail. This approach
is also known as the conventional or lower of average cost or market approach.
2. Average cost approach - The markups and markdowns are both included in the
computation of the cost ratio.
3. FIFO approach - A cost ratio is computed for the current year. Thus, only the current
purchases are considered together with markups and markdowns. The beginning
inventory is excluded in the computation.
4. LIFO approach - The cost ratio is computed following the same procedure under FIFO
approach. Thus, the FIFO and LIFO would have the same cost ratio for the current year.
5.
Which approach is followed in measuring inventory under the retail inventory method?
PAS 2, paragraph 22, provides that the percentage used under the retail method shall take
into consideration inventory that has been marked down to below its original selling price.
An average percentage for each retail department is often used.
This means that the average cost approach shall be applied in conjunction with the retail
inventory method.
Of course, PAS 2 requires either the FIFO or average method as a cost formula.
6.
Define the following:
1.
2.
3.
4.
Original retail
Initial markup
Additional markup
Markup cancelation
Essay Questions: Inventory – Cost Estimation
Page 5
FINANCIAL ACCOUNTING
5.
6.
7.
8.
Net markup
Markdown
Markdown cancelation
Net markdown
1. Original retail - is the sales price at which the goods are first offered for sale.
2. Initial markup - the original markup on the cost of goods or the amount added to the
original cost to get the original retail price.
3. Additional markup - is an increase in the sales price above the original sales price or the
amount added to the original retail price.
4. Markup cancelation - is a decrease in the sales price that does not reduce the sales price
below the original sales price.
5. Net markup - additional markup minus markup cancelation.
6. Markdown - is a decrease in the sales price below the original price.
7. Markdown cancelation - is an increase in sales price that does not raise the sales price
above the original sales price.
8. Net markdown - markdown minus markdown cancelation.
BIOLOGICAL ASSETS
Essay Questions
1.
What is the scope of PAS 41 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
Note that PAS 41 is applied to agricultural produce at the point of harvest. Thereafter, PAS 2
on inventories shall be applied. PAS 41 does not deal with the processing of agricultural
produce after harvest. For example, the processing of grapes into wine is covered by PAS
2.
2.
Define biological assets, agricultural produce and harvest.
Biological assets are "living animals and living plants".
Agricultural produce is the harvested product of the entity's biological assets.
Essay Questions: Biological Assets
Page 6
Biological Assets
Harvest is the detachment of produce from a biological asset or the cessation of a biological
asset's life processes.
3.
Give examples of biological assets, agricultural produce and products that are the result of
processing after harvest.
The following table provides examples of biological assets, agricultural produce and products
that are the result of processing after harvest.
Biological asset
1.
2.
3.
4.
5.
6.
7.
8.
Sheep
Trees in plantation forest
Plant
Dairy cattle
Pigs
Bushes
Vines
Fruit trees
Agricultural
produce
Wool
Felled trees
Harvested cane
Milk
Carcass
Leaf
Grapes
Picked fruit
Product
after harvest
Yarn, carpet
Logs, lumber
Sugar
Cheese
Sausage, cured ham
Tea, cured tobacco
Wine
Processed fruit
Again, the measurement of biological assets and agricultural produce is covered by PAS 41
and the measurement of products after harvest is covered by PAS 2 on inventories.
4.
Define agricultural activity and biological transformation.
Agricultural activity or simply "agriculture" is the management by an entity of the biological
transformation and harvest of biological assets for sale or for conversion into agricultural
produce or into additional biological assets.
Biological transformation comprises the processes of growth, degeneration, production and
procreation that cause qualitative or quantitative changes in a biological asset.
5.
Give examples of agricultural activity.
Agricultural activity covers a diverse range of activities such as the following:
1. Raising livestock
2. Annual or perennial cropping
3. Cultivating orchards and plantations
4. Floriculture
Essay Questions: Biological Assets
Page 7
FINANCIAL ACCOUNTING
5. Aquaculture, including fish farming
6.
What are the common features of agricultural activity?
The common features of agricultural activity are as follows:
a. Capability to change
b. Management of change
c. Measurement of change
Capability to change
Living animals and plants are capable of biological transformation.
Management of change
The agricultural activity must be "managed" to facilitate biological transformation by
enhancing or at least stabilizing conditions necessary for the process to take place.
Such management distinguishes agricultural activity from other activities.
For example, harvesting from "unmanaged" sources, such as ocean fishing and
deforestation, is not agricultural activity.
Measurement of change
The change in quality or quantity brought about by biological transformation or harvest is
measured and monitored as a routine management function.
7.
Give examples of biological transformation.
Biological transformation results from the following types of outcome:
1. Asset changes through:
a. Growth - an increase 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.
2. Production of agricultural produce such as latex, tea leaf, wool and milk.
8.
What are the conditions for the recognition of a biological asset or agricultural produce?
An entity shall recognize a biological asset or an agricultural produce when:
1. The entity controls the asset as a result of past event.
2. It is probable that future economic benefits associated with the asset will flow to the
entity.
Essay Questions: Biological Assets
Page 8
Biological Assets
3. The fair value or cost of the asset can be measured reliably.
9.
Explain the measurement of biological asset and agricultural produce.
A biological asset shall be measured on initial recognition and at the end of each reporting
period at fair value less cost of disposal.
Agricultural produce shall be measured at fair value less cost of disposal at the point of
harvest.
10. What is the meaning of "cost of disposal"?
"Cost of disposal" is the incremental cost directly attributable to the disposal of an asset.
In other words, cost of disposal is a necessary cost for a sale to occur that would not
otherwise arise.
Examples include commission to brokers and dealers, levy by regulatory agency and
commodity exchanges, and transfer tax and duty.
Under the Basis for Conclusions on PAS 41, cost of disposal specifically excludes transport
cost, finance cost and income tax.
11. Explain the fair value measurement of biological asset.
There is a presumption that fair value can be measured reliably for a biological asset.
However, this presumption can be rebutted only on initial recognition for a biological asset
for which market-determined prices are not available or estimates of fair value are determined
to be clearly unreliable.
In such a case, the biological asset shall be measured at cost less accumulated depreciation
and any accumulated impairment loss.
However, once the fair value of such biological asset becomes clearly measurable, the entity
shall measure the biological asset at fair value less cost of disposal.
12. Explain the fair value measurement of agricultural produce.
In all cases, an entity shall measure agricultural produce at the point of harvest at fair value
less cost of disposal.
Essay Questions: Biological Assets
Page 9
FINANCIAL ACCOUNTING
The prevailing view is that the fair value of agricultural produce at the point of harvest can
always be measured reliably.
The fair value measurement of agricultural produce stops at the time of harvest. After that
date, PAS 2 on inventory shall apply.
In other words, the harvested product becomes an inventory and shall be measured
subsequently at the lower of cost and net realizable value.
The harvested product is recorded by debiting inventory and crediting gain from change in
fair value.
13. Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
PFRS 13, paragraph 72, enumerates the fair value hierarchy or best evidence of fair value
as follows:
1. Level 1 inputs are the quoted prices in an active market for identical assets. An active
market is a market in which transactions for the asset or liability take place with sufficient
regularity and volume to provide pricing information on an ongoing basis. A principal
market is the market with the greatest volume and level of activity for the asset or liability.
2. Level 2 inputs are observable inputs either directly or indirectly. Level 2 inputs include
quoted prices for similar assets in an active market and quoted prices for identical or
similar assets in an inactive market.
3. Level 3 inputs are unobservable inputs for the asset usually developed by the entity
using the best available information from the entity's own data.
An example is the financial forecast of expected cash inflows from the asset.
14. Explain the treatment of gain or loss from the fair value measurement of biological asset and
agricultural produce.
A gain or loss arising on initial recognition of a biological asset at fair value less cost of
disposal and any subsequent changes in fair value cost of disposal shall be included in profit
or loss.
A loss may arise on initial recognition of a biological asset because cost of disposal is
deducted in determining fair value loss cost of disposal of a biological asset.
A gain may arise on initial recognition of a biological asset, for example, when a calf is born.
A gain or loss arising from initial recognition of agricultural produce at fair value less cost of
disposal shall also be included in profit or loss.
Essay Questions: Biological Assets
Page 10
Biological Assets
A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.
An entity shall disclose the aggregate gain or loss arising on the initial recognition of biological
asset and agricultural produce and from the change in fair value less cost of disposal of
biological asset.
15. Is agricultural land a biological asset?
Agricultural land is not a biological asset.
The principles espoused in PAS 41 for biological assets and agricultural produce do not apply
to agricultural land.
The requirements of PAS 16 which are applicable to property, plant and equipment apply
equally to agricultural land for purposes of measurement.
16. Explain the fair value measurement of biological assets physically attached to land.
Biological assets are often physically attached to land, for example, trees in a plantation
forest.
There may be no separate market for biological assets that are attached to the land but an
active market may exist for the combined assets, that is, for the biological assets and land as
a package.
An entity may use information regarding the combined assets to determine the fair value of
the biological assets.
For example, the fair value of the land may be deducted from the fair value of the combined
assets to arrive at the fair value of the trees in the plantation forest.
17. Explain the treatment of a government grant related to:
1. Biological asset measured at fair value less cost of disposal.
2. Biological asset measured at cost less any accumulated depreciation and any
accumulated impairment losses.
1. An unconditional government grant related to a biological asset that has been measured
at fair value less cost of disposal shall be recognized in profit or loss when the grant
Essay Questions: Biological Assets
Page 11
FINANCIAL ACCOUNTING
becomes receivable. If a government grant related to a biological asset measured at fan
value less cost of disposal is conditional, the grant shall be recognized in profit or loss
only when the conditions attaching to the grant are met.
2. If a government grant relates to a biological asset measured at cost less any
accumulated depreciation and any accumulated impairment losses, PAS 20 on
"government grant" is applied.
Essay Questions: Biological Assets
Page 12
Inventory – Cost Estimation
MCQ – Theory: Inventories – Cost Estimation
Gross profit method
1. The gross profit method assumes that
A. The amount of gross profit is the same as in prior years.
B. Inventory values have not increased from previous years.
C. Sales and cost of goods sold have not changed from previous years.
FA © 2014
D. The relationship between selling price and cost of goods sold is similar to prior years.
2.
Which of the following is not a basic assumption of the gross profit method?
A. Goods not sold must be hand.
B. The beginning inventory plus purchases equal total goods to be accounted for.
C. The amount of purchases and the amount of sales remain relatively unchanged from the
comparable previous period.
D. The sales reduced to cost basis when deducted from the sum of beginning inventory and
purchases would result to inventory on hand.
FA © 2014
3.
How is the gross profit method used in relation to inventory valuation?
A. To provide a FIFO inventory value
B. To estimate the cost of goods sold
C. To verify the accuracy of the physical inventory
D. To verify the accuracy of the perpetual inventory record
FA © 2014
4.
The gross margin method of estimating ending inventory may be used for all of the following,
except
A. Internal as well as external interim reports
B. Internal as well as external year-end reports
C. Estimate of inventory destroyed by fire or other casualty
D. Rough test of the validity of an inventory cost determined under either periodic or
perpetual system.
FA © 2014
5.
Which would not require an estimate of inventory?
A. Inventory destroyed by typhoon
B. Interim financial statements are prepared
C. Proof of the reasonable accuracy of the physical count
D. Determination of the ending inventory to be reported in the statement of financial
position at year-end
FA © 2014
MCQ – Theories: Inventory – Cost Estimation
Page 13
FINANCIAL ACCOUNTING
6.
The gross profit method of estimating inventory would not be useful when
A. There is a significant change in the mix of products being sold.
B. The relationship between gross profit and sales remains stable over time.
C. A periodic system is in use and inventories are required for interim statements.
D. Inventories have been destroyed or lost by fire, theft or other casualty, and the specific
data required for inventory valuation are not available.
FA © 2014
7.
The gross profit method of inventory valuation is not valid when
A. All ending inventory is destroyed by fire before it can be counted.
B. The gross margin percentage changes significantly during the year.
C. There is substantial increase in the cost of inventory during the year.
D. There is substantial increase in the quantity of inventory during the year.
FA © 2014
8.
The gross profit method of inventory valuation is invalid when
A. A portion of inventory is destroyed.
B. There is a substantial increase in inventory during the year.
C. There is no beginning inventory because it is the first year of operation.
D. The gross profit percentage applicable to the goods in ending inventory is different from
the percentage applicable to goods sold during the period.
FA © 2014
9.
If the gross profit rate is based on sales, the cost of goods sold is computed as
A. Gross sales divided by sales ratio
C. Net sales divided by sales ratio
B. Gross sales times cost ratio
D. Net sales times cost ratio TOA © 2013
10. If the gross profit rate is based on cost, the cost of goods sold is computed as
A. Gross sales divided by sales ratio
C. Net sales divided by sales ratio
B. Gross sales times cost ratio
D. Net sales times cost ratio
FA © 2014
11. Which statement is not valid about the gross profit method?
A. It may be used by auditors.
B. It is an acceptable accounting procedure.
C. It may be used to estimate inventory for annual statements.
D. It may be used to estimate inventory for interim statements.
FA © 2014
Retail inventory method
12. The retail method is based on the assumption that
A. Ratio of cost to retail changes at a constant rate.
B. Ratio of gross margin to sales is approximately the same each period.
C. Proportions of markup and markdown to selling price are the same.
MCQ – Theories: Inventory – Cost Estimation
Page 14
Inventory – Cost Estimation
D. Final inventory and the total of goods available for sale contain the same proportion of
high cost and low cost ratio goods.
FA © 2014
13
A major advantage of the retail inventory method is that it
A. Hides costs from customers and employees.
B. Permits entities to avoid taking an annual physical inventory.
C. Gives a more accurate measurement of inventory than other methods.
D. Provides a method for inventory control and facilitates determination of the periodic
inventory.
FA © 2014
14. Which of the following is not a reason why the retail inventory method is used widely?
A. For insurance information
B. To defer income tax liability
C. As a control measure in determining inventory shortage
FA © 2014
D. To permit the computation of net income without a physical count of inventory
15. Which of the following is not required when using the retail inventory method?
A. Total sales for the period.
B. A record of the total cost and retail value of goods purchased for the period. FA © 2014
C. All inventory items must be categorized according to the retail markup percentage.
D. A record of the total cost and retail value of the goods available for sale for the period.
16. What condition is not necessary when using the retail inventory method?
A. A record of sales for the period
B. A record of total cost of goods sold for the period
C. A record of total cost and retail value of goods purchased for the period
FA © 2014
D. A record of total cost and retail value of goods available for sale for the period
17. The retail inventory method would include which of the following in the calculation of the
goods available for sale at both cost and retail?
A. Freight in
C. Markups
B. Markdowns
D. Purchase returns
FA © 2014
Average retail inventory method
18. If the average retail inventory method is used, which of the following calculations would
include or exclude net markdowns?
TOA © 2013
A.
B.
C.
D.
Cost ratio
Include
Include
Exclude
Exclude
Ending inventory at retail
Include
Exclude
Include
Exclude
MCQ – Theories: Inventory – Cost Estimation
Page 15
FINANCIAL ACCOUNTING
Conventional retail inventory method
19. An inventory method which is designed to approximate inventory valuation at the lower of
cost and net realizable value is
A. Average retail method
C. FIFO retail
B. Conventional retail method
D. LIFO retail
FA © 2014
20. The conventional retail method produces an ending inventory that approximates
A. Lower of cost or net realizable value
B. Lower of LIFO cost or net realizable value
C. Lower of FIFO cost or net realizable value
D. Lower of average cost or net realizable value
FA © 2014
21. To produce an inventory valuation which approximates the lower of cost or net realizable
value using the retail inventory method, the computation of the ratio of cost to retail should
FA © 2014
A. Include markups and markdowns
C. Include markups but not markdowns
B. Include markdowns but not markups
D. Ignore both markups and markdowns
22. If the conservative retail inventory method is used, which of the following calculations would
include or exclude net markdowns?
FA © 2014
A.
B.
C.
D.
Cost ratio
Include
Include
Exclude
Exclude
Ending inventory at retail
Include
Exclude
Include
Exclude
23. When the conventional retail inventory method is used, markdowns are commonly ignored in
the computation of cost to retail ratio because
A. There may be no markdowns in a given year.
B. This tends to give a better approximation of the lower of cost or net realizable value.
C. Markups are also ignored.
D. This tends to result in the showing of a normal profit margin in a period when no
markdown goods have been sold.
FA © 2014
Sensitivity analysis
24. Which of the following would cause a decrease in the cost ratio used in the retail inventory
method?
A. Higher freight in charges
C. Lower net markups
B. Higher retail prices
D. More employee discounts
FA © 2014
MCQ – Theories: Inventory – Cost Estimation
Page 16
Biological Assets
25. What is the effect of freight in on the cost-retail ratio when using the conservative retail
method?
A. Increases the cost-retail ratio
B. Decreases the cost-retail ratio
C. No effect on the cost-retail ratio
D. Depends on the amount of the net markup
FA © 2014
26. What is the effect of net markup on the cost-retail ratio when using the conservative retail
method?
A. Increases the cost-retail ratio
B. Decreases the cost-retail ratio
C. No effect on the cost-retail ratio
D. Depends on the amount of the net markdown
FA © 2014
Comprehensive
27. With regard to the retail inventory method, which of the following is the most accurate
statement?
A. It is not adaptable to FIFO costing.
B. Generally, accountants ignore net markups and net markdowns in computing the cost
price percentage.
C. Generally, accountants exclude net markups and include net markdowns in computing
cost price percentage.
D. This method results in a lower ending inventory cost if net markups are included but net
markdowns are excluded in computing the cost price percentage.
FA © 2014
MCQ – Theory: Biological Assets
Scope
28. Where there is a long aging or maturation process after harvest, the accounting for such
products shall be dealt with by
A. PAS 41, Agriculture
C. PAS 40, Investment property FA © 2014
B. PAS 2, Inventories
D. PAS 16, Property, plant and equipment
29. Which of the following is not dealt with by PAS 41?
A. The accounting for biological assets.
B. The processing of agricultural produce after harvesting.
FA © 2014
C. The accounting treatment of government grant received in respect of biological assets.
D. The initial measurement of agricultural produce harvested from the entity's biological
assets.
MCQ – Theories: Biological Assets
Page 17
FINANCIAL ACCOUNTING
Basic concept
30. It is the management by an entity of the biological transformation and harvest of biological
assets for sale or for conversion into agricultural produce or into additional biological asset.
A. Agricultural activity
C. Development activity
B. Biological activity
D. Economic activity
FA © 2014
31. Agricultural activity includes all of the following, except
A. Aquaculture
C. Perennial cropping
B. Ocean fishing
D. Raising livestock
FA © 2014
32. Agricultural activity results in which of the following type of asset?
A. Biological asset
B. Agricultural produce
C. Both biological asset and agricultural produce
D. Neither biological asset nor agricultural produce
FA © 2014
33. It is a market in which transactions for the asset or liability take place with sufficient regularity
and volume to provide pricing information on an ongoing basis.
A. Active market
C. Global market
B. Financial market
D. Principal market
FA © 2014
Land
34. Land that is related to agricultural activity is measured
A. At fair value.
FA © 2014
B. At fair value in combination with the biological asset that is being grown on the land.
C. At the resale value separate from the biological asset that is being grown on the land.
D. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment
Property.
Biological asset & agricultural produce
35. What is the measurement basis for biological asset and agricultural produce?
A. Current cost
C. Historical cost
B. Fair value
D. Present value
Biological assets
36. Biological assets are
A. Living animals only
B. Living plants only
MCQ – Theories: Biological Assets
FA © 2014
TOA © 2013
C. Both living animals and living plants
D. Neither living animals nor living plants
Page 18
Biological Assets
37. Biological assets
A. Must be measured at cost.
B. Are found only in Biotech entities.
C. Do not generally have future economic benefits.
D. Are living animals or living plants and must disclosed as a separate line item in the
statement of financial position.
FA © 2014
38. All of the following would be classified as biological asset, except
A. Chicken
C Egg
B. Dairy cattle
D. Tree
FA © 2014
39. Biological transformation results from asset changes through all of the following, except
A. Degeneration
C. Procreation
FA © 2014
B. Growth
D. Production of agricultural produce
40. Which of the following criteria must not be satisfied before a biological asset can be
recognized in the financial statements?
A. An active market for the asset exists.
B. The entity controls the asset as a result of past event.
C. The fair value or cost of the asset can be measured reliably.
FA © 2014
D. It is probable that future economic benefits relating to the asset will flow to the entity.
41. Generally speaking, biological assets relating to agricultural activity shall be measured using
A. Historical cost
B. Net realizable value
C. A fair value approach
D. Historical cost less depreciation less impairment
FA © 2014
42. Biological assets are measured at
A. Cost
B. Fair value less cost of disposal
C. Lower of cost and net realizable value
D. Net realizable value
FA © 2014
43. Which of the following is unlikely to be used in fair value measurement?
A. External independent valuation
B. Quoted price of a similar asset in an active market
C. Quoted price of an identical asset in an active market
D. Quoted price of an identical asset in an inactive market
MCQ – Theories: Biological Assets
FA © 2014
Page 19
FINANCIAL ACCOUNTING
44. When the fair value of the biological asset cannot be determined reliably, the biological asset
shall be measured at
A. Cost
B. Net realizable value
C. Cost less accumulated depreciation
D. Cost less accumulated depreciation and accumulated impairment losses
FA © 2014
Income from biological asset
45. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income
shall be accounted for in which of the following?
A. No income shall reported annually until first harvest and sale in 30 years.
B. The eventual sale proceeds shall be estimated and matched to the profit and loss
account over the 30-year period.
C. Income shall be measured annually and reported using a fair value approach that
recognizes and measures biological growth.
D. The plantation forest shall be valued every 5 years and the increase in value shall be
recognized as component of other comprehensive income.
FA © 2014
46. A gain or loss arising on the initial recognition of a biological asset and from a change in the
fair value less cost of disposal of a biological asset shall be included in
A. A capital reserve within equity
C. Other comprehensive income FA © 2014
B. A separate revaluation reserve
D. The profit or loss for the period
47. An entity owns a herd of cattle. Where should changes in the fair value of a herd of cattle be
recognized in the financial statements?
A. In profit or loss only
B. In the statement of cash flows only
C. In other comprehensive income only
D. In profit or loss or other comprehensive income
FA © 2014
Agricultural produce
48. It is the harvested product of the entity's biological assets.
A. Agricultural produce
C. Harvest
B. Agriculture
D. Product
49. Agricultural produce is
A. The harvested product from biological asset.
B. Valued at the time of harvest at the cost of production.
C. All of the choices are correct regarding agricultural produce.
D. Valued at each reporting period at fair value less cost of disposal.
MCQ – Theories: Biological Assets
TOA © 2013
FA © 2014
Page 20
Biological Assets
50. Which of the following would be classified as agricultural produce?
A. Apple
C. Butter
B. Bush
D. Lumber
FA © 2014
51. Agricultural produce is measured at
A. Fair value
B. Net realizable value
C. Net realizable value less normal profit margin
D. Fair value less cost of disposal at the point of harvest
FA © 2014
52. When agricultural produce is harvested, the harvest shall be accounted for by using PAS 2,
Inventories, or another applicable PFRS. For the purpose of that standard, cost at the date
of harvest is deemed to be
A. Market value
B. The historical cost of the harvest
C. The historical cost less accumulated impairment losses
D. The fair value less cost of disposal at the point of harvest
FA © 2014
53. Which of the following costs should not be included in cost of disposal?
A. Commission to broker
C. Transfer tax and duty
B. Levy by regulatory agency
D. Transport cost
FA © 2014
54. Which of the following statements is true regarding agricultural produce?
A. The fair value measurement of agricultural produce stops at the time of harvest.
B. In all cases, an entity shall measure agricultural produce at fair value less cost of disposal
at the point of harvest.
C. The prevailing view is that the fair value of agricultural produce at the point of harvest
can always be measured reliably.
D. All of these statements are true regarding agricultural produce.
FA © 2014
55. Which of following statements in relation to agricultural produce is correct?
I. In all cases, an entity shall measure agricultural produce at the point of harvest at fair
value less cost of disposal.
II. The prevailing view is that the fair value of agricultural produce at the point of harvest
can always be measured reliably.
A. I only
C. Both I and II
B. II only
D. Neither I nor II
TOA © 2013
MCQ – Theories: Biological Assets
Page 21
FINANCIAL ACCOUNTING
Processed product
56. Which of the following would be classified as a product that is the result of processing after
harvest?
A. Bananas
C. Cotton
B. Cheese
D. Wool
FA © 2014
Government grant
57. An unconditional government grant related to a biological asset that has been measured at
fair value less cost of disposal shall be recognized as
A. Income when the grant becomes receivable.
B. A deferred credit when the grant has been approved.
C. A deferred credit when the grant becomes receivable.
D. Income when the grant application has been submitted.
FA © 2014
58. If a government grant related to a biological asset is conditional on certain events, the grant
shall be recognized as
A. Income when the grant has been approved.
B. A deferred credit when the grant is approved.
C. Income when the conditions attaching to the grant are met.
FA © 2014
D. A deferred credit when the conditions attached to the government grant are met.
Presentation & disclosure requirements
59. Which of the following information shall be disclosed in relation to biological asset and
agricultural produce?
A. There is no requirement in the standard to disclose separately any gain or loss.
B. Separate disclosure of the gain or loss relating to biological asset and agricultural
produce.
C. The total gain or loss from biological asset, agricultural produce, and from changes in
fair value less cost of disposal of biological asset.
D. The aggregate gain or loss arising on the initial recognition of biological asset and
agricultural produce and from the change in fair value less cost of disposal of biological
asset.
TOA © 2013
60. Where there is a production cycle of more than one year for a biological asset, PAS 41
encourages separate disclosure of
A. Price change only
C. Total change in value
FA © 2014
B. Physical change only
D. Physical change and price change
MCQ – Theories: Biological Assets
Page 22
Inventory – Cost Estimation
MCQ – Problems: Inventory – Cost Estimation
Gross Profit Method
Sales
1. Nefarious Company reported net income of P480,000 for current year. Percentage
distribution of some of the items in the income statement was as follows:
Selling expense
10% of sales
Administrative expenses, excluding bad debts
15% of sales
Bad debts expense
3% of sales
It is ascertained that administrative expenses are 25% of cost of sales. What is the amount
of sales for the current year?
A. 1,920,000
C. 4,000,000
B. 3,200,000
D. 4,800,000
FA © 2014
Gross profit
2. Beyonce Company sells merchandise on a consignment basis to dealers. The selling price
of the merchandise averages 25% above cost. The dealer is paid a 10% commission of the
sales price for all sales made. All dealer sales are made on a cash basis. The following
consignment activities occurred during the current year:
Manufacturing cost of goods shipped on consignment
8,800,000
Sales price of merchandise sold by dealers
9,600,000
Payments remitted by dealers after deducting commission
6,300,000
What is the gross profit on sales?
A. 1,220,000
C. 1,920,000
B. 1,700,000
D. 2,400,000
PA 1 © 2014
Ending inventory
3. Keepsake Company estimated the cost of the physical inventory on March 31 for use in
interim financial statement. The rate of markup on cost is 25%o. The inventory on January 1
was P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000, purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?
A. 2,100,000
C. 3,600,000
B. 2,800,000
D. 3,975,000
PA 1 © 2014
4.
Keepsake Company estimated the cost of its physical inventory on March 31 for use in interim
financial statement. The rate of markup on cost is 25%. The inventory on January 1 was
P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000, purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?
MCQ – Problems: Inventory – Cost Estimation
Page 23
FINANCIAL ACCOUNTING
A. 2,100,000
B. 2,800,000
5.
C. 3,600,000
D. 3,975,000
FA © 2014
Avarice Company has a recent gross profit history of 40% of net sales. The following data
are available from the accounting records for the three months ended March 31, 2014:
Inventory - January 1
650,000
Purchases
3,200,000
Net sales
4,500,000
Purchase return
75,000
Freight in
, 50,000
Using the gross profit method, what is the estimated cost of inventory on March 31, 2014?
A. 1,120,000
C. 2,025,000
B. 1,125,000
D. 2,700,000
FA © 2014
Partial loss of inventory
6. A fire destroyed Newborn Company's inventory on October 31. On January 1, the inventory
had a cost of P2,500,000. During the period January 1 to October 31, the entity had net
purchases of P7,500,000 and net sales of P15,000,000. Undamaged inventory at the date
of fire had a cost of PI 50,000. The markup on cost is 66 2/3%. What was the cost of inventory
destroyed by fire?
A. 850,000
C. 3,850,000
B. 1,000,000
D. 4,000,000
FA © 2014
7.
On June 30, 2014, a flash flood caused damage to the merchandise stored in the warehouse
of Teachable Company.
* Net sales for 2013 were P800,000 costing P560,000.
* Inventory, January 1 was P200,000, 90% of which was in the warehouse and 10% in
downtown showroom.
* From January 1 to date of flood, the invoice value of purchases all stored in the
warehouse is P100,000, freight P4,000, and purchase return P6,000.
* Cost of merchandise transferred from the warehouse to showroom was P8,000 and net
sales from January 1 to June 30, 2014 (all warehouse stock) amounted P320,000.
What is the estimated cost of merchandise destroyed by flood?
A. 46,000
C. 66,000
B. 50,000
D. 80,000
FA © 2014
8.
In December 2014, Unanimous Company had a significant portion of inventory stolen. The
entity determined the cost of inventory not stolen to be P100,000.
MCQ – Problems: Inventory – Cost Estimation
Page 24
Inventory – Cost Estimation
9.
2014
2013
Purchases
5,200,000
5,000,000
Purchase return and allowance
240,000
200,000
Sales
7,880,000
8,200,000
Sales return and allowance
80,000
200,000
Beginning inventory
1,200,000
2,000,000
What is the estimated cost of the stolen inventory?
A. 144,000
C. 644,000
B. 600,000
D. 700,000
FA © 2014
On December 31, 2014, Frenzy Company had a fire which completely destroyed the goods
in process inventory. A physical inventory was taken after the fire.
December 31
January 1
Finished goods
1,000,000
1,400,000
Goods in process
0
1,000,000
Raw materials
600,000
300,000
Supplies
100,000
400,000
During the year, the entity reported sales of P3,000,000, purchases of P1,000,000, freight of
P100,000, direct labor of P800,000 and manufacturing overhead at 50% of direct labor. The
average gross profit rate is 30% on sales. What is the estimated cost of the goods in process
on December 31, 2014 that were completely destroyed by fire?
A. 1,300,000
C. 2,000,000
B. 1,700,000
D. 2,100,000
FA © 2014
10. On December 31, 2014, a big fire caused severe damage to the warehouse of Kleptomaniac
Company.
2014
2013
Merchandise inventory, beginning
1,000,000
Purchases
8,000,000
5,600,000
Purchase return
500,000
100,000
Sales
9,000,000
6,000,000
At the beginning of 2014, the entity changed the policy on the sellIng prices of the
merchandise in order to produce a gross profit rate of 5% higher than the gross profit rate in
2013. Undamaged merchandise marked to sell at P500,000 was salvaged. Damaged
merchandise marked to sell at P100,000 had an estimated realizable value of P10,000. What
amount should be reported as inventory fire loss?
A. 1,600,000
C. 1,840,000
B. 1,780,000
D. 2,200,000
FA © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 25
FINANCIAL ACCOUNTING
11. On the night of September 30, 2014, a fire destroyed most of the merchandise inventory of
Sonia Company. All goods were completely destroyed except for partial damaged goods that
normally sell for P100,000 and that had an estimated net realizable value of P25,000 and
undamaged goods that normally sell for P60,000. The following data are available:
Inventory, January 1
660,000
Net purchases, January 1 through September 30
4,240,000
Net sales, January 1 through September 30
5,600,000
Total
2013
2012
2011
Net sales
9,000,000
5,000,000
3,000,000
1,000,000
Cost of sales
6,750,000
3,840,000
2,200,000
710,000
Gross income
2,250,000
1,160,000
800,000
290,000
What is the estimated amount of fire loss on September 30,2014?
A. 580,000
C. 630,000
B. 615,000
D. 700,000
FA © 2014
12. Cool Air Company lost 50% of its inventory by fire on December 31, 2014. No inventory had
been taken on December 31, 2014. The
following profit and loss data are available:
2014
2013
2012
Inventory, January 1
1,040,000
840,000
848,000
Purchases
3,600,000
2,876,000
2,836,000
Purchase returns
240,000
140,000
200,000
Sales
4,060,000
3,900,000
3,620,000
Sales returns
60,000
100,000
20,000
What is the value of the inventory destroyed by fire?
A. 800,000
C. 1,600,000
B. 880,000
D. 1,760,000
PA 1 © 2014
13. Ombudsman Company lost all inventory by fire on December 31, 2014.
2014
2013
2012
Inventory - January 1
1,040,000
1,410,000
850,000
Net purchases
4,360,000
2,730,000
2,640,000
Net sales
5,000,000
4,000,000
3,400,000
Goods with selling price of P300,000 are sent on consignment. These goods are still unsold
by the consignee on December 31, 2014. Goods purchased costing P190.000 are in transit
on December 31, 2014. The goods were shipped FOB shipping point on December 28, 2014
and properly recorded as purchases. What amount of inventory fire loss should be reported?
A. 1,410,000
C. 1,900,000
B. 1,500,000
D. 1,690,000
FA © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 26
Inventory – Cost Estimation
Total loss of inventory
14. On June 30, a fire destroyed Intense Company's entire inventory. The inventory on January
1 totaled P6,600,000. From January 1 through the time of the fire, the entity made purchases
of P3,000,000, incurred freight in of P300,000, and had sales of P7,800,000. The rate of
gross profit on selling price is 30%. What is the approximate cost of the inventory that was
destroyed?
A. 3,600,000
C. 4,140,000
B. 3,900,000
D. 4,440,000
FA © 2014
15. Lin Company sells merchandise at a gross profit of 30%. On June 30,2014, all of the inventory
was destroyed by fire. The following figures pertain to the operations for the six months ended
June 30, 2014:
Net sales
8,000,000
Beginning inventory
2,000,000
Net purchases
5,200,000
What is the estimated cost of the destroyed inventory?
A. 800,000
C. 2,800,000
B. 1,600,000
D. 4,800,000
PA 1 © 2014
16. On December 31, 2014, a storm surge damaged the warehouse of Braveheart Company.
The entire inventory and many accounting records were completely destroyed.
January 1
December 31
Inventory
1,500,000
Purchases
5,500,000
Cash sales
900,000
Collections of accounts receivable
8,400,000
Accounts receivable
700,000
1,100,000
Gross profit rate on sales
40%
What is the inventory loss from the storm surge?
A. 1,180,000
C. 2,260,000
B. 1,720,000
D. 2,700,000
FA © 2014
Missing inventory
17. Boon Company provided the following information for the current year:
Beginning inventory
500,000
Purchases
2,500,000
Sales
3,200,000
A physical inventory taken at year-end resulted in an ending inventory of P500,000. The gross
profit on sales has remained constant at 25% in recent years. The entity suspects some
MCQ – Problems: Inventory – Cost Estimation
Page 27
FINANCIAL ACCOUNTING
inventory may have been taken by a new employee. What is the estimated cost of missing
inventory at year-end?
A. 0
C. 440,000
B. 100,000
D. 600,000
FA © 2014
18. Olivia Company provided the following information for the year ended December 31,2014:
Inventory, January 1
650,000
Purchases
2,300,000
Purchase returns
80,000
Freight in
60,000
Sales
3,400,000
Sales discounts
20,000
Sales returns
30,000
On December 31, 2014, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained constant at 30% in recent years. The
entity suspects that some inventory may have been pilfered by one of the entity's employees.
On December 31,2014, what is the estimated cost of missing inventory?
A. 151,000
C. 420,000
B. 165,000
D. 585,000
PA 1 © 2014
19. Celibacy Company provided the following information for the year ended December 31, 2014:
Inventory, January 1
650,000
Purchases
2,300,000
Purchase returns
80,000
Freight in
60,000
Sales
3,400,000
Sales discounts
20,000
Sales returns
30,000
On December 31, 2014, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained, constant at 30% in recent years. The
entity suspects that some inventory may have been pilfered by one of the entity's employees.
On December 31, 2014, what is the estimated cost of missing inventory?
A. 151,000
C. 420,000
B. 165,000
D. 585,000
FA © 2014
Cost of goods sold
20. On September 30, 2014, a fire at Elusive Company's only warehouse caused severe
damaged to the entire inventory. Based on recent history, the entity has a gross profit of 30%
on cost of sales. The following information is available from the records for the nine months
MCQ – Problems: Inventory – Cost Estimation
Page 28
Inventory – Cost Estimation
ended September 30, 2014:
Inventory - January 1
550,000
Purchases
3,000,000
Net sales
3,640,000
A physical inventory disclosed usable damaged goods which can be sold to a jobber for
P50,000. What is the estimated cost of goods sold for the nine months ended September 30,
2014?
A. 2,485,000
C. 2,750,000
B. 2,548,000
D. 2,800,000
FA © 2014
21. On September 30,2014, Brock Company reported that a fire caused severe damage to the
entire inventory. The entity has a gross profit of 30%o on cost. The following data are
available for nine months ended September 30,2014:
Inventory at January 1
1,100,000
Net purchases
6,000,000
Net sales
7,280,000
A physical inventory disclosed usable damaged goods which can be sold for PI 00,000. What
is the estimated cost of goods sold for the nine months ended September 30,2014?
A. 4,970,000
C. 5,500,000
B. 5,096,000
D. 5,600,000
PA 1 © 2014
22. On October 31, 2014, Pamela Company reported that a flood caused severe damage to the
entire inventory. Based on recent history, the entity has a gross profit of 25% of sales. The
following information is available from the records for ten months ended October 31, 2014:
Inventory, January 1
520,000
Purchases
4,120,000
Purchase returns
60,000
Sales
5,600,000
Sales returns
400,000
Sales allowances
100,000
A physical inventory disclosed usable damaged goods which can be sold for P70,000. Using
the gross profit method, what is the estimated cost of goods sold for the ten months ended
October 31,2014?
A. 3,360,000
C. 3,830,000
B. 3,825,000
D. 3,900,000
FA © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 29
FINANCIAL ACCOUNTING
Net income
23. The records of Mainstream Company were destroyed by flood at the end of the current year.
However, certain statistical data related to the income statement are available.
Interest expense
20,000
Cost of goods sold
2,000,000
Sales discount
100,000
The beginning inventory was P400,000 and decreased 20% during the year. Administrative
expenses are 25% of cost of goods sold but only 10% of gross sales. Four-fifths of the
operating expenses relate to sale activities. Ignoring income tax, what is the net income for
the current year?
A. 330,000
C. 400,000
B. 380,000
D. 480,000
FA © 2014
Comprehensive
Questions 24 & 25 are based on the following information.
FA © 2014
Moderate Company provided the following information:
June
July
August
Sales on account
7,200,000
7,360,000
7,600,000
Cash sales
720,000
800,000
1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each
month is 30% of that month's cost of goods sold.
24. What i s the cost of goods sold for June?
A. 5,760,000
B. 6,000,000
C. 6,080,000
D. 6,600,000
25. What is the amount of purchases for July?
A. 6,528,000
B. 6,800,000
C. 6,920,000
D. 8,304,000
Questions 26 & 27 are based on the following information.
FA © 2014
On October 15, 2014, a fire destroyed all inventory of Sham Company in a rented stockroom. The
records of the entity showed the following information:
Inventory, January 1
500,000
Sales, January 1 - October 15
3,840,000
Sales return and allowance
40,000
Purchases, January 1 - October 15
3,560,000
Purchase return and allowance
60,000
Cost of stock in display room, not destroyed
320,000
MCQ – Problems: Inventory – Cost Estimation
Page 30
Inventory – Cost Estimation
Summary of prior years' sales:
Sales
Gross profit
2013
3,700,000
1,295,000
2012
3,500,000
1,050,000
2011
3,000,000
750,000
26. If the trend in gross profit rate continues, what is the estimated cost of merchandise lost in
the fire on October 15, 2014?
A. 1,210,000
C. 1,530,000
B. 1,400,000
D. 1,720,000
27. If the average gross profit rate is used, what is the estimated cost of merchandise lost in the
fire on October 15, 2014?
A. 1,020,000
C. 1,400,000
B. 1,340,000
D. 1,720,000
Questions 28 & 29 are based on the following information.
P1 © 2014
In conducting an audit of Remy Company for the year ended June 30, 2014, the entity's CPA
observed the physical inventory at an interim date, May 31, 2014. The following information was
obtained:
a.
b.
c.
d.
Inventory, July 1, 2013
Physical inventory, May 31,2014
Sales for 11 months ended May 31, 2014
Sales for year ended June 30, 2014
Purchases for 11 months ended May 31, 2014
Purchases for year ended June 30, 2014
Shipments received in May and included in the physical inventory
but recorded as June purchases
Shipments received in unsalable condition and excluded from
physical inventory. Credit memos had not been received nor
had chargebacks to vendors been recorded:
Total at May 31,2014
Total at June 30,2014 (including the May unrecorded chargebacks)
Deposit made with vendor and charged to purchases in April, 2014.
Product was shipped in July, 2014
Deposit made with vendor and charged to purchases in May, 2014.
Product was shipped FOB destination, on May 29,2014 and
was included in May 31,2014 physical inventory as goods in transit
MCQ – Problems: Inventory – Cost Estimation
875,000
950,000
8,400,000
9,600,000
6,750,000
8,000,000
75,000
10,000
15,000
20,000
55,000
Page 31
FINANCIAL ACCOUNTING
e. Through the carelessness of the receiving department a June shipment was damaged by rain.
This shipment was later sold in June at its cost of
100,000
28. What is the cost of goods sold for the month of June 2014?
A. 780,000
C. 960,000
B. 880,000
D. 980,000
29. What is the inventory on June 30, 2014?
A. 1,140,000
B. 1,160,000
C. 1,240,000
D. 1,340,000
Questions 30 thru 32 are based on the following information.
Fairy Company provided the following information:
Net sales
Beginning inventory
Purchases
Freight in
Purchase discounts
Purchase returns
Purchase allowances
Ending inventory
2014
7,500,000
1,260,000
6,450,000
350,000
90,000
120,000
20,000
2,355,000
P1 © 2014
2015
4,500,000
3,180,000
220,000
45,000
40,000
15,000
?
30. What is the amount of gross profit for 2014?
A. 2,025,000
C. 2,625,000
B. 2,250,000
D. 3,000,000
31. What is the gross profit rate for 2014?
A. 27%
B. 30%
C. 35%
D. 40%
32. What is the inventory on December 31, 2015?
A. 2,025,000
C. 2,505,000
B. 2,370,000
D. 3,285,000
MCQ – Problems: Inventory – Cost Estimation
Page 32
Inventory – Cost Estimation
Questions 33 thru 35 are based on the following information.
P1 © 2014
On December 31, 2014, Empress Company had a fire which completely destroyed the goods in
process inventory. After the fire a physical inventory was taken. The raw materials were valued at
P600,000, the finished goods at PI,000,000 and supplies at P100,000 on December 31,2014. The
inventories on January 1, 2014 consisted of the following:
Finished goods
1,400,000
Goods in process
1,000,000
Raw materials
300,000
Supplies
400,000
Data for the current year
Sales
3,000,000
Purchases
1,000,000
Freight in
100,000
Direct labor
800,000
Manufacturing overhead - 50% of direct labor
?
Average gross profit rate
30%
33. What is the cost of goods sold?
A. 1,700,000
B. 1,900,000
C. 2,100,000
D. 2,300,000
34. What is the cost of goods manufactured?
A. 1,700,000
B. 2,300,000
C. 2,500,000
D. 3,100,000
35. What is the estimated cost of the goods in process on December 31, 2014 that were
completely destroyed by fire?
A. 1,300,000
C. 2,000,000
B. 1,700,000
D. 2,100,000
Questions 36 thru 38 are based on the following information.
FA © 2014
On December 31, 2014, a fire broke out in the warehouse of Regatta Company destroying ah
inventory. The following data are available for 2014:
Inventory
Accounts receivable
Accounts payable
Collection on accounts receivable
MCQ – Problems: Inventory – Cost Estimation
January 1
500,000
480,000
400,000
December 31
440,000
500,000
2,640,000
Page 33
FINANCIAL ACCOUNTING
Payments to suppliers
Goods out on consignment at sales price
Salvage value of inventory
Sales
Gross profit
2013
2,800,000
1,260,000
1,600,000
200,000
20,000
2012
2,700,000
1,080,000
2011
2,500,000
860,000
36. What is the amount of purchases for the current year?
A. 1,500,000
C. 1,700,000
B. 1,600,000
D. 2,100,000
37. What is the amount of sales for the current year?
A. 2,200,000
C. 2,640,000
B. 2,600,000
D. 2,680,000
38. What is the inventory fire loss on December 31, 2014?
A. 420,000
C. 508,000
B. 500,000
D. 600,000
Questions 39 thru 42 are based on the following information.
P1 © 2014
Ori April 30,2014, a fire damaged the office of Amaze Company. The following balances were
gathered from the general ledger on March 31, 2014:
Accounts receivable
920,000
Inventory - January 1
1,880,000
Accounts payable
950,000
Sales
3,600,000
Purchases
1,680,000
* An examination of the April bank statement and canceled checks revealed checks written
during the period April 1-30 as follows:
Accounts payable as of March 31
240,000
April merchandise shipments
80,000
Expenses
160,000
Deposits during the same period amounted to P440,000 which consisted of collections
from customers with the exception of P20,000 refund from a vendor for merchandise
returned in April.
* Customers acknowledged indebtedness of P1,040,000 at April 30. Customers owed
another P60,000 that will never be recovered. Of the acknowledged indebtedness,
P40,000 may prove uncollectible.
MCQ – Problems: Inventory – Cost Estimation
Page 34
Inventory – Cost Estimation
*
*
*
Correspondence with suppliers revealed unrecorded obligations at April 30, of P340,0.00
for April merchandise shipment, including PI00,000 for shipments in transit on that date.
The average gross profit rate is 40%.
Inventory with a cost of P260,000 was salvaged and sold for P140,000. The balance of
the inventory was a total loss.
39. What is total amount of sales up to April 30?
A. 4,140,000
C. 4,200,000
B. 4,160,000
D. 4,220,000
40. What is the total amount of purchases up to April 30?
A. 1,680,000
C. 2,020,000
B. 1,760,000
D. 2,100,000
41. What is the inventory on April 30?
A. 1,428,000
B. 1,440,000
C. 1,464,000
D. 1,476,000
42. What is the fire loss to be recognized on April 30?
A. 1,200,000
C. 1,340,000
B. 1,300,000
D. 1,440,000
Retail Method
Conservative retail inventory method
43. On December 31, 2014, Huff Company provided the following information:
Cost
Retail
Inventory, January 1
735,000
1,015,000
Purchases
4,165,000
5,775,000
Additional markups
210,000
Available for sale
4,900,000
7,000,000
Sales for the year totaled P5,530,000. Markdowns amounted to P70,000. Under the
approximate lower of average cost or marked retail method, what is the inventory on
December 31,2014?
A. 980,000
C. 1,400,000
B. 1,078,000
D. 1,540,000
PA 1 © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 35
FINANCIAL ACCOUNTING
44. Bouquet Company used the conventional retail inventory method to account for inventory.
Cost
Retail
Beginning inventory and purchases
6,000,000
9,200,000
Net markup
400,000
Net markdown
600,000
Sales
7,800,000
What amount should be reported as cost of sales?
A. 4,800,000
C. 5,200,000
B. 4,875,000
D. 5,250,000
FA © 2014
45. Sublime Company showed the following information on December 31, 2014.
Cost
Retail
Inventory, January 1
280,000
700,000
Sales
5,000,000
Purchases
2,480,000
5,160,000
Freight in
75,000
,
Markup
500,000
Markup cancelation
60,000
Markdown
250,000
Markdown cancelation
50,000
Estimated normal shrinkage is 2% of sales.
The entity used the retail inventory method in estimating the value of its inventory. What is
the estimated cost of inventory on December 31, 2014 at approximate lower of average cost
and net realizable value?
A. 450,000
C. 495,000
B. 460,000
D. 506,000
FA © 2014
46. Carmela Company used the conservative retail inventory method. The following
information relating to the inventory was gathered at year-end:
Cost
Retail
Beginning inventory
530,000
900,000
Purchases
6,080,000
8,700,000
Purchase discounts
85,000
Freight in
105,000
Markups
600,000
Markdowns
800,000
Sales
8,600,000
Sales discounts
100,000
MCQ – Problems: Inventory – Cost Estimation
Page 36
Inventory – Cost Estimation
What is the ending inventory at year-end?
A. 520,000
B. 568,000
C. 585,000
D. 800,000
Average cost retail method
47. Domicile Company had the following amounts all at retail:
Beginning inventory
180,000
Purchases
Purchase return
300,000
Net markup
Abnormal shortage
200,000
Net markdown
Sales
3,600,000
Sales return
Employee discounts
80,000
Normal shortage
What is the ending inventory at retail?
A. 2,720,000
C. 2,880,000
B. 2,800,000
D. 2,920,000
FA © 2014
6,000,000
900,000
140,000
90,000
130,000
FA © 2014
48. Fainthearted Company provided the following information for the current year:
Cost
Retail
Beginning inventory
750,000
1,000,000
Purchases
4,150,000
5,800,000
Additional markup
200,000
Available for sale
4,900,000
7,000,000
Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the average
cost approach in applying the retail method, what is the inventory at year-end?
A. 980,000
C. 1,050,000
B. 994,000
D. 1,400,000
FA © 2014
49. Dean Company used the retail inventory method to estimate inventory. Data relating
to the inventory computation on December 31,2014 are as follows:
Cost
Retail
Inventory, January 1
720,000
1,000,000
Purchases
4,080,000
6,300,000
Net markups
700,000
Sales
6,820,000
Estimated normal shoplifting losses
80,000
Net markdowns
500,000
Under the average cost retail method, what is the estimated inventory on December 31,
2014?
A. 360,000
C. 408,000
B. 384,000
D. 600,000
PA 1 © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 37
FINANCIAL ACCOUNTING
50. Abscond Company used the retail inventory method to estimate inventory for interim
statement purposes. Data relating to the computation of the inventory on December 31, 2014
are as follows:
Cost
Retail
Inventory, January 1
720,000
1,000.000
Purchases
4,080,000
6,300,000
Markup
700,000
Markdown
500,000
Sales
5,900,000
Normal shoplifting losses
100,000
Under the average cost approach, what is the estimated cost of inventory on December 31,
2014?
A. 900,000
C. 1,024,000
B. 960,000
D. 1,500,000
FA © 2014
51. Caramel Company used the average retail inventory method. On December 31, 2014, the
following information relating to the inventory was gathered:
Cost
Retail
Inventory, January 1
190,000
450,000
Purchases
2,990,000
4,350,000
Purchase discounts
40,000
Freight in
150,000
Markups
300,000
Markdowns
400,000
Sales
4,400,000
Sales return
100,000
Sales discount
50,000
Sales allowance
30,000
What is the estimated cost of the inventory on December 31,2014?
A. 245,000
C. 315,000
B. 280,000
D. 400,000
PA 1 © 2014
52. Diane Company showed the following information on December 31,2014:
Cost
Retail
Inventory, January 1
560,000
1,400,000
Sales
10,000,000
Purchases
4,960,000
10,320,000
Freight in
150,000
Markup
1,000,000
MCQ – Problems: Inventory – Cost Estimation
Page 38
Inventory – Cost Estimation
Markup cancelation
Markdown
Markdown cancelation
Estimated normal shrinkage is 2.5% of sales.
Diane used the average cost retail inventory method in estimating the
inventory. What is the estimated cost of inventory on December 31,2014?
A. 460,000
C. 897,000
B. 877,500
D. 990,000
120,000
500,000
100,000
value of
PA 1 © 2014
53. On January 1, 2014, the stock inventory of Ron Company was P1,000,000 at retail and
P560,000 at cost. During the current year, the entity registered the following purchases:
Cost
4,000,000
Retail price
6,200,000
Original markup
2,200,000
The total net sales was P5,400,000. The following reductions were made in the retail price:
To meet price competition
50,000
To dispose of overstock
30,000
Miscellaneous reductions
120,000
During the current year, the selling price of a certain inventory increased from P200 to P300.
This additional markup applied to 5,000 items but was later canceled on the remaining 1,000
items. What is the inventory on December 31,2014 using the average cost retail method?
A. 1,200,000
C. 2,000,000
B. 1,240,000
D. 2,400,000
FA © 2014
54. Airborne Company used the average cost retail inventory method. The entity provided the
following information for the year ended December 31,2014.
Cost
Retail
Inventory - January 1
1,650,000
2,200,000
Net purchases
3,725,000
4,950,000
Departmental transfer - credit
200,000
300,000
Net markup
150,000
Inventory shortage - sales price
100,000
Employee discounts
200,000
Sales (including sales of P400,000 of items which
were marked down from P500,000)
4,000,000
What is the estimated cost of inventory on December 31,2014?
A. 1,924,000
C. 2,250,000
B. 1,950,000
D. 2,600,000
PA 1 © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 39
FINANCIAL ACCOUNTING
55. Hutch Company used the average cost retail inventory method to account for inventory. The
following information related to operations for the current year:
Cost
Beginning inventory and purchases
6,000,000
Net markups
400,000
Net markdowns
600,000
Sales
What amount should be reported as cost of sales for the current year?
A. 4,800,000
C. 5,200,000
B. 4,875,000
D. 5,250,000
Retail
9,200,000
7,800,000
PA 1 © 2014
56. Bizarre Company had always inventoried finished goods at selling price and prepared the
following statement on this basis:
Sales
1,400,000
Raw materials used at cost
500,000
Labor
600,000
Overhead
240,000
Total
1,340,000
Work in process at cost:
January 1
612,000
December 31
752,000
140,000
Cost of goods manufactured
1,200,000
Finished goods at selling price:
January 1
240,000
December 31
840,000
600,000
600,000
Gross income
800,000
What is the cost of goods sold?
A. 200,000
C. 600,000
B. 500,000
D. 840,000
PA 1 © 2014
FIFO retail method
57. Union Company used the FIFO retail method of inventory valuation. The entity
provided the following information for the current year:
Beginning inventory
Purchases
Net additional markups
MCQ – Problems: Inventory – Cost Estimation
Cost
600,000
3,000,000
Retail
1,500,000
5,500,000
500,000
Page 40
Inventory – Cost Estimation
Net markdowns
Sales revenue
What is the estimated cost of ending inventory?
A. 960,000
C. 1,040,000
B. 1,000,000
D. 1,200,000
1,000,000
4,500,000
FA © 2014
58. Groom Company used the LIFO retail method of inventory valuation. The entity provided
the following information for the current year:
Cost
Retail
Inventory - January 1
1,200,000
1,500,000
Net purchases
4,200,000
5,900,000
Net markups
200,000
Net markdowns
100,000
Net sales
5,500,000
What is the estimated cost of ending inventory?
A. 1,400,000
C. 1,460,000
B. 1,440,000
D. 1,550,000
PA 1 © 2014
59. Emeritus Company which used the FIFO retail inventory method provided the following
information for the current year:
Cost
Retail
Beginning inventory
1,200,000
1,800,000
Purchases
5,600,000.
7,200,000
Freight in
400,000
Net markup
1,400,000
Net markdown
600,000
Sales
7,600,000
What is the cost of goods sold for the current year?
A. 4,350,000
C. 5,594,000
B. 5,550,000
D. 5,682,000
FA © 2014
Net Realizable Value
60. Oligarchy Company has a partially-completed inventory with the following data:
Production costs incurred to date
2,900,000
Production costs to complete
2,000,000
Transport costs to customer
300,000
Future selling costs
400,000
Selling price
2,800,000
MCQ – Problems: Inventory – Cost Estimation
Page 41
FINANCIAL ACCOUNTING
What is the net realizable value of the inventory?
A. 100,000
C. 2,100,000
B. 400,000
D. 2,800,000
FA © 2014
Lower Of Cost And Net Realizable Value
Work in process
61. Based on a physical inventory at year-end, Cherry Company determined the chocolate
inventory on a FIFO basis at P2,600,000 with a replacement cost of P2,500,000. Cherry
Company estimated that, after further processing costs of Pi,200,000, the chocolate could be
sold as finished candy bars for P4,000,000. The normal profit margin is 10% of sales.
Under the lower of cost and net realizable value, what amount should be reported as
chocolate inventory in the year-end statement of financial position?
A. 2,400,000
C. 2,600,000
B. 2,500,000
D. 2,800,000
FA © 2014
62. Based on a physical inventory taken on December 31,2014, Chewy Company determined
the chocolate inventory on a FIFO basis at P5,200,000 with a replacement cost of
P4,000,000. The entity estimated that, after further processing costs of P2,400,000, the
chocolate could be sold as finished candy bars for P8,000,000. The normal profit margin is
10% of sales. Using the measurement at the lower of cost and net realizable value, what
amount should be reported as chocolate inventory on December 31,2014?
A. 4,000,000
C. 5,200,000
B. 4,800,000
D. 5,600,000
PA 1 © 2014
63. Gracia Company used the lower of cost or net realizable value method to value inventory.
Data regarding the items in work in process inventory are presented below:
Markers
Pens Highlighters
Historical cost
240,000
188,000
300,000
Selling price
360,000
250,000
360,000
Estimated cost to complete
48,000
50,000
68,000
Replacement cost
208,000
168,000
318,000
Normal profit margin as a percentage of selling price
25%
25%
10%
What is the measurement of the work in process inventory?
A. 676,000
C. 720,000
B. 694,000
D. 728,000
FA © 2014
Finished goods
64. Matrimony Company determined the year-end inventory on a FIFO basis at P4,000,000. The
entity provided the following information pertaining to the inventory:
MCQ – Problems: Inventory – Cost Estimation
Page 42
Inventory – Cost Estimation
Estimated selling price
4,050,000
Estimated cost of disposal
200,000
Normal profit margin
500,000
Current replacement cost
3,500,000
The entity measured inventory at the lower of cost and net realizable value. What is the
carrying amount of the inventory at year-end?
A. 3,350,000
C. 3,850,000
B. 3,500,000
D. 4,000,000
FA © 2014
65. Winter Company provided the following inventory data at year-end:
Cost
NRV
Skis
2,200,000
2,500,000
Boots
1,700,000
1,500,000
Ski equipment
700,000
800,000
Ski apparel
400,000
500,000
What amount should be reported as inventory at year-end?
A. 4,800,000
C. 5,200,000
B 5,000,000
D. 5,300,000
PA 1 © 2014
66. Gatekeeper Company has two products with cost and selling price as follows:
Product X
Product Y
Selling price
2,000,000
3,000,000
Estimated selling cost
600,000
700,000
Materials and conversion cost
1,500,000
1,800,000
General administration cost
300,000
800,000
At year-end, the manufacture of inventory has been completed but no selling cost has yet
been incurred. The inventory shall be measured at what amount?
A. 3,200,000
C. 3,700,000
B. 3,300,000
D. 3,800,000
FA © 2014
67. Chicago Company has two products in the inventory.
Product X
Product Y
Selling price
2,000,000
3,000,000
Materials and conversion costs
1,500,000
1,800,000
General administration costs
300,000
800,000
Estimated selling costs
600,000
700,000
At the year-end, the manufacture of items of inventory has been completed but no selling
costs have yet been incurred. What is the measurement of Product X and Y, respectively?
A. 1,400,000 and 1,800,000
C. 1,500,000 and 1,800,000
B. 1,400,000 and 2,300,000
D. 1,500,000 and 2,300,000 PA 1 © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 43
FINANCIAL ACCOUNTING
68. Starstruck Company is a retailer of Italian furniture and has five major product lines. At yearend, the entity provided the following inventory data:
Units
Unit cost
NRV per unit
Sofas
100
1,000
1,020
Dining tables
200
500
450
Beds
300
1,500
1,600
Closets
400
750
770
Lounge chairs
500
250
200
What is the inventory at year-end using the lower of cost and net realizable value?
A. 1,040,000
C. 1,998,000
B. 1,075,000
D. 2,033,000
FA © 2014
Loss on inventory writedown
69. On December 31,2014, Julie Company reported ending inventory at P3,000,000, and the
allowance for inventory writedown before any adjustment at P150,000. Relevant information
on December 31,2014 follows:
Product 1
Product 2
Product 2
Product 3
Historical cost
800,000
1,000,000
700,000
500,000
Replacement cost
900,000
1,200,000
1,000,000
600,000
Sales price
1,200,000
1,300,000
1,250,000
1,000,000
Net realizable value 550,000
1,100,000
950,000
350,000
Normal profit
250,000
150,000
300,000
300,000
What amount of loss on inventory writedown should be included in cost of goods sold?
A. 100,000
C. 250,000
B. 200,000
D. 400,000
PA 1 © 2014
Cost of goods sold
70. Greece Company provided the following data for the current year:
Inventory - January 1:
Cost
Net realizable value
Net purchases
Inventory - December 31:
Cost
Net realizable value
What amount should be reported as cost of goods sold?
A. 7,000,000
C. 7,200,000
B. 7,100,000
D. 7,300,000
MCQ – Problems: Inventory – Cost Estimation
3,000,000
2,800,000
8,000,000
4,000,000
3,700,000
PA 1 © 2014
Page 44
Inventory – Cost Estimation
71. Uptown Company used the perpetual method to record inventory transactions for 2014.
Inventory
1,900,000
Sales
6,500,000
Sales return
150,000
Cost of goods sold
4,600,000
Inventory losses
120,000
On December 24,2014, the entity recorded a P150,000 credit sale of goods costing
P100,000. These goods were sold on FOB destination terms and were in transit on December
31,2014. The goods were included in the physical count. The inventory on December 31,2014
determined by physical count had a cost of P2,000,000 and a net realizable value of
P1,700,000. Any inventory writedown is not yet recorded. What amount should be reported
as cost of goods sold for 2014?
A. 4,500,000
C. 4,920,000
B. 4,720,000
D. 5,020,000
PA 1 © 2014
72. Altis Company reported the following information for the current year:
Sales (100,000 units at P150)
15,000,000
Sales discount
1,000,000
Purchases
9,300,000
Purchase discount
400,000
The inventory purchases during the year were as follows:
Units
Unit cost
Total cost
Beginning inventory, January 1
20,000
60
1,200,000
Purchases, quarter ended March 31
30,000
65
1,950,000
Purchases, quarter ended June 30
40,000
70
2,800,000
Purchases, quarter ended Sept. 30
50,000
75
3,750,000
Purchases, quarter ended Dec. 31
10,000
80
800,000
150,000
10,500,000
The accounting policy is to report inventory in the financial statements at the lower of cost
and net realizable value. Cost is determined under the first-in, first-out method. The entity
has determined that, on December 31,2014, the replacement cost of inventory was P70 per
unit and the net realizable value was P72 per unit. The normal profit margin is P10 per unit.
What amount should be reported as cost of goods sold for the current year?
A. 6,300,000
C. 6,700,000
B. 6,500,000
D. 6,900,000
PA 1 © 2014
MCQ – Problems: Inventory – Cost Estimation
Page 45
FINANCIAL ACCOUNTING
Adjusting entry
73. In 2014, North Company experienced a decline in the value of inventory resulting in a
writedown from P3,600,000 to P3,000,000. The entity used the allowance method to record
the necessary adjustment. In 2015, market conditions have improved dramatically. On
December 31,2015, the inventory had a cost of P5,000,000 and net realizable value of
P4,600,000. What is included in the adjusting entry on December 31, 2015?
A. Debit allowance for inventory writedown P200,000
B. Credit allowance for inventory writedown P400,000
C. Debit gain on reversal of inventory writedown P200,000
D. Credit gain on reversal of inventory writedown P400,000
Comprehensive
Questions 1 thru 3 are based on the following information.
White Company carried four items in inventory. The following per-unit data relate to these items at
the end of first year of operations:
Category 1:
A
B
Category 2:
C
D
Units
Cost
Sale price
Selling cost
Normal profit
25,000
20,000
105
85
130
90
15
10
20
10
40,000
30,000
50
65
45
75
5
15
5
10
74. What is the measurement of inventory under LCNRV applied to individual item?
A. 7,625,000
C. 7,875,000
B. 7,725,000
D. 8,275,000
75. What is the measurement of inventory under LCNRV applied to inventory category?
A. 7,625,000
C. 7,875,000
B. 7,725,000
D. 8,275,000
76. What is the measurement of inventory under LCNRV applied to inventory as a whole?
A. 7,625,000
C. 7,875,000
B. 7,725,000
D. 8,275,000
MCQ – Problems: Inventory – Cost Estimation
Page 46
Inventory – Cost Estimation
Purchase commitment
77. On October 1, 2014, Gorgeous Company entered into a 6-month, P5,200,000 purchase
commitment for a supply of a special product. On December 31,2014, the market value of
this material had fallen to P5,000,000.On March 31, 2015, the market value of the purchase
commitment is P4,900,000. What is the loss on purchase commitment to be recognized on
March 31,2015?
A. 0
C. 200,000
B. 100,000
D. 300,000
FA © 2014
78. On December 31, 2014, Dos Company has outstanding purchase commitments for 50,000
gallons at P20 per gallon of raw material. It is determined that the market price of the raw
material has declined to P17 per gallon on December 31,2014 and it is expected to decline
further to P15 in the first quarter of 2015. What is the loss on purchase commitment that
should be recognized in 2014?
A. 0
C. 250,000
B 150,000
D. 850,000
PA 1 © 2014
79. On January 1,2014, Card Company signed a three-year, noncancelable purchase contract,
which allows Card to purchase up to 5,000 units of a computer part annually from Hart
Company at P100 per unit and guarantees a minimum annual purchase of 1,000 units. During
2014, the part unexpectedly became obsolete. Card had 2,500 units of this inventory on
December 31,2014, and believed these parts can be sold as scrap for P20 per unit. What
amount of loss from the purchase commitment should be reported in the 2014 income
statement?
A. 160,000
C. 240,000
B. 200,000
D. 360,000
FA © 2014
80. On November 15, 2014, Diamond Company entered into a commitment to purchase 10,000
ounces of gold on February 15,2015 at a price of P310 per ounce. On December 31, 2014,
the market price of gold is P270 per ounce. On February 15,2015, the price of gold is P300
per ounce. What is the gain on purchase commitment to be recognized on February 15,2015?
A. 0
C. 300,000
B. 100,000
D. 400,000
FA © 2014
81. On November 15, 2014, Damascus Company entered into a commitment to purchase
100,000 barrels of aviation fuel for P55 per barrel on March 31, 2015. The entity entered into
this purchase commitment to protect itself against the volatility in the aviation fuel market. By
December 31,2014 the purchase price of aviation fuel had fallen to P40 per barrel. However,
by March 31, 2015, when the entity took delivery of the 100,000 barrels the price of aviation
MCQ – Problems: Inventory – Cost Estimation
Page 47
FINANCIAL ACCOUNTING
fuel had risen to P60 per barrel. What amount should be recognized as gain on purchase
commitment for 2015?
A. 0
C. 1,500,000
B. 500,000
D. 2,000,000
PA 1 © 2014
MCQ – Problems: Biological Assets
Inventories
82. Colombia 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.
What is the measurement of the coffee beans inventory on December 31,2015?
A. 3,000,000
C. 3,500,000
B. 3,200,000
D. 3,900,000
P1 © 2014
Biological assets
83. Forester Company has reclassified certain assets as biological assets. The total value of the
forest assets is P6,000,000 which comprises:
Freestanding trees
5,100,000
Land under trees
600,000
Roads in forests
300,000
6,000,000
In the statement of financial position, what total amount of the forest assets should be
classified as biological assets?
A. 5,100,000
C. 5,700,000
B. 5,400,000
D. 6,000,000
P1 © 2014
84. Africa Company purchased 2,000 llamas at the beginning of current year. These llamas will
be sheared semiannually and their wool sold to specialty clothing manufacturers. The llamas
were purchased for P5,000,000. During the current year, the change in fair value due to
growth and price changes is P350,000, the wool harvested but not yet sold is valued at net
realizable value of P100,000, and the decrease in fair value due to harvest is P50,000. What
is the carrying amount of the biological asset at year-end?
A. 5,100,000
C. 5,350,000
B. 5,300,000
D. 5,400,000
FA © 2014
MCQ – Problems: Biological Assets
Page 48
Biological Assets
85. Salve Company is engaged in raising dairy livestock. Information regarding activities relating
to the dairy livestock during the current year is as follows:
Carrying amount on January 1
5,000,000
Increase due to purchases
2,000,000
Gain arising from change in fair value less cost of disposal
attributable to price change
400,000
Gain arising from change in fair value less cost of disposal
attributable to physical change
600,000
Decrease due to sales
850,000
Decrease due to harvest
200,000
What is the carrying amount of the biological asset on December 31 ?
A. 6,000,000
C. 7,150,000
B. 6,950,000
D. 8,000,000
P1 © 2014
Comprehensive
Questions 86 & 87 are based on the following information.
Joan Company provided the following data:
Value of biological asset at acquisition cost on Dec. 31,2014
Fair valuation surplus on initial recognition at fair value on Dec. 31,2014
Change in fair value to December 31, 2015 due to growth and price fluctuation
Decrease in fair value due to harvest
P1 © 2014
600,000
700,000
100,000
90,000
86. What is the carrying amount of the biological asset on December 31, 2015?
A. 1,300,000
C. 1,400,000
B. 1,310,000
D. 1,490,000
87
What is the gain from change in fair value of biological asset that should be reported in the
2015 income statement?
A. 10,000
C. 710,000
B. 100,000
D. 800,000
Questions 88 & 89 are based on the following information.
FA © 2014
Righteous Company provided the following data:
Value of biological asset at acquisition cost on December 31, 2014
6,000,000
Fair valuation surplus on initial recognition at fair value on December 31, 2014 500,000
Change in fair value on December 31, 2015 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest
100,000
MCQ – Problems: Biological Assets
Page 49
FINANCIAL ACCOUNTING
88. What is the carrying amount of the biological asset on December 31, 2015?
A. 6,500,000
C. 7,400,000
B. 7,300,000
D. 7,500,000
89. What amount of net gain from the change in fair value of biological asset should be reported
in 2015?
A. 800,000
C. 1,300,000
B. 900,000
D. 1,400,000
Questions 90 & 91 are based on the following information.
P1 © 2014
Bear Company produces milk for sale to local and national ice cream producers. The entity began
operations on January 1, 2014 by purchasing 650 milk cows 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 changes
2,500,000
Decrease in fair value due to harvest
250,000
Milk harvested during 2014 but not yet sold
400,000
90. What amount of gain on change in fair value should be recognized for biological asset in
2014?
A. 2,250,000
C. 2,650,000
B. 2,500,000
D. 2,900,000
91. What amount of gain on change in fair value should be reported for agricultural produce in
2014?
A. 0
C. 400,000
B. 150,000
D. 2,250,000
Questions 92 & 93 are based on the following information.
FA © 2014
Legend Dairy produced milk for local ice cream producers. The entity began operations at the
beginning of current year by purchasing milking cows for P2,000,000. The entity provided the
following information at year-end relating to the milking cows:
Carrying amount - January 1
2,000,000
Change in fair value due to growth and price change
400,000
Decrease in fair value due to harvest
50,000
Milk harvested during the year but not yet sold
150,000
92. What amount of net gain on biological asset should be reported in the current year?
A. 350,000
C. 550,000
B. 400,000
D. 600,000
MCQ – Problems: Biological Assets
Page 50
Biological Assets
93. What amount of gain on agricultural produce should be recognized in the current year?
A. 100,000
C. 350,000
B. 150,000
D. 400,000
Questions 94 & 95 are based on the following information.
P1 © 2014
Dairy Company provided the following information for the year ended December 31,2014:
Cash
500,000
Trade and other receivables
1,500,000
Inventories
100,000
Dairy livestock - immature
50,000
Dairy livestock - mature
400,000
Property, plant and equipment, net
1,400,000
Trade and other payables
520,000
Note payable - long-term
1,500,000
Share capital
1,000,000
Retained earnings - January 1
800,000
Fair value of milk produced
600,000
Gain from change in fair value
50,000
Inventories used
140,000
Staff costs
120,000
Depreciation expense
15,000
Other operating expenses
190,000
Income tax expense
55,000
94. What is the net income for 2014?
A. 130,000
B. 185,000
C. 600,000
D. 650,000
95. What is the fair value of biological assets on December 31, 2014?
A. 400,000
C. 500,000
B. 450,000
D. 550,000
MCQ – Problems: Biological Assets
Page 51
FINANCIAL ACCOUNTING
Questions 96 thru 98 are based on the following information.
P1 © 2014
Honey Company has a herd of 10 2-year old animals on January 1, 2014. One animal aged 2.5
years was purchased on July 1,2014 for PI08, and one animal was born on July 1, 2014. No
animals were sold or disposed of during the year. The fair value less cost of disposal per unit is as
follows:
2 - year old animal on January 1
100
2.5-year old animal on July 1
108
New born animal on July 1
70
2 - year old animal on December 31
105
2.5 - year old animal on December 31
111
Newborn animal on December 31
72
3 - year old animal on December 31
120
0.5 - year old animal on December 31
80
96. What is the fair value of the biological assets on December 31, 2014?
A. 1,320
C. 1,400
B. 1,360
D. 1,440
97. What is the gain from change in fair value of biological assets that should be recognized in
2014?
A. 222
C. 300
B. 292
D. 332
98. What is the gain from change in fair value due to price change?
A. 55
C. 237
B. 222
D. 292
Questions 99 thru 101 are based on the following information.
FA © 2014
Temerity Company has different kinds of farm animals on January 1, 2014. During the current
year, several acquisitions occurred related to these farm animals. A detailed summary of these
transactions is as follows:
Carrying amount on January 1:
15 Horses
(1 year old)
1,000,000
10 Dairy cattle
(2 years old)
400,000
8 Carabaos
(2.5 years old) '
200,000
20 Hogs
(3 years old)
500,000
Purchases on June 30:
4 Dairy cattle
(1
year old)
150,000
6 Carabaos
(6 months old)
100,000
MCQ – Problems: Biological Assets
Page 52
Biological Assets
Fair value less cost of disposal on December 31:
15 Horses
(1
year old)
1,200,000
10 Dairy cattle
(2 years old)
520,000
8 Carabaos
(2.5 years old)
250,000
20 Hogs
(3 years old)
550,000
4 Dairy cattle
(1
year old)
170,000
6 Carabaos
(6 months old)
110,000
Fair value less cost of disposal on December 31:
15 Horses
(2 years old)
1,350,000
10 Dairy cattle
(3 years old)
580,000
8 Carabaos
(3.5 years old)
290,000
20 Hogs
(4 years old)
600,000
4 Dairy cattle
(1.5 years old)
200,000
6 Carabaos
(1 year old)
140,000
There were no farm animals sold during the year and neither were there any newborns nor deaths.
99. What is the carrying amount of the biological assets on December 31?
A. 2,350,000
C. 2,800,000
B. 2,380,000
D. 3,160,000
100. What is the gain from change in fair value attributable to price change?
A. 0
C. 450,000
B. 360,000
D. 810,000
101. What is the gain from change in fair value attributable to physical change?
A. 360,000
C. 700,000
B. 450,000
D. 810,000
Questions 102 thru 106 are based on the following information.
P1 © 2014
Farmland Company produces milk on its farms. The entity produces 20% of the community's milk
that is consumed. Farmland Company owns 5 farms and had a stock of 2,100 cows and 1,050
heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000
kilograms of milk. However, on December 31,2014 the entity is currently holding 50,000 kilograms
of milk in powder. On December 31,2014, the biological assets are:
Purchased before January 1, 2014
Purchased on January 1,2014
Purchased on July 1,2014
MCQ – Problems: Biological Assets
(3 years old)
(2 years old)
(1.5 years old)
2,100 cows
300 heifers
750 heifers
Page 53
FINANCIAL ACCOUNTING
No animals were born or sold during the current year. The unit fair value less cost of disposal is as
follows.
January 1, 2014:
1-year old
3,000
2-year old
4,000
July 1,2014:
1-year old
3,000
December 31, 2014:
1-year old
3,200
2-year old
4,500
1.5-year old
3,600
3-year old
5,000
The entity has had problems during the year. Contaminated milk was sold to customers. As a result,
milk consumption has gone down.
The entity's business is spread over different parts of the country. The only region affected by the
contamination was Batangas. However, the cattle in this area were unaffected by the contamination
and were healthy. The entity feels that it cannot measure the fair value of the cows in the region
because of the problems created by the contamination. There are 600 cows and 200 heifers in the
Batangas farm and all these animals had been purchased on January 1, 2014.
102. What is the fair value of biological assets on January 1, 2014?
A. 7,200,000
C. 9,300,000
B. 8,400,000
D. 9,600,000
103. What is the fair value of biological assets purchased on July 1, 2014?
A. 2,250,000
C. 3,375,000
B. 3,000,000
D. 3,750,000
104. What is the fair value of biological assets on December 31, 2014?
A. 11,850,000
C. 15,225,000
B. 14,550,000
D. 15,750,000
105. What is the increase in fair value of biological assets on December 31, 2014?
A. 3,000,000
C. 5,250,000
B. 4,950,000
D. 6,150,000
106. What is the increase in fair value of biological assets due to physical change?
A. 1,260,000
C. 1,740,000
B. 1,440,000
D. 3,000,000
MCQ – Problems: Biological Assets
Page 54
Inventory – Cost Estimation & Biological Assets
ANSWER KEY THEORY
1.D
2.C
3.D
4.B
5.D
6.A
7.B
8.D
9.D
10.C
11.C
12.D
13.D
14.B
15.C
16.B
17.D
18.A
19.B
20.D
21.C
22.C
23.B
24.A
25.A
Answer Key
26.B
27.D
28.B
29.B
30.A
31.B
32.C
33.A
34.D
35.B
36.C
37.D
38.C
39.D
40.A
41.C
42.B
43.A
44.D
45.C
46.D
47.A
48.A
49.A
50.A
51.D
52.D
53.D
54.D
55.C
56.B
57.A
58.C
59.D
60.D
Page 55
FINANCIAL ACCOUNTING
ANSWER KEY PROBLEMS
1.C
26.B
2.C
27.A
3.C
28.D
4.C
29.A
5.B
30.A
6.A
31.A
7.A
32.B
8.B
33.C
9.A
34.A
10.C
35.A
11.C
36.C
12.A
37.B
13.B
38.B
14.D
39.C
15.B
40.D
16.A
41.B
17.B
42.A
18.A
43.A
19.A
44.D
20.D
45.A
21.D
46.A
22.D
47.A
23.B
48.B
24.D
49.B
25.C
50.B
Answer Key
51.B
52.C
53.B
54.B
55.C
56.D
57.D
58.D
59.B
60.A
61.C
62.C
63.C
64.C
65.A
66.A
67.A
68.A
69.C
70.B
71.C
72.B
73.
74.
75.
76.A
77.B
78.B
79.B
80.C
81.C
82.B
83.A
84.B
85.B
86.B
87.A
88.B
89.A
90.A
91.C
92.A
93.B
94.A
95.B
96.C
97.B
98.A
99.D
100.C
101.A
102.C
103.A
104.B
105.A
106.C
Page 56
Inventory – Cost Estimation & Biological Assets
ANSWER EXPLANATION
1.
Answer is (C).
Sales
Cost of sales
Selling expense
Administrative expenses
Bad debts
Net income
480,000 / 12%
15% / 25%
100%
60%
10%
15%
3%
12%
4,000,000
480,000
2.
Answer is (C).
Sales
Cost of sales (9,600,000 / 125%)
Gross profit
3.
Answer is (C).
Goods available for sale
Cost of goods sold
Inventory - March 31
(5,500,000 + 4,300,000 - 200,000)
(7,500,000 /125%)
9,600,000
(6,000,000)
3,600,000
4.
Answer is (C).
Goods available for sale
Cost of goods sold
Inventory - March 31
(5,500,000 + 4,300,000 - 200,000)
(7,500,000 /125%)
9,600,000
(6,000,000)
3,600,000
5.
Answer is (B).
Inventory – January 1
Purchases
Freight-in
Total
Less: Purchase returns
Goods available for sale
Less: Cost of sales (4,500,000 x 60%)
Inventory – March 31
6.
Answer is (A).
Goods available for sale
Cost of goods sold
Answer Explanations & Solutions
9,600,000
7,680,000
1,920,000
3,200,000
50,000
3,250,000
75,000
(2,500,000 + 7,500,000)
(15,000,000/166 2/3%)
650,000
3,175,000
3,825,000
2,700,000
1,125,000
10,000,000
(9,000,000)
Page 57
FINANCIAL ACCOUNTING
Inventory - October 31
Undamaged inventory
Inventory destroyed by fire
7.
8.
9.
Answer is (A).
Cost ratio
Inventory – January 1
Net purchases
Goods available for sale
Cost of sales
Inventory – June 30
Inventory in showroom
Fire loss
1,000,000
( 150,000)
850,000
(560,000 / 800,000)
(100,000 + 4,000 – 6,000)
(70% x 320,000)
(10% x 200,000 + 8,000)
Answer is (B).
Net sales in 2013
Less: Cost of sales:
Beginning inventory
Net purchases in 2013
Goods available for sale
Less: Ending inventory
Gross profit
Gross profit rate
(2,400,000/8,000,000)
Inventory, January 1, 2014
Net purchases – 2014
Goods available for sale
Less: Cost of sales
Sales
Less: Sales return & allowances
Net sales
Cost of sales
(7,800,000 x 70%)
Estimated value of ending inventory
Less: Cost of inventory not stolen
Estimated cost of stolen inventory
Answer is (A).
Raw materials – January 1
Purchases
Freight in
Answer Explanations & Solutions
70%
200,000
98,000
298,000
224,000
74,000
28,000
46,000
8,000,000
2,000,000
4,800,000
6,800,000
1,200,000
30%
7,880,000
80,000
7,800,000
1,000,000
100,000
5,600,000
2,400,000
1,200,000
4,960,000
6,160,000
5,460,000
700,000
100,000
600,000
300,000
1,100,000
Page 58
Inventory – Cost Estimation & Biological Assets
Raw materials available for use
1,400,000
Less: Raw materials – December 31
600,000
Raw materials used
800,000
Direct labor
800,000
Manufacturing overhead
(50% x 800,000)
400,000
Total manufacturing cost
2,000,000
Add: Goods in process – January 1
1,000,000
Total goods in process
3,000,000
Less: Goods in process – December 31 (squeeze)
1,300,000
Cost of goods manufactured
1,700,000
Add: Finished goods – January 1
1,400,000
Goods available for sale
3,100,000
Les: Finished goods – December 31
1,000,000
Cost of sales
(70% x 3,000,000)
2,100,000
The amount of goods in process on December 31 is computed as simply working back.
10. Answer is (C).
Sales – 2013
Cost of sales:
Net purchases
Less: Inventory – December 31, 2013
Gross income
Rate in 2013
(1,500,000 / 6,000,000) = 25%
Rate in 2014
(25% + 5%) = 30%
6,000,000
5,500,000
1,000,000
Inventory – January 1, 2014
Net purchases – 2014
Goods available for sale
Less: Cost of sales
(9,000,000 x 70%)
Inventory – December 31, 2014
Less: Undamaged merchandise
(500,000 x 70%)
Realizable value of damaged merchandise
Fire loss
11. Answer is (C).
Average gross profit rate
Answer Explanations & Solutions
(2,250,000/9,000,000)
350,000
10,000
4,500,000
1,500,000
1,000,000
7,500,000
8,500,000
6,300,000
2,200,000
360,000
1,840,000
25%
Page 59
FINANCIAL ACCOUNTING
Inventory - January 1
Net purchases
Goods available for sale
Cost of sales (5,600,000 x 75%)
Inventory - September 30
Less: Undamaged goods (60,000 x 75%)
Realizable value of damaged goods
Fire loss
12. Answer is (A).
Net sales 2012 and 2013
Cost of sales:
Inventory - January 1,2012
Net purchases 2012 and 2013
Goods available for sale
Inventory - December 31,2013
Gross profit
Average gross profit rate
Inventory - January 1,2014
Net purchases - 2014
Goods available for sale
Cost of sales (70% x 4,000,000)
Inventory - December 31, 2014
Fire loss (50% x 1,600,000)
660,000
4,240,000
4,900,000
(4,200,000)
700,000
45,000
25,000
7,400,000
848,000
5,372,000
6,220,000
(1,040,000)
(2,220,000/7,400,000)
13. Answer is (B).
Sales – 2012 and 2013
Cost of sales:
Inventory – 1/1/2012
Purchases – 2012 and 2013
Goods available for sale
Less: Inventory – 12/31/2013
Gross income
Average rate
(2,220,000 / 7,400,000)
Inventory – 1/1/2014
Purchases – 2014
Goods available for sale
Les: Cost of sales
(5,000,000 x 705)
Inventory – 12/31/2014
Answer Explanations & Solutions
70,000
630,000
5,180,000
2,220,000
30%
1,040,000
3,360,000
4,400,000
(2,800,000)
1,600,000
800,000
7,400,000
850,000
5,370,000
6,220,000
1,040,000
5,180,000
2,220,000
30%
1,040,000
4,360,000
5,400,000
3,500,000
1,900,000
Page 60
Inventory – Cost Estimation & Biological Assets
Less: Goods consigned
Goods in transit
Fire loss
(300,000 x 70%)
14. Answer is (D).
Inventory – January 1
Purchases
Freight-in
Goods available for sale
Cost of good sold
Ending inventory destroyed
(7,800,000 x 70%)
210,000
190,000
400,000
1,500,000
6,600,000
1,000,000
300,000
9,900,000
5,460,000
4,440,000
15. Answer is (B).
Beginning inventory
2,000,000
Net purchases
5,200,000
Goods available for sale
7,200,000
Less: Cost of sales
(8,000,000 x 70%)
5,600,000
Ending inventory destroyed by fire
1,600,000
In the absence of any contrary statement, the gross profit rate is based on sales. Thus, if the
gross profit rate is 30%o on sales, the cost ratio is 70%.
16. Answer is (A).
Collections of accounts receivable
Accounts receivable - January 1
Accounts receivable - December 31
Sales on account
Cash sales
Total sales
Inventory - January 1
Purchases
Goods available for sale
Cost of goods sold (9,700,000 x 60%)
Inventory - December 31
17. Answer is (B).
Inventory – January 1
Purchases
Goods available for sale
Answer Explanations & Solutions
8,400,000
(700,000)
1,100,000
8,800,000
900,000
9,700,000
1,500,000
5,500,000
7,000,000
(5,820,000)
1,180,000
500,000
2,500,000
3,000,000
Page 61
FINANCIAL ACCOUNTING
Less: Cost of sales
Inventory – December 31
Less: Physical inventory
Missing inventory
(3,200,000 x 75%)
2,400,000
600,000
500,000
100,000
18. Answer is (A).
Sales
3,400,000
Sales returns
( 30,000)
Net sales
3,370,000
The sales discounts are ignored for purposes of estimating inventory under the gross profit
method.
Inventory - January 1
650,000
Purchases
2,300,000
Purchase returns
(80,000)
Freight in
60,000
Goods available for sale
2,930,000
Cost of sales (70% x 3,370,000)
(2,359,000)
Inventory - December 31
571,000
Physical inventory - December 31
420,000
Cost of missing inventory
151,000
19. Answer is (A).
Sales
3,400,000
Sales returns
( 30,000)
Net sales
3,370,000
The sales discounts are ignored for purposes of estimating inventory under the gross profit
method.
Inventory - January 1
650,000
Purchases
2,300,000
Purchase returns
(80,000)
Freight in
60,000
Goods available for sale
2,930,000
Cost of sales (70% x 3,370,000)
(2,359,000)
Inventory - December 31
571,000
Physical inventory - December 31
420,000
Cost of missing inventory
151,000
20. Answer is (D).
Cost of sales
Answer Explanations & Solutions
(3,640,000 / 130%)
2,800,000
Page 62
Inventory – Cost Estimation & Biological Assets
21. Answer is (D). Cost of goods sold (7,280,000 /130%)
5,600,000
22. Answer is (D).
Sales
5,600,000
Sales returns
( 400,000)
Net sales
5,200,000
Cost of goods sold
(75% x 5,200,000)
3,900,000
Like sales discounts, sales allowances are ignored in determining net sales under the gross
profit method.
23. Answer is (B).
Cost of goods sold
Gross sales
Sales discount
Net sales
Cost of goods sold
Gross income
Administrative expenses
Selling expense
Interest expense
Net income
24. Answer is (D).
Cost of goods sold for June
(10% / 25%)
(2,000,000 / 40%)
(25% x 2,000,000)
(500,000 / 20%) – 500,000
40%
5,000,000
(100,000)
4,900,000
(2,000,000)
2,900,000
(500,000)
(2,000,000)
(20,000)
380,000
(7,200,000 + 720,000 = 7,920,000 /120%)
6,600,000
25. Answer is (C).
Cost of goods sold for July
(7,360,000 + 800,000 = 8,160,000/120%) 6,800,000
Cost of goods sold for August (7,600,000 + 1,040,000 = 8,640,000 /120%) 7,200,000
Inventory - July 1
(30% x 6,800,000) 2,040,000
Purchases for July (SQUEEZE)
6,920,000
Goods available for sale
8,960,000
Inventory-July 31
(30% x 7,200,000) (2,160,000)
Cost of goods sold for July
6,800,000
26. Answer is (B).
Gross profit rate:
2011
(750,000 / 3,000,000)
2012
(1,050,000 / 3,500,000)
Answer Explanations & Solutions
25%
30%
Page 63
FINANCIAL ACCOUNTING
2013
(1,295,000 / 3,700,000)
35%
2014
40%
There seems to be a trend in the gross profit rate, which is a yearly increase of 5%. Thus, it
can be safely assumed that the trend continues in 2014.
Inventory – January1
500,000
Net purchases, January 1 – October 15
3,500,000
Goods available for sale
4,000,000
Less: Cost of sales:
Sales
3,840,000
Sales return & allowances
(40,000)
Net sales
3,800,000
Cost of sales
(3,800,000 x 60%)
2,280,000
Inventory – October 15
1,720,000
Less: Inventory not destroyed
320,000
Fire loss
1,400,000
27. Answer is (A).
Goods available for sale
Cost of sales
Inventory, October 15
Inventory not destroyed
Fire loss
28. Answer is (D).
Physical inventory
May 31, 2014
Balances
950,000
a
b
c
d
( 55,000)
Adjusted
895,000
Inventory - July 1,2013
Purchases up to May 31, 2014
Goods available for sale
Inventory-May 31,2014
Cost of goods sold
Sales up to May 31, 2014
Cost of goods sold
Answer Explanations & Solutions
(70% x 3,800,000)
Purchases up to
May 31, 2014
6,750,000
75,000
( 10,000)
(20,000)
( 55,000)
6,740,000
4,000,000
2,660,000
1,340,000
320,000
1,020,000
Purchases up to
June 30, 2014
8,000,000
( 15,000)
(20,000)
7,965,000
875,000
6,740,000
7,615,000
( 895,000)
6,720,000
8,400,000
6,720,000
Page 64
Inventory – Cost Estimation & Biological Assets
Gross profit
Gross profit rate
Sales for June
Cost of goods sold with profit
Cost of goods sold without profit
Cost of goods sold during June 2014
(1,680,000/8,400,000)
(9,600,000-8,400,000)
(1,100,000 x 80%)
29. Answer is (A).
Inventory, July 1, 2013
Purchases for year ended June 30, 2014 (as adjusted)
Goods available for sale
Less: Cost of goods sold
Sales with profit
(9,500,000 x 80%)
7,600,000
Sales without profit
100,000
Inventory, June 30,2014
30. Answer is (A).
Net sales - 2014
Cost of sales:
Beginning inventory
Purchases
Freight in
Purchase discounts
Purchase returns
Purchase allowances
Goods available for sale
Ending inventory
Gross income
31. Answer is (A). Gross profit rate for 2014
32. Answer is (B).
Beginning inventory - 2015
Purchases
Freight in
Purchase discounts
Purchase returns
Purchase allowances
Answer Explanations & Solutions
1,680,000
20%
1,200,000
880,000
100,000
980,000
875,000
7,965,000
8,840,000
7,700,000
1,140,000
7,500,000
1,260,000
6,450,000
350,000
( 90,000)
(120,000)
( 20,000)
7,830,000
(2,355,000)
(2,025,000/7,500,000)
5,475,000
2,025,000
27%
2,355,000
3,180,000
220,000
( 45,000)
(40,000)
(15,000)
Page 65
FINANCIAL ACCOUNTING
Goods available for sale
Cost of sales- 2015
Ending inventory - 2015
(4,500,000 x 73%)
Sales
Cost of sales
Gross profit rate
33. Answer is (C). Cost of goods sold (70% x 3,000,000),
5,655,000
3,285,000
2,370,000
100%
73%
27%
2,100,000
34. Answer is (A).
Finished goods - January 1
1,400,000
Cost of goods manufactured (SQUEEZE)
1,700,000
Goods available for sale
3,100,000
Finished goods-December 31
(1,000,000)
Cost of goods sold
2,100,000
The cost of goods manufactured is "squeezed" by simply working back from the cost of goods
sold.
35. Answer is (A).
Raw materials - January 1
300,000
Purchases
1,000,000
Freight in
100,000
1,100,000
Raw materials available for use
1,400,000
Raw materials - December 31
(600,000)
Raw materials used
800,000
Direct labor
800,000
Manufacturing overhead (50% x 800,000)
400,000
Total manufacturing cost
2,000,000
Goods in process - January 1
1,000,000
Total goods in process
3,000,000
Goods in process - December 31 (SQUEEZE)
(1,300,000)
Cost of goods manufactured
1,700,000
The amount of goods in process on December 31,2014 is "squeezed" by simply working back
from the cost of goods manufactured.
36. Answer is (C).
Purchases = 500,000 + 1,600,000 – 400,000 = 1,700,000
Answer Explanations & Solutions
Page 66
Inventory – Cost Estimation & Biological Assets
37. Answer is (B).
Sales
38. Answer is (B).
Average gross profit rate =
440,000 + 2,640,000 – 480,000
3,200,000
8,000,000
2,600,000
= 40%
Inventory – January 1
Purchases
(1,600,000 + 500,000 – 400,000)
Goods available for sale
Less: Cost of sales:
Collections
Accounts receivable – 12/31
Accounts receivable – 1/1
Sales
Cost of sales
(2,600,000 x 60%)
Inventory – 12/1
Less: Goods on consignment
(200,000 x 60%)
Salvage value
Fire loss
500,000
1,700,000
2,200,000
2,640,000
440,000
(480,000)
2,600,000
120,000
20,000
1,560,000
640,000
140,000
500,000
39. Answer is (C).
Accounts receivable - April 30
Writeoff
Collections from customers (440,000 - 20,000)
Total
Less: Accounts receivable - March 31
Sales for April
Sales up to March 31
Total sales
1,040,000
60,000
420,000
1,520,000
920,000
600,000
3,600,000
4,200,000
40. Answer is (D).
Accounts payable - April 30 for April shipments
Payment for April merchandise shipments
Purchases of April
Purchases up to March 31
Total purchases up to April 30
340,000
80,000
420,000
1,680,000
2,100,000
Answer Explanations & Solutions
Page 67
FINANCIAL ACCOUNTING
41. Answer is (B).
Inventory - January 1
Purchases
Purchase return
Goods available for sale
Cost of sales (4,200,000 x 60%)
Inventory - April 3 0
1,880,000
2,100,000
( 20,000)
3,960,000
(2,520,000)
1,440,000
42. Answer is (A).
Inventory - April 3 0
Goods in transit
Salvage value of inventory
Fire loss
1,440,000
( 100,000)
( 140,000)
1,200,000
43. Answer is (A).
Cost
Retail
Available for sale
4,900,000
7,000,000
Markdowns
( 70,000)
Sales
(5,530,000)
Inventory - December 31
1,400,000
Conservative cost ratio (4,900/7,000)
70%
Inventory - December 31 at cost
980,000
The approximate lower of average cost or market retail method is the same as the
conservative or conventional retail approach.
44. Answer is (D).
Beginning inventory and purchases
Net markup
Goods available for sale
Cost ratio
(6,000/9600) = 62.5%
Sales
Net markdown
Ending inventory
Conservative cost
(1,200,000 x 62.%)
Goods available for sale
Less: Ending inventory
Cost of sales
Answer Explanations & Solutions
Cost
6,000,000
.
6,000,000
Retail
9,200,000
400,000
9,600,000
(7,800,000)
(600,000)
1,200,000
750,000
6,000,000
750,000
5,250,000
Page 68
Inventory – Cost Estimation & Biological Assets
45. Answer is (A).
Inventory – January 1
Purchases
Freight in
Markup
Markup cancellation
Goods available for sale
Cost rate (2,835,000/6,300,000) = 45%
Markdown
Markdown cancellation
Goods available for sale – Average
Sales
Shrinkage
(2% x 5,000,000)
Inventory – December 31
Conservative cost (1,000,000 x 45%)
Cost
280,000
2,480,000
75,000
Retail
700,000
5,160,000
500,000
(60,000)
6,300,000
.
2,835,000
.
2,835,000
450,000
(250,000)
50,000
6,100,000
(5,000,000)
(100,000)
1,000,000
46. Answer is (A).
Beginning inventory
Purchases
Purchase discounts
Freight in
Markups
GAS - conservative
Conservative cost ratio(6,630,000 /10,200,000 = 65%)
Markdowns
GAS - Average
Sales
Ending inventory at retail
Ending inventory at cost
(800,000 x 65%)
47. Answer is (A).
Beginning inventory
Purchases
Purchase return
Net markup
Net markdown
Goods available for sale at retail
Answer Explanations & Solutions
Cost
530,000
6,080,000
(85,000)
105,000
.
6,630,000
6,630,000
Retail
900,000
8,700,000
600,000
10,200,000
(800,000)
9,400,000
(8,600,000)
800,000
520,000
180,000
6,000,000
( 300,000)
900,000
( 140,000)
6,640,000
Page 69
FINANCIAL ACCOUNTING
Less: Sales
Sales return
Employee discounts
Normal shortage
Abnormal shortage
Ending inventory at retail
3,600,000
(90,000)
80,000
130,000
200,000
48. Answer is (B).
Available for sale
Markdown
Sales
Inventory, December 31
Cost rate
(4,900,000/6,900,000) = 71%
Average cost
(1,400,000 x 71%)
49. Answer is (B).
Inventory - January 1
Purchases
Net markups
Available for sale - conservative
Cost ratio (4,800,000/8,000,000)
Net markdowns
Available for sale - average
Cost ratio (4,800,000/7,500,000)
Sales
Estimated shoplifting losses
Inventory - December 31
Conservative cost (600,000 x 60%)
Average cost (600,000 x 64%)
The requirement is the average cost approach.
50. Answer is (B).
Inventory – January 1
Purchases
Markup
Answer Explanations & Solutions
60%
64%
Cost
4,900,000
3,920,000
2,720,000
Retail
7,000,000
(100,000)
(5,500,000)
1,400,000
994,000
Cost
720,000
4,080,000
.
4,800,000
Retail
1,000,000
6,300,000
700,000
8,000,000
.
4,800,000
(500,000)
7,500,000
360,000
384,000
Cost
720,000
4,080,000
(6,820,000)
(80,000)
600,000
Retail
1,000,000
6,300,000
700,000
Page 70
Inventory – Cost Estimation & Biological Assets
Markdown
Goods available for sale
Cost ratio
(4,800/7500) – 64%
Sales
Normal shrinkage and breakage
Inventory at retail
Average cost
(1,500,000 x 64%)
.
4,800,000
960,000
(500,000)
7,500,000
(5,900,000)
(100,000)
1,500,000
51. Answer is (B).
Cost
Retail
Inventory - January 1
190,000
450,000
Purchases
2,990,000
4,350,000
Purchase discounts
( 40,000)
Freight in
150,000
Markups
300,000
Markdowns
.
( 400,000)
GAS-Average
(cost ratio-70%) 3,290,000
4,700,000
Net sales
(4,400,000 - 100,000)
(4,300,000)
Ending inventory at retail
400,000
Average cost
(400,000 x 70%)
280,000
Note that the sales discount and sales allowance are ignored in determining the net sales
under the retail method.
52. Answer is (C).
Inventory - January 1
Purchases
Freight in
Markup
Markup cancelation
Available for sale - conservative
Cost ratio (5,670 / 12,600)
Markdown
Markdown cancelation
Available for sale - average
Cost ratio (5,670/12,200)
Sales
Shrinkage (10,000,000x2.5%)
Inventory - December 31
Answer Explanations & Solutions
45%
46%
Cost
560,000
4,960,000
150,000
1,000,000
.
5,670,000
.
5,670,000
Retail
1,400,000
10,320,000
(120,000)
12,600,000
(500,000)
100,000
12,200,000
(10,000,000)
( 250,000)
1,950,000
Page 71
FINANCIAL ACCOUNTING
Conservative cost (1,950,000 x 45%)
Average cost (1,950,000 x 46%)
877,500
897,000
53. Answer is (B).
Inventory - January 1
Purchases
Markup (5,000 x P100)
Markup cancelation (1,000 x P100)
Goods available - conservative
60%
Markdowns (reduction in retail price)
Goods available – average
62%
Net sales
Inventory - December 31
Conservative cost
(60% x 2,000,000)
Average cost
(62% x 2,000,000)
Cost
560,000
4,000,000
4,560,000
4,560,000
1,200,000
1,240,000
Retail
1,000,000
6,200,000
500,000
(100,000)
7,600,000
(200,000)
7,400,000
(5,400,000)
2,000,000
54. Answer is (B).
Inventory - January 1
Net purchases
Departmental transfer - credit
Net markup
Markdown
(500,000-400,000)
Goods available for sale
(75%)
Sales
Inventory shortage - sales price
Employee discounts
Inventory - December 31
Average cost
(2,600,000 x 75%)
55. Answer is (C).
Beginning inventory and purchases
Net markups
Net markdowns
Goods available for sale
Cost ratio (6,000/9,000)
Sales
Answer Explanations & Solutions
Cost
1,650,000
3,725,000
(200,000)
.
5,175,000
1,950,000
Cost
6,000,000
66 2/3%
.
6,000,000
Retail
2,200,000
4,950,000
( 300,000)
150,000
( 100,000)
6,900,000
(4,000,000)
( 100,000)
( 200,000)
2,600,000
Retail
9,200,000
400,000
( 600,000)
9,000,000
(7,800,000)
Page 72
Inventory – Cost Estimation & Biological Assets
Ending inventory
Average cost (1,200,000 x 66 2/3%)
1,200,000
800,000
Goods available for sale
Ending inventory
Cost of sales
6,000,000
(800,000)
5,200,000
56. Answer is (D).
Cost
Retail
Finished goods-January 1
(60% x 240,000)
144,000
240,000
Cost of goods manufactured (squeeze)
1,200,000 2,000,000
Goods available for sale
1,344,000 2,240,000
Finished goods - December 31
(60% x 840,000)
( 504,000) ( 840,000)
Cost of goods sold
840,000 1,400,000
The amount of goods manufactured at retail is determined by simply working back.
Goods manufactured at cost
1,200,000
Cost ratio = Goods manufactured at retail
=
2,000,000 = 60%
57. Answer is (D).
Beginning inventory
Purchases
Net markups
Net markdowns
Net purchases
Cost ratio (3,000,000/5,000,000)
60%
Goods available for sale
Sales
Ending inventory
FIFO cost
(2,000,000 x 60%)
Cost
600,000
3,000,000
.
3,000,000
3,600,000
1,200,000
Retail
1,500,000
5,500,000
500,000
(1,000,000)
5,000,000
6,500,000
(4,500,000)
2,000,000
58. Answer is (D).
Inventory - January 1
Purchases
Net markups
Net markdowns
Net purchases (4,200/6,000)
Goods available for sale
Answer Explanations & Solutions
80%
Cost
1,200,000
4,200,000
70%
.
4,200,000
5,400,000
Retail
1,500,000
5,900,000
200,000
( 100,000)
6,000,000
7,500,000
Page 73
FINANCIAL ACCOUNTING
Sales
FIFO inventory- 12/31 (2,000,000 x 70%)
1,400,000
(5,500,000)
2,000,000
Inventory - January 1
Increase (70% x 500,000)
LIFO inventory-12/31
1,200,000
350,000
1,550,000
1,500,000
500,000
2,000,000
Cost
1,200,000
5,600,000
400,000
Retail
1,800,000
7,200,000
59. Answer is (B).
Inventory – January 1
Purchases
Freight-in
Net markup
Net markdown
Net purchases
(6,000/8000) = 75%
Goods available for sale
Sales
Inventory – December 31
FIFO cost
(2,200,000 x 75%)
Goods available for sale
Less: inventory – December 31
Cost of goods sold
.
6,000,000
7,200,000
1,650,000
1,400,000
(600,000)
8,000,000
9,800,000
(7,600,000)
2,200,000
7,200,000
1,650,000
5,550,000
60. Answer is (A).
Selling price
Production costs to complete
Transport costs to customer
Future selling costs
Net realizable value
2,800,000
(2,000,000)
(300,000)
(400,000)
100,000
61. Answer is (C).
Estimated sales price
Cost to complete
Net realizable value
FIFO cost (lower than NRV)
4,000,000
(1,200,000)
2,800,000
2,600,000
Answer Explanations & Solutions
Page 74
Inventory – Cost Estimation & Biological Assets
62. Answer is (C).
Estimated sales price
Cost to complete - processing cost
Net realizable value
8,000,000
(2,400,000)
5,600,000
FIFO cost
5,200,000
Nee realizable value
5,600,000
LCNRV
5,200,000
The FIFO cost of P5,200,000 is the inventory valuation because it is lower than the net
realizable value.
63. Answer is (C).
Value
240,000
188,000
292,000
720,000
The measurement at the lower of cost or net realizable value shall be applied on an individual
basis or item by item.
Markers
Pens
Highlighters
Historical cost
240,000
188,000
300,000
64. Answer is (C).
Estimated selling price
Cost of disposal
Net realizable value (lower than cost)
NRV
312,000
200,000
292,000
4,050,000
(200,000)
3,850,000
65. Answer is (A).
Cost
NRV
2,200,000
2,500,000
1,700,000
1,500,000
700,000
800,000
400,000
500,000
5,000,000
5,300,000
Inventories shall be measured at the lower of cost and net realizable value
individual item.
Skis
Boots
Ski equipment
Ski apparel
Answer Explanations & Solutions
LCNRV
2,200,000
1,500,000
700,000
400,000
4,800,000
applied by
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FINANCIAL ACCOUNTING
66. Answer is (A).
Product X
Product Y
Cost
1,500,000
1,800,000
NRV
1,400,000
2,300,000
Lower
1,400,000
1,800,000
3,200,000
67. Answer is (A).
Inventories shall be measured at the lower of cost and net realizable value applied by
individual item. Net realizable value is the estimated selling price less the estimated cost to
complete and the estimated cost of disposal.
Product X
Product Y
Materials and conversion costs
1,500,000
1,800,000
Selling price
2,000,000
3,000,000
Selling costs
( 600,000)
( 700,000)
Net realizable value
1,400,000
2,300,000
Measurement at lower amount
1,400,000
1,800,000
68. Answer is (A).
Sofas
Dining tables
Beds
Closets
Lounge chairs
Total
Cost
100,000
100,000
450,000
300,000
125,000
NRV
102,000
90,000
480,000
308,000
100,000
Lower
100,000
90,000
450,000
300,000
100,000
1,040,000
69. Answer is (C).
LCNRV
550,000
1,000,000
700,000
350,000
2,600,000
Note that under LCNRV, replacement cost and normal profit are not taken into consideration.
Total cost
3,000,000
LCNRV
2,600,000
Required allowance for inventory writedown
400,000
Allowance before adjustment
(150,000)
Increase in allowance
250,000
Product 1
Product 2
Product 3
Product 4
Answer Explanations & Solutions
Cost
800,000
1,000,000
700,000
500,000
NRV
550,000
1,100,000
950,000
350,000
Page 76
Inventory – Cost Estimation & Biological Assets
Loss inventory writedown
Allowance for inventory writedown
250,000
250,000
70. Answer is (B).
Inventory - January 1, at cost
3,000,000
Net purchases
8,000,000
Goods available for sale
11,000,000
Inventory - December 31, at cost
(4,000,000)
Cost of goods sold before inventory writedown
7,000,000
Loss on inventory writedown
100,000
Cost of goods sold after inventory writedown
7,100,000
Required allowance - December 31
(4,000,000 - 3,700,000)
300,000
Allowance for inventory writedown - January 1 (3,000,000-2,800,000)
200,000
Loss on inventory writedown
100,000
The amount of any inventory writedown to net realizable value and all losses on inventory
shall be included in cost of goods sold. The amount of any reversal of inventory writedown
shall be deducted from cost of goods sold.
71. Answer is (C).
Physical inventory
Net realizable value
Inventory writedown
Cost of goods sold per book
Cost of goods incorrectly recorded as sold
Inventory losses
Loss on inventory writedown
Adjusted cost of goods sold
72. Answer is (B).
September 30 (40,000 x 75)
December 31(10,000 x 80)
FIFO cost
Net realizable value (50,000 x 72)
Inventory writedown
Inventory - January 1 at cost
Purchases
Purchase discount
Goods available for sale
Answer Explanations & Solutions
2,000,000
1,700,000
300,000
4,600,000
(100,000)
120,000
300,000
4,920,000
3,000,000
800,000
3,800,000
3,600,000
200,000
1,200,000
9,300,000
( 400,000)
10,100,000
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FINANCIAL ACCOUNTING
Inventory - December 31 at cost
Cost of goods sold before inventory writedown
Loss on inventory writedown
Cost of goods sold after inventory Writedown
( 3,800,000)
6,300,000
200,000
6,500,000
73. Answer is (A).
2014
Loss on inventory writedown
Allowance for inventory writedown
2015
600,000
600,000
Allowance for inventory writedown
200,000
Gain on reversal of inventory writedown (600,000-400,000)
200,000
74. Answer is (C).
Category 1:
A
B
Category 2:
C
D
Category 1:
A
B
Subtotal
Category 2:
C
D
Subtotal
Grand total
LCNRV - by individual item
Answer Explanations & Solutions
(a)
Units
(b)
Unit cost
(c)
NRV
25,000
20,000
105
85
115
80
40,000
30,000
50
65
40
60
(a x b)
Total cost
(a x c)
NRV
LCNRV
2,625,000
1,700,000
4,325,000
2,875,000
1,600,000
4,475,000
2,625,000
1,600,000
2,000,000
1,950,000
3,950,000
8,275,000
1,600,000
1,800,000
3,400,000
7,875,000
1,600,000
1,800,000
.
7,625,000
7,625,000
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Inventory – Cost Estimation & Biological Assets
75. Answer is (B).
LCNRV - by category
Category 1
Category 2
Total cost
4,325,000
3,950,000
NRV
4,475,000
3,400,000
Lower
4,325,000
3,400,000
7,725,000
76. Answer is (B).
Total cost
Total NRV
LCNRV - by total
8,275,000
7,875,000
7,875,000
77. Answer is (B).
Market value - December 31, 2014
Market value - March 31, 2015
Additional loss on purchase commitment in 2015
5,000,000
4,900,000
100,000
78. Answer is (B). Loss on purchase commitment (50,000 x 3)
150,000
79. Answer is (A).
Remaining contract -1,000 units each year
2015
(1,000 x P100)
100,000
2016
(1,000 x P100)
100,000
Total
200,000
Estimated realizable value (2,000 x P20)
40,000
Loss on purchase commitment
160,000
A loss on inventory write-down should also be recognized on December 31,2014 in the
amount of P200,000 (2,500" units x P80).
80. Answer is (C).
Estimated liability for purchase commitment on 12/31/2014(10,000x40)
400,000
Entry on February 15, 2015
Purchases (10,000x300)
3,000,000
Estimated liability for purchase commitment
400,000
Accounts payable (10,000 x 310)
3,100,000
Gain on purchase commitment
300,000
81. Answer is (C).
Estimated liability for purchase commitment on 12/31/2014 (100,000x15)
To record the actual purchase on March 31,2015:
Answer Explanations & Solutions
1,500,000
Page 79
FINANCIAL ACCOUNTING
Purchases (100,000x55)
5,500,000
Estimated liability for purchase commitment
1,500,000
Accounts payable
5,500,000
Gain on purchase commitment
1,500,000
The gain to be recognized is limited to the loss on purchase commitment previously recorded.
82. Answer is (B). Fair value measurement stops at the point of harvest and PAS 2 on inventory
applies after such date. Accordingly, the coffee beans inventory shall be measured at the
lower of cost and net realizable value on December 31, 2015. The fair value less cost of
disposal of P3,500,000 at the point of harvest is the initial cost of coffee beans inventory for
purposes of applying PAS 2. 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.
83. Answer is (A). Only the freestanding trees shall be classified as biological assets. The land
under trees and roads in forests shall be included in property, plant and equipment.
84. Answer is (B).
Purchase price
Change in fair value due to growth & price changes
Decrease in fair value due to harvest
Carrying cost
5,000,000
350,000
(50,000)
5,300,000
85. Answer is (B).
Carrying amount - January 1
Increase due to purchases
Gain from change in fair value due to price change
Gain from change in fair value due to physical change
Decrease due to sales
Decrease due to harvest
Carrying amount - December 31
5,000,000
2,000,000
400,000
600,000
(850,000)
( 200,000)
6,950,000
86. Answer is (B).
Acquisition cost - December 31, 2014
Increase in fair value on initial recognition
Change in fair value in 2015
Decrease in fair value due to harvest
Carrying amount - December 31, 2015
.600,000
700,000
100,000
( 90,000)
1,310,000
Answer Explanations & Solutions
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Inventory – Cost Estimation & Biological Assets
87. Answer is (A).
Change in fair value in 2015
Decrease in fair value due to harvest
Net gain from change in fair value in 2015
100,000
(90,000)
10,000
88. Answer is (B).
Value of biological asset at acquisition cost on December 31, 2014
6,000,000
Fair valuation surplus on initial recognition at fair value on December 31, 2014 500,000
Change in fair value on December 31, 2015 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest
(100,000)
Carrying amount – December 31, 2015
7,300,000
89. Answer is (A).
Change in fair value on December 31, 2015 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest
(100,000)
Net gain from the change in fair value
800,000
90. Answer is (A).
Change in fair value due to growth and price changes
Decrease in fair value due to harvest
Net gain from biological asset
91. Answer is (C).
Inventory
Gain on agricultural produce
2,500,000
( 250,000)
2,250,000
400,000
400,000
92. Answer is (A).
Change in fair value due to growth and price change
Decrease in fair value due to harvest
Net gain on biological asset
400,000
(50,000)
350,000
93. Answer is (B).
Milk harvested during the year but not yet sold
150,000
94. Answer is (B).
Fair value of milk produced
Gain from change in fair value
Total income
Inventories used
Answer Explanations & Solutions
600,000
50,000
650,000
(140,000)
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FINANCIAL ACCOUNTING
Staff costs
Depreciation expense
Other operating expenses
Income before income tax
Income tax expense
Net income
(120,000)
( 15,000)
(190,000)
185,000
(55,000)
130,000
95. Answer is (B).
Dairy livestock - immature
Dairy livestock - mature
Fair value of biological assets
96. Answer is (C).
Fair value of 3-year old animals on Dec. 31
(11 x P120)
Fair value of 0.5-year old animal on Dec. 31, the newborn (1 x P80)
Total fair value - December 31,2014
97. Answer is (B).
Fair value of 10 animals on January 1 (10 x P100)
Acquisition cost of one animal on July 1
Total carrying amount of biological assets - December 31
Fair value on December 31,2014
Carrying amount
Gain from change in fair value
50,000
400,000
450,000
1,320
80
1,400
1,000
108
1,108
1,400
1,108
292
98. Answer is (A).
Gain from change in fair value due to price change:
10 2-year old animals
(105-100 = 5x10)
1 2.5-year old animal
(111-108 = 3 x 1)
1 newborn on July 1
(72 - 70 = 2 x 1)
Total
50
3
2
55
Gain from change in fair value due to physical change:
10 3-year old animals acquired 1/1/2014
(120-105 = 15 x 10)
1 3-year old animal acquired 7/1/2014
(120-111 = 9 x 1)
1 0.5-year old born on 7/1/2014
(80-72 = 8 x 1)
1 newborn
(70 x 1)
Total
Price change
150
9
8
70
237
55
Answer Explanations & Solutions
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Inventory – Cost Estimation & Biological Assets
Physical change
Total gain from change in fair value
99. Answer is (D).
15 Horses
10 Dairy cattle
8 Carabaos
20 Hogs
4 Dairy cattle
6 Carabaos
Carrying amount – December 31
237
292
(2 years old)
(3 years old)
(3.5 years old)
(4 years old)
(1.5 years old)
(1 year old)
1,350,000
580,000
290,000
600,000
200,000
140,000
3,160,000
100. Answer is (C).
Fair value – December 31, (same age)
Carrying amount
(2,100,000 + 250,000)
Price change
2,800,000
2,350,000
450,000
101. Answer is (A).
Fair value – December 31 (different age)
Fair value – December 31 (same age)
Physical change
3,160,000
2,800,000
360,000
102. Answer is (C).
Cows which are 2 years old on 1/1/2014
Heifers purchased which are 1 year old on 1/1/2014
Total fair value - January 1, 2014
(2,100 x 4,000)
(300x3,000)
103. Answer is (A).
Heifers purchased which are 1 year old on July 1, 2014 (750 x 3,000)
104. Answer is (B).
Cows which are 3 years old on 12/31/2014
Heifers which are 2 years old on 12/31/2014
Heifers which are 1.5 years old on 12/31/2014
Total fair value - December 31, 2014
105. Answer is (A).
Fair value - December 31, 2014
Fair value - January 1, 2014
Answer Explanations & Solutions
(2,100x5,000)
( 300x4,500)
( 750x3,600)
8,400,000
900,000
9,300,000
2,250,000
10,500,000
1,350,000
2,700,000
14,550,000
14,550,000
(9,300,000)
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FINANCIAL ACCOUNTING
Fair value - July 1, 2014
Increase in fair value
106. Answer is (C).
Increase due to price change:
2,100 x (4,500-4,000)
300 x (3,200-3,000)
750 x (3,200-3,000)
Increase due to physical change:
2,100 x (5,000-4,500)
300 x (4,500-3,200)
750 x (3,600-3,200)
Total increase in fair value
Answer Explanations & Solutions
(2,250,000)
3,000,000
1,050,000
60,000
150,000
1,050,000
390,000
300,000
1,260,000
1,740,000
3,000,000
Page 84