lOMoARcPSD|15748387 CBMA- Module- Biological Assets Accounting (De La Salle Lipa) Studocu is not sponsored or endorsed by any college or university Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com) lOMoARcPSD|15748387 PAS 41- AGRICULTURE LEARNING OBJECTIVES 1. Describe the nature of biological assets, bearer plants and agricultural produce. 2. Measure biological assets upon initial recognition and subsequent recognition 3. Measurement of agricultural produce 4. Disclosure requirement PAS 41 prescribes accounting treatment and the related financial reporting related to agricultural activity. This is applied on biological assets and their biological transformation and to agricultural produce at the point of harvest only. Biological assets are living plants or animals which can be described as boars, goats, chickens, forest plantation, and fruit trees. Agricultural produce is the harvested product of the entity’s biological assets. This can be exampled by milk from dairy cattle, harvested fruits from its trees. Scope • Biological assets – living plant or animal (except bearer plants) • Agricultural produce – point of harvest • Excludes: – Land related to agricultural activity – Intangible assets related to agricultural activity – Biological assets held for provision or supply of services Bearer Plants • A bearer plant is a living plant that: o Is used in the production or supply of agricultural produce: o Is expected to bear produce for more than one period: and o Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. Bearer plants are accounted for in accordance with PAS16. EXAMPLES: Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com) lOMoARcPSD|15748387 De La Salle Araneta University Salvador Araneta Campus, Victoneta Ave., Malabon City Agricultural Activity • Management of biological transformation & harvest of biological assets • Diverse activities • – Capability to change – Management of change – Measurement of change Biological transformation results in asset changes or production of agricultural produce Recognition • Recognize biological asset or agricultural produce when: – Entity controls asset as result of past event – Probable future economic benefits/service potential will flow to entity – Fair value or cost can be measured reliably Measurement at Initial Recognition • Measured at fair value less costs to sell • If non-exchange transaction, same • Agricultural produce harvested from biological assets measured at fair value less costs to sell at point of harvest • Grouping according to attributes allowed Subsequent Measurement • Measured at Fair Value less Costs to Sell at each reporting date • Agricultural Produce - Fair Value less Costs to Sell at point of harvest • Gains or losses – Recognized in Surplus or Deficit for the period in which they arise Disclosure • Gain/loss on initial recognition • Consumable/bearer biological assets • Biological assets held for sale and those held for distribution at no/nominal charge • Nature of activities & estimates of physical quantities • Reconciliation 1|Page Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com) lOMoARcPSD|15748387 De La Salle Araneta University Salvador Araneta Campus, Victoneta Ave., Malabon City PAS 41- AGRICULTURE- applies to agricultural produce only at the point of harvest. Subsequently the agricultural produce shall be measured in accordance with PAS 2. 1. Blue Company had the following items in 2020 related to its biological assets (sheep and cattle): Acquisition cost of biological assets - January 1, 2020 Fair value surplus on initial recognition at fair value on January 1, 2020 Cost to sell of biological assets on acquisition date Increase in fair value due to price and physical change Increase in fair value due to new born biological asset Decrease in fair value due to harvest Wool and milk harvested during the year but still on hand at year-end P1,000,000 200,000 50,000 120,000 20,000 40,000 200,000 Q1. What amount should be reported for biological asset on December 31, 2020 Statement of financial position? a. P1,050,000 b. P1,300,000 c. P1,250,000 d. P1,290,000 Q2. What amount should be reported as net gain (loss) on biological asset on 2020 Income statement? a. P100,000 b. P50,000 c. (P100,000) d. (P150,000) 2. Farmville Inc. purchased a plantation forest for P10,000,000. There were no separate fair market value for the trees but the fair market value of the land and land improvements amounted to P3,000,000. What is the amount of biological asset? a. P10,000,000 b. P3,000,000 c. P7,000,000 d. P13,000,000 3. On January 1, 2020, Black Company purchased 100 horses at an auction price of P5,000,000. Black incurred P150,000 auction fee and transportation cost necessary to bring the horses to the farm amounted to P100,000. Black would have to incur similar transportation cost if it was to sell the horses in an auction. The biological assets should be initially recognized at a. P5,000,000 b. P4,750,000 c. P4,850,000 d. P4,900,000 2|Page Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com) lOMoARcPSD|15748387 De La Salle Araneta University 4. Salvador Araneta Campus, Victoneta Ave., Malabon City On January 1, 2020, Black Forest Company purchased 50 cows which are 2 years old for P20,000 each for its dairy milk farm. On August 1, 2021, the cows gave birth to 5 calves. There were no animals sold, died or additional purchases during 2020 and 2021. The fair values of the biological assets in the active market are as follows: New born 5 months old 2 years old 3 years old 4 years old 01/01/20 P– – 20,000 33,000 35,000 12/31/20 P– – 21,000 30,000 38,000 08/01/21 P5,000 5,500 22,000 28,000 40,000 12/31/21 P4,500 6,000 24,000 32,000 39,000 Cost to sell for each biological asset is 5% of fair value. Q1. What amount should Black Forest report the biological assets in the December 31, 2020 Statement of financial position? a. P1,567,500 b. P1,425,000 c. P1,520,000 d. P1,500,000 Q2. What amount of net gain (loss) should be reported in the 2021 income statement? a. P555,000 b. P427,500 c. P406,000 d. P456,000 Q3. What amount of gain (loss) in 2021 is attributable to price & physical change, respectively? a. P92,625 and P363,375 b. P92,625 and P339,625 c. P42,625 and P339,625 d. P42,625 and P363,375 Q5. What amount should Black Forest report the biological assets in the December 31, 2021 Statement of financial position? a. P1,881,000 b. P1,852,500 c. P1,950,000 d. P1,980,000 5. On October 1, 2020, Hatori Company, a manufacturer of expensive branded wines harvested grapes and were ready for production. Hatori reports its inventory at expected exit value. As of December 31, 2020, grapes not yet issued to production had the following data: Cost Fair value less cost to sell Net realizable value October 1, 2020 P1,200,000 1,000,000 980,000 December 31, 2020 P1,200,000 1,100,000 1,250,000 3|Page Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com) lOMoARcPSD|15748387 De La Salle Araneta University Salvador Araneta Campus, Victoneta Ave., Malabon City The grapes inventory should be reported in the December 31, 2020 balance sheet at a. P1,200,000 b. P1,000,000 c. P1,100,000 d. P1,250,000 Problem A (IFRS) Indolent Company provided the following data for 2019: Value of biological asset at acquisition cost on January 1, 2019 Fair valuation surplus on initial recognition at fair value on January 1, 2019 Change in fair value on December 31, 2019 due to growth and price fluctuation Decrease in fair value due to harvest Decrease due to sale of biological asset 600,000 700,000 100,000 90,000 400,000 Required: 1. Prepare journal entries for 2019. 2. Determine the carrying amount of the biological asset on December 31, 2019. Problem B (IFRS) Query Company has a herd of 10 2-year old animals on January 1, 2019. One animal aged 2.5 years was purchased on July 1, 2019 for P108, and one animal was born on July 1, 2019. No animals were sold or disposed of during the year. The active market provided the following fair value less cost of disposal: 2 – year old animal 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 New born animal on December 31 3 – year old animal on December 31 0.5 year old animal on December 31 100 108 70 105 111 72 120 80 Required: 1. Prepare journal entries for the current year to recognize the transactions relating to the biological asset. 2. Determine the price change and physical change in fair value. Problem C (IFRS) 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 has 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, 2019 the entity is currently holding 50,000 kilograms of milk in powder. On December 31, 2019, the biological assets are: Purchased on or before January 1, 2019 Purchased on January 1, 2019 Purchased on July 1, 2019 (3 years old) (2 years old) (1.5 years old) 2,100 300 cows heifers 750 heifers No animals were born or sold during the current year. The unit fair value less cost of disposal is as follows: January 1, 2019: 4|Page Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com) lOMoARcPSD|15748387 De La Salle Araneta University Salvador Araneta Campus, Victoneta Ave., Malabon City 1- Years old 2- Years old 3,000 4,000 July 1, 2019: 1- Year old December 31, 2019: 1- Year old 2- Year old 1.5- Year old 3- Year old 3,000 3,200 4,500 3,600 5,000 The entity has 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. There are 600 cows and 200 heifers in the Batangas farm and all these animals had been purchased on January 1, 2019. Required: 1. Determine the fair value of the biological assets on January 1, 2019. 2. Determine the fair value of the biological assets purchased on July 1, 2019. 3. Determine the fair value of the biological assets on December 31, 2019. 4. Determine the change in fair value and indicate the price change and physical change. 5. Explain the measurement of the milk inventory on December 31, 2019. Problem D (IFRS) Forester Company has reclassified certain assets as biological assets. The total value of the forest assets is P6,000,000 which comprises P5,100,000 freestanding trees, P600,000 land under trees and P300,000 roads in forest. What amount should be reported as biological assets? a. 5,100,000 b. 5,700,000 c. 5,400,000 d. 6,000,000 Problem E (IAA) Africa Company purchased 2,000 llamas on January 1, 2019. 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 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 on December 31, 2019? a. 5,300,000 b. 5,400,000 c. 5,400,000 d. 5,100,000 5|Page Downloaded by Dexanne Bulan (dexanne_bulan@yahoo.com)