LEARNING ADVANCEMENT REVIEW CENTER
LEAD
Other issues

If the asset is carried on a cost basis, PAS 20 Accounting for Government Grants and Disclosure of Government Assistance, is
applied:
 Treat the grant as deferred income, or
 Deduct the grant from the carrying amount of the asset

Government grants recognized during the period should be separately identified and any unfulfilled conditions attaching to such
grants should be explained.

An indication should be given in the financial statements where there is expected to be a decrease in the amount of government
grants receivable in future periods.
to m c a t @I
Disclosures of Government Grants

Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions, and significant
decreases in the expected level of grants
REVIEW QUESTIONS
1.
On January 1, 20x9, the entity purchased raw materials to be consumed in the production process for P550,000, including
P50,000 refundable purchase taxes. The purchase price was funded by raising a loan of P555,000 (including P5,000 loan-raising
fees). The loan is secured by inventories. Storage costs for raw materials of P10,000
During February 20x9 the entity designed the corporate gifts for the customer, the design costs included: Cost of external
designer, P7,000 and labor cost, P3,000. Storage cost for work in process of P20,000
During March 20x9, the entity’s production team developed the manufacturing technique and made further modifications
necessary to bring the inventories to the conditions specified in the agreement. The following costs were incurred in the testing
phase; material, net of P3,000 recovered from the sale of the scrapped out, P21,000; Labor, P11,000 and depreciation of plant
used to perform the modifications, P5,000.
37
During May 20x9 the entity incurred the following additional costs in manufacturing the customized corporate gifts; consumable
stores, P55,000; labor, P65,000 and depreciation of plant used to perform the modifications, P15,000.
135
The customized gifts were ready for sale on June 1, 20x9. Additional cost was incurred:
Storage costs of finished goods
P180,000
Delivery to customers
40,000
No abnormal wastage occurred in the development and manufacture of the corporate gifts.
=
What is the cost of the finished inventory of customized gifts?
A. P682,000
B. P645,000
a)
b)
c)
O
C. P702,000
D. P692,000
Borrowing costs – PAS 23 requires capitalizing interest on inventories which take a substantial amount of time to
create. However, an entity is not required to capitalize borrowing costs for inventories that are manufactured in large
quantities on a repetitive basis.
Storage costs – this can be included for products that require a maturation process or substantial amount of time to
create.
Non-production overheads or costs of designing products for specific customer– this can be included in cost if
they contribute in bringing the inventories to their present condition and location.
Fair value measurement, inventory and biological asset - Batch May 2020
Page 43 of 61
LEARNING ADVANCEMENT REVIEW CENTER
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±
2.
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3.
'
,
The inventory on hand at December 31 for Fara Company valued at a cost of P947,800. The following items were not included
in this inventory amount:
a.
Purchased goods, in transit, shipped FOB destination invoice price P32,000 which included freight charges of P1,600.
b.
Goods held on consignment by Fara Company at a sales price of P28,000, including sales commission of 20% of the
sales price.
c.
Goods sold to Godzilla Company, under terms FOB destination, invoice for P18,500 which includes P1,000 freight
charges to deliver the goods . Goods are in transit.
d.
Purchased goods in transit, terms FOB seller, invoice price P48,000, freight cost, P3,000.
e.
Goods out on consignment to Manila Company, sales price P36,400, shipping cost of P2,000.
G
Assuming that the company’s selling price is 140% of inventory cost, the adjusted cost of Fara Company’s inventory at
December 31 should be
A. P1,039,300
B. P1,039,500
C. P1,055,700
D. P1,037,300
O
Marker Company uses the perpetual system for its merchandise inventory. The accounting records show a P500,000 balance in
the inventory account as of December 15, 20x9. The following information pertaining to its inward inventory transactions from
December 16 to 31:
Merchandise received through consignment
= P20,000
Inventory purchased with a buyback agreement
100,000
160
Inventory purchased but still in transit, FOB shipping point, excluding P5,000 freight cost
155,000
Inventory purchased still in transit, Free Alongside, including delivery cost alongside the Vessel of P6,000 but
250,000
excluding the cost of shipment of P3,000
Inventory purchased still in transit, CIF (excluding insurance costs and freight of P8,000)
175,000
Purchase goods with and invoice price of P200,000 still in transit. The terms were FOB Seller. Some of the costs incurred in
connection with the sale and delivery of the goods were as follows: Packaging for shipment, P2,000; Shipping, P3,000 and
special handling charges, P4,000. The company receive a P5,000 rebate in relation to the above purchases.
Purchase goods with and invoice price of P200,000 in the stock room of Marker Company. The terms were FOB Buyer. Some of
the costs incurred in connection with the sale and delivery of the goods were as follows: Packaging for shipment, P2,000;
Shipping, P3,000 and special handling charges, P4,000. The company receive a P5,000 rebate in relation to the above
purchases.
g)
°
What amount should Marker Company report as value of its inventory in its 20x9 balance sheet?
A. P1,489,000
B. P1,498,000
C. P1,587,000
D. P1,567,000
0
4.
AAA Company reported inventories valued at P8,800,000 on -December 31. The following items were included in this amount:

Cryptocurrencies for investment purposes, P860,000.

Lubricants that are consumed by the entity’s machinery in producing goods, P90,000.,

Materials in transit shipped FOB shipping point, P120,000.

Finished goods in transit shipped FOB shipping point, P150,000.

Advertising catalogs and shipping boxes, P30,000.

Items of property, plant and equipment previously held for rental to others that are now held for sale in the ordinary
course of business, P240,000. -
j
The adjusted inventories of AAA Company at December 31 should be
A. P7,430,000
B. P7,520,0000
5.
C. P7,760,000
D. P7,910,000
On October 1, 20x9, AAA Company consigned 50 freezers at a unit cost of P15,000 to BBB Company for sale at P20,000 each
and paid P20,000 in transportation cost. On December 31, 20x9, BBB reported the sale of the 25 freezers and returned 10
units. Cost paid by the consignee on the returned units was P4,000. Amount due to consignor was remitted on the same date.
Commission rate as agreed upon was 15%. What amount of inventory on consignment and net income related to the sold units,
respectively, should AAA report on December 31, 20x9?
A. P225,000 and P36,000
B. P231,000 and P32,000 C. P235,000 and P40,000 D. P375,000 and P44,000
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Fair value measurement, inventory and biological asset - Batch May 2020
I I I .
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Page 44 of 61
Answer
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1,500100
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LEARNING ADVANCEMENT REVIEW
CENTER
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On June 1, 20x9 Concord Corporation sold merchandise with a list price of P200,000 to Rain on account. Concord allowed trade
discount of 30%, 20% and 10%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Concord prepaid
P4,000 delivery costs to Rain as an accommodation. On June 3, 20x9, Concord received from Rain returned merchandise with
an invoice price of P50,000 due to minor defects. On June 14, 20x9, Rain settled its account in full to Concord. How much net
cash remittance did Concord received?
A. P49,784
B. P53,784
C. P60,760
D. P74,088
Summary Table for Freight
Freight Terms
FOB Destination
Freight collect
Freight prepaid
FOB Shipping Point
Freight collect
Freight prepaid
Buyer
Reduction of A/P
No effect
No effect
Addition to A/P
Seller
Reduction of A/R
No effect
No effect
Addition to A/R
Formula for the computation of net collection or payment:
Invoice price of merchandise sold or purchased
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales or Purchase discount (% x Net invoice price above) (If collection or payment is within the
discount period)
Net collection or payment before freight
Less: Freight paid by the buyer – (if the term is FOB Destination, freight collect)
Add: Freight paid by seller – ( if the term is FOB Shipping point, freight prepaid)
Total Net Cash Collection or Payment
j:
7.
LEAD
On December 1, 20x9, AAA Store received 1,000 units of windbreakers on consignment from BBB Company. BBB’s cost for the
windbreakers was P1,600 each, and they were priced to sell at P2,000. Transportation cost of P2,000 was paid by AAA. As of
December 31, 50 units were returned to the consignor and 200 units are still held by the consignee. Commission rate as agreed
upon between contracting parties was 15% on all sales to be made by BBB Company. In its December 31, 20x9 balance sheet,
what amount should AAA report as payable for consigned goods?
A. P1,273,000
B. P1,320,000
C. P1,500,000
D. P2,000,000
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6.
dagger
950
X
(x)
X
(x)
X
(x)
X
X
AAA Co. records purchases at net amounts. On May 5 AAA purchased merchandise on account, P640,000, terms 2/10, n/30.
AAA Co. returned P48,000 of the May 5 purchase and receive credit on account. At May 31 the balance had not been paid. By
how much should the account payable be adjusted on May 31?
A. None
B. P11,840
C. P12,800
D. P13,760
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Use the following information for the next four (4) questions
At the close of its fiscal year on March 31, 20x3, the Apple Company was in the process of relocating its plant. This resulted in
some confusion relating to the inventory cut-off, as indicated by the following:
A.
B.
C.
D.
E.
F.
Merchandise on hand costing P17,940 was included in the inventory although the purchase invoice was not recorded
until April 12, 20x3.
Merchandise shipped on April 1, 20x3 was included in the inventory. The cost of this merchandise was P22,190, and the
sales was recorded as P31,380 on March 31, 20x3.
Merchandise costing P12,150 was included in the inventory although it was shipped to a customer on March 31, 20x3,
FOB shipping point. The company recorded the sale of P19,246 on that date.
Merchandise costing P18,200 was not counted.
Merchandise in transit (shipped to the company FOB destination) was recorded as a purchase as of April 2, 20x3, and
its cost of P17,287 was not included in the March 31, 20x3 inventory.
An invoice for P30,000, FOB shipping point, was received and recorded on April 4, 20x3. The invoice shows that the
goods had been shipped on March 28, 20x3 and the receiving report indicates that the goods had been received on
April 4, 20x3. The merchandise was excluded from inventory.
8.
By how much was the inventory account of Apple Company as of March 31, 20x3overstated or understated?
A. P 36,050 understated
B. P48,200 understated
C. P42,150 overstated
D. P46,140 overstated
9.
By how much was the Purchases account of Apple Co. for the year ended March 31, 20x3 overstated or understated?
A. Not affected
B. P47,787 understated
C. P47,940 understated
D. P65,227 understated
O
10. By how much was the Sales account of Apple Co. for the year ended March 31, 20x3overstated or understated?
A. P50,626 overstated
B. P31,380 overstated
C. P12,134 overstated
D. P12,134 understated
11. By how much was the Net Income of Apple Co. for the year ended March 31, 20x3overstated or understated?
A. P7,390 overstated
B. P43,270 overstated
C. P60,557 overstated
D. P61,740 overstated
Use the following information for the next four (4) questions
The Sunshine Company sells blankets for P30 each. The following was taken from the inventory records during July.
Date
Product T
Units
Cost
July 3
Purchase
500
P15
July 10
Sale
300
July 17
Purchase
1,000
P17
July 20
Sale
600 3001200×15)tb8WlYwxn9
5100( ' N t " ?
July 23
Sale
300
July 30
Purchase
1,000
P20
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Required: Determine the cost of sales and cost of ending inventory under each the following independent assumptions:
12. First-In-First-Out Method (periodic)
Fair value measurement, inventory and biological asset - Batch May 2020
Invent
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Page 45 of 61
8-201
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LEARNING ADVANCEMENT REVIEW CENTER
A. P19,400; P25,100
LEAD
B. P21,360; P23,140
C. P19,500; P25,000
D. Not given
13. First-In-First-Out Method (perpetual)
A. P19,400; P25,100
B. P21,360; P23,140
C. P19,500; P25,000
D. Not given
14. Weighted-Average Method
A. P19,400; P25,100
B. P21,360; P23,140
C. P19,500; P25,000
D. Not given
15. Moving Average Method
A. P19,400; P25,100
B. P21,360; P23,140
C. P19,500; P25,000
D. Not given
Use the following information for the next two (2) questions
The Joanna Company sells for P30 each. The following was taken from the inventory records during August.
Date
Product B
Units
August 1
Beginning
600
August 4
Purchase
400
August 12
Sale
200
August 15
Purchase
1,100
August 17
Purchase return
100
August 22
Sale
600
August 23
Sale
400
August 25
Sales return
100
August 31
Purchase
1,000
Cost
P20
P24
P25
P25
P30
Required: Determine the cost of sales and cost of ending inventory under each of the following assumption:
16. First-in-First-Out Method (perpetual)
A. P24,100; P52,500
B. P25,100; P53,500
C. P24,500; P45,100
D. Not given
17. Moving Average Method
A. P24,561; P52,340
D. Not given
B. P25,461; P51,139
C. P28,900; P34,000
1. First-In-First-Out Method (perpetual)
Date
Aug. 1
Aug. 4
Balance
Aug. 12
Balance
Aug. 15
Aug. 17
Balance
Aug. 22
Purchases
Unit cost
Total cost
Qty
400
24
Qty
Cost of Merchandise sold
Unit cost
Total cost
9,600
200
1,100
(100)
25
25
400
200
200
200
(100)
*
1,000
30
4,000
27,500
(2,500)
Aug. 23
Aug. 25
Balance
Aug. 31
20
20
24
24
25
25
8,000
4,800
4,800
5,000
(2,500)
30,000
1,100
24,100
Qty
600
400
1,000
(200)
800
1,100
(100)
1,800
(400)
(200)
(200)
(200)
100
900
1,000
1,900
Inventory
Unit cost
20
24
20
25
25
20
24
24
25
25
30
Total cost
12,000
9,600
21,600
(4,000)
17,600
27,500
(2,500)
42,600
(8,000)
(4,800)
(4,800)
(5,000)
2,500
22,500
30,000
52,500
* For sales return, if there is no unit cost given, assume Last-out, First-In (i.e. Unit cost of the last sold)
Alternative computation
Date
Aug. 1
Aug. 4
Aug. 12 Sales (200 units)
From beg. Inventory
Aug. 15
Aug. 17
Aug. 22 Sales (600 units)
From Aug. 1 purchases
From Aug. 4 purchases
Aug. 23 Sales
From Aug. 3 Purchase
From Aug. 15 Purchase
Aug. 25 Sales return
Aug. 31 Purchases
Qty
Inventory
Unit cost
Total cost
600
20
12,000
400
24
9,600
(200)
1,100
(100)
20
25
25
Qty
Cost of Merchandise sold
Unit cost
Total cost
(4,000)
27,500
(2,500)
200
400
200
20
24
8,000
4,800
200
200
(100)
24
25
25
4,800
5,000
(2,500)
(400)
(200)
20
24
(8,000)
(4,800)
(200)
(200)
100
1,000
1,900
24
25
25
30
(4,800)
(5,000)
2,500
30,000
52,500
20
1,100
Fair value measurement, inventory and biological asset - Batch May 2020
4,000
24,100
Page 46 of 61
LEARNING ADVANCEMENT REVIEW CENTER
LEAD
2. Moving Average Method
Date
Aug. 1
Aug. 4
Balance
Aug. 12
Balance
Aug. 15
Aug. 17
Balance
Aug. 22
Balance
Aug. 23
BAlance
Aug. 25
Balance
Aug. 31
Purchases
Unit cost
Total cost
Qty
400
24
Qty
Cost of Merchandise sold
Unit cost
Total cost
9,600
200
1,100
(100)
25
25
30
21.6
4,320
27,500
(2,500)
*
1,000
Qty
600
23.49
14,094
400
23.49
9,396
(100)
23.49
(2,349)
30,000
1,100
25,461
600
400
1,000
(200)
800
1,100
(100)
1,800
(600)
1,200
(400)
800
100
900
1,000
1,900
Inventory
Unit cost
20.00
24.00
21.60
21.60
25.00
25.00
23.49
23.49
23.49
23.49
23.49
23.49
23.49
30.00
26.92
Total cost
12,000
9,600
21,600
(4,320)
17,280
27,500
(2,500)
42,280
(14,094)
28,186
(9,396)
18,790
2,349
21,139
30,000
51,139
Alternative computation
Date
Aug. 1 Beginning balance
Aug. 4 Purchases
Balance
Aug. 12 sales
Aug. 15 Purchases
Aug. 17 Purchase return
Aug. 22 Sales
BAlance
Aug. 23 Sales
Balance
Aug. 25 Sales return
Balance
Aug. 31 Purchases
Qty
600
400
1,000
(200)
800
1,100
(100)
1,800
(600)
1,200
(400)
800
100
900
1,000
1,900
Inventory
Unit cost
Total cost
20.00
12,000
24.00
9,600
21.60
21,600
21.60
(4,320)
21.60
17,280
25.00
27,500
25.00
(2,500)
23.49
42,280
23.49
(14,094)
23.49
28,186
23.49
(9,396)
23.49
18,790
23.49
2,349
23.49
21,139
30.00
30,000
26.92
51,139
Qty
Cost of Merchandise sold
Unit cost
Total cost
200
21.60
4,320
600
23.49
14,094
400
23.49
9,396
(100)
23.49
(2,349)
1,100
25,461
Use the following information for the next three (3) questions
Transaction for the month of June were:
June
June
June
June
June
Purchases
1 (Balance)
3
7
15
22
June
June
June
June
June
June
2
6
9
10
18
25
Units
Unit Cost
Total Cost
400
1,100
600
900
250
3,250
P3.20
3.10
3.30
3.40
3.50
300
800
500
200
700
150
2,650
@P5.50
@P5.50
@P5.50
@P6.00
@P6.00
@P6.00
P1,280
3,410
1,980
3,060
875
P10,605
Sales
18. The ending inventory on a FIFO basis is
A. P1,900
B. P1,956
periodic
↳
C. P2,041
D. P2,065
19. Assuming that perpetual inventory records are kept in units only, the ending inventory on an average cost basis is
A. P1,900
B. P1,956
C. P2,041
D. P2,065
20. Assuming that perpetual inventory records are kept in units and pesos, the ending inventory on an average cost basis is
A. P1,900
B. P1,956
C. P2,041
D. P2,065
21. Osa Corporation has two products in its work in process ending inventory, each accounted for at the lower of cost or net
realizable value. Specific data with respect to each product follows:
Product 1
Product 2
Selling price
P60
P130
Historical cost
40
70
Cost to sell
10
26
Cost to complete
15
40
In pricing its ending inventory using the lower-cost – of net realizable value, what unit values should Osa use for products #1
and #2, respectively?
A. P35 and P64
B. P50 and P104
C. P40 and P70
D. P45 and P90
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Fair value measurement, inventory and biological asset - Batch May 2020
Page 47 of 61
21-30
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LEARNING ADVANCEMENT REVIEW CENTER
LEAD
Use the following information for the next two (2) questions
JAC Company’s closing inventories as of December 31, 20x9 consists of three groups of inventory items and their respective costs
and net realizable values (NRV) are as follows:
Item
A
B
C
Total
Group1
Cost
P1,000
2,000
3,000
P6,000
NRV
P1,500
2,800
2,600
P6,900
Item
D
E
F
Total
Group 2
Cost
P2,000
4,000
3,000
P9,000
NRV
P1,800
6,000
4,000
P11,800
Item
G
H
I
Total
Group 3
Cost
P1,500
2,500
3,000
P7,000
NRV
P1,200
2,000
3,400
P6,600
O
22. What is the value of the closing inventories for December 31, 20x9 under the item by item basis?
A. P20,600
B. P22,000
C. P21,600
D. P25,300
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23. What is the value of the closing inventories for December 31, 20x9 under the group for similar items basis?
A. P20,600
B. P22,000
C. P21,600
D. P25,300
Use the following information for the next two (2) questions
The following information relate to an item of raw materials of Raiborn Company as of June 30, 20x9.
Historical cost of raw materials
Replacement cost of raw materials
Conversion cost to finished product A (labor, P200,000 and production overhead P100,000)
÷:
P500,000
400,000
24. What is the value of the closing raw material A if the finished product A to be produced is expected to fetch P1,000,000?
A. P400,000
B. P450,000
C. P500,000
D. P600,000
25. What is the value of the closing raw material A if the finished product A to be produced is expected to fetch P650,000?
A. P400,000
B. P450,000
C. P500,000
D. P600,000
2 6 . Based on the physical inventory taken on December 31, 20x7, AAA Company has an ending inventory costing P950,000 but with
a fair value less cost to sell of P750,000. During 20x8 AAA Company has yet to sell this inventory due primarily to the nature of
the business. On December 31, 20x8 the inventory has a fair value less cost to sell of P1,100,000. In the December 31, 20x8
balance sheet, what amount should the inventory be valued?
A. P750,000
B. P900,000
C. P950,000
D. P1,100,000
2 7 . The following information pertains to BBB Office Company at December 31, 20x8:
Inventory, January 1
Purchases during the year
Inventory, December 31, cost (NRV P1,000,000)
P1,400,000
6,600,000
1,200,000
Before the year 20x7 application of the lower of cost or NRV rule never produced a net to write down the company’s inventory to
an amount below cost. What is the cost of goods sold assuming the company applies the lower of cost or NRV using a loss
account and valuation allowance account?
A. P6,500,000
B. P6,800,000
C. P7,000,000
D. P8,000,000
28. The opening inventory of AAA Company on January 1, 20x8 was P5,000,000. This amount included inventory A items which
were carried at their net realizable value of P500,000, the original cost of these items was P800,000. During the current year
purchases totaled P20,000,000, transportation and other directly attributable costs incurred in bringing the inventories to
warehouse totaled P500,000. At year end December 31, 20x8, a physical inventory count was conducted and it revealed a book
amount of P7,000,000. Included in the closing inventory was P2,000,000 but the estimated realizable value was P1,200,000.
Also, inventory A items brought forward from prior year remained unsold at year end. There was an increase in the demand for
these items and it was estimated that they could be sold for P1,000,000. It is the company’s policy to include declines and
reversal in the cost of sales.
What is the amount of cost of sales during 20x8?
A. P18,200,000
B. P18,500,000
C. P19,000,000
D. P19,600,000
29. AAA Company uses International Financial Reporting Standards (IFRS). In 20x7, AAA Company experienced a decline in the
value of its inventory resulting in a write-down of its inventory from P240,000 to P200,000. The company used the loss method
in 20x7 to record the necessary adjustment and uses an allowance account to reduce inventory to NRV. In 20x8, market
conditions have improved dramatically and AAA Company inventory increases to NRV of P216,000. Which of the following will
AAA Company record in 20x8?
A. A debit to recovery of inventory loss of P16,000
B. A credit to recovery of inventory loss for P24,000
C. A debit to allowance to reduce inventory to NRV of P16,000
D. A credit to allowance to reduce inventory to NRV of P24,000
30. On September 29, 20x6, Catleya Airways entered into a non-cancellable commitment to purchase 3,000 barrels of aviation fuel
for P9,000,000 on March 23, 20x7. Catleya entered into this purchase commitment to protect itself against the volatility in the
aviation fuel market. By December 31, 20x6, the purchase price of aviation fuel had increased to P3,200 per barrel. However,
by March 23, 20x7, when Catleya took delivery of the 3,000 barrels, the price of aviation fuel had fallen to P2,500 per barrel.
O
Required: Account for the changes in price of the purchase commitment.
Fair value measurement, inventory and biological asset - Batch May 2020
5 .d o . '
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31. During June 30, 20x6, Bihon Company signed a non-cancellable contract to purchase 1,000 sacks of rice at P1,300 per sack
with delivery to be made in May 9, 20x7. On December 31, 20x6, the price had fallen to P1,100 per sack. On May 9, 20x7, the
company accepts delivery of rice when the price is P1,400 per sack.
Required: Account for the changes in price of the purchase commitment.
÷
32. On February 20, 20x1, a flood completely destroyed the goods in process inventory and half the raw materials inventory of the
Climb Company. There was no damage to the finished goods inventory. A physical inventory taken after the flood indicated the
following values:
Raw materials
P35,000 Finished goods
P75,000
A review of the accounting records indicated the following:
Raw materials (Dec. 31, 20x0)
P65,000 Raw materials purchases
Goods in process (Dec. 31, 20x0)
80,000 Direct labor cost
Finished goods (Dec. 31, 20x0)
72,000 Manufacturing overhead cost
Sales (to February 20, 20x1)
40,000 Gross profit rate (on sales)
The value of the inventory destroyed by flood is
A.
P113,000
B.
P148,000
C.
P20,000
30,000
15,000
40%
P156,000
D.
P183,000
33. On September 30, 20x8, a fire at Mill Company’s only warehouse caused severe damage to its entire inventory. Based on
recent history, Mill has a gross profit of 30% of net sales. The following information is available from Mill’s records for the nine
months ended September 30, 20x8:
Inventory at January 1, 20x8
P550,000
Total purchases received and recorded from January to date of fire
3,000,000
Total freight cost of goods purchased and received
60,000
Total credit memo received on goods purchased and received
200,000
Total discounts taken on purchases
80,000
Invoice received for goods purchased but still in transit shipped on September 30,
120,000
20x8, FOB shipping point
Total sales delivered and recorded from January to date of fire
3,600,000
Unrecorded sales invoice for goods delivered
300,000
Total sale returns accounted and recorded to date of fire
160,000
Total sales discounts taken by customers on recorded sales
40,000
A physical inventory disclosed usable damaged goods which Mill estimates can be sold to a jobber for P50,000 at net realizable
value with original selling price of P70,000. On December 31, 20x8 Mill Company received P5,000,000 from the insurance
company as compensation for the damaged warehouse and P550,000 for the damaged value of merchandise inventory.
What amount of loss should the company recognize with regards to the merchandise inventory?
A. P112,000
B. P662,000
C. P782,000
D. P832,000
34. BBB Company pricing structure has been established to yield a gross margin of 25% based on cost. The following data pertain
to the year ended December 31, 20x8: Sales P2,200,000; Inventory, January 1, 20x8 P1,500,000; Purchases, P800,000;
Freight cost on purchases, P20,000; Freight cost on merchandise sold P30,000; Inventory inside the company’s warehouse per
actual count on December 31, 20x8, P160,000. Credit memo issued to customers for goods returned and received, P50,000;
Credit memo issued to customers for merchandise to be returned, January 2, 20x9, P40,000; Sales discount, P100,000. BBB
Company is satisfied that all sales and purchases have been fully and properly recorded. How much BBB Company reasonably
estimate as a shortage in inventory at December 31, 20x8?
A. P343,000
B. P183,000
C. P440,000
D. P155,000
'÷÷÷
Fiori.to?#
?"I::i§
Use the following information for the next three (3) questions:
Presented below is information taken from BBBBB, Company for the three months ended March 31, 20x3.
Cost
Retail
Inventory, January 1
P300,000
P1,200,000
Purchases
6,000,000
8,500,000
Purchase returns
(400,000)
(800,000)
Purchase discounts
(150,000)
–
Purchase allowance
(50,000)
–
Freight-in
20,000
–
Markups –
–
600,000
Markup cancellations
–
(50,000)
Departmental Transfer-In
600,000
1,100,000
Departmental Transfer-Out (560,000) (1,334,000)
Markdown
–
(500,000)
Markdown cancellations
–
116,000
Sales
7,000,000
–
Sale returns
(700,000)
–
Sale allowance
(25,000)
–
Sale discount
(25,000)
Normal Shrinkage
500,000
–
1,500,000
t
800.000
"Yi÷@
Determine the following: (Round off 4 decimal places e.g. (.3333)
35. What should be reported as cost of goods sold using conservative method?
A.
P4,490,000
B.
P4,820,000
C.
P4,680,000
O
2,200,000
O
36. What should be reported as cost of goods sold using FIFO method?
A.
P4,800,000
B.
P4,210,000
C.
P4,306,307
Fair value measurement, inventory and biological asset - Batch May 2020
D.
P4,800,000
D.
P4,080,000
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LEARNING ADVANCEMENT REVIEW CENTER
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O
37. What should be reported as cost of goods sold using average method?
A.
P6,800,290
B.
P4,010,450
C.
P3,940,830
D.
P4,434,730
Use the following information for the next two (2) questions:
You obtained the following information in connection with your audit of Labrador Corporation, which uses FIFO retail inventory
method:
Cost
Retail
20x6
Beginning Inventory
P 835,200
P1,392,000
Purchases
6,864,000
P10,542,000
Mark up, net
63,000
Mark down, net
45,000
Sales
10,260,000
20x7
Purchases
7,140,000
Mark up, net
Markdown, net
Sales
Required:
38. The estimated inventory at cost on December 31, 20x6 is
A. P1,095,062
B. P1,099,800
C. P1,085,926
D. P1,089,947
39. The estimated inventory at cost on December 21, 20x7 is
A. P1,050,000
B. P1,039,650
C. P1,030,086
D. P1,028,550
10,218,000
84,000
102,000
10,392,000
O
40. Balut Company had always inventoried finished goods at selling price and prepared the following statement on this basis:
Sales
P1,400,000
Raw materials used at cost
P500,000
Labor
600,000
Overhead
240,000
Total
P1,340,000
Work in process at cost:
January 1
P612,000
December 31
(752,000)
(140,000)
Cost of goods manufactured
1,200,000
Finished goods at selling price:
January 1
P240,000
December 31
840,000
(600,000)
(600,000)
Gross income
P800,000
What is the cost of goods sold?
A. P200,000
B. P600,000
C. P500,000
D. P840,000
O
Answer is (D).
Finished goods-January 1
(60% x 240,000)
Cost of goods manufactured (squeeze)
Goods available for sale
Finished goods - December 31
(60% x 840,000)
Cost of goods sold
Cost
144,000
1,200,000
1,344,000
( 504,000)
840,000
Retail
240,000
2,000,000
2,240,000
( 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
=
= 60%
2,000,000
REVIEW QUESTIONS - GOVERNMENT GRANT AND AGRICULTURE
1.
On January 2, 20x8, the local government of Manila promised Circus Company P500,000 as subsidy if it clears up the pollution in
the river near its factory in the next two years. Circus Company incurred P300,000 during 20x8 and expects to incur the same
cost in 20x9. By what amount should the profit or loss in 20x8 of Circus Company be affected by above transaction(s)?
A. Not affected
B. P50,000 decrease
C. P250,000 increase
D. P300,000 decrease
Income (500,000 x 300,000/600,000)
Expenses
Decrease
2.
250,000
(300,000)
(50,000)
On January 2, 20x8, Triple company receives a government loan of P1,000,000 paying a coupon interest of 2% per year. The
loan is repayable at the end of year 5. Triple Company’s borrowing cost is 8% per annum. The below-market interest is
provided by the government to enable Triple Company to bear cost of 2% per annum on the nominal value of the loan. What
amount of deferred income should Triple Company recognized on December 31, 20x8?
A. P106,996
B. P154,626
C. P198,710
D. P239,563
Fair value measurement, inventory and biological asset - Batch May 2020
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LEARNING ADVANCEMENT REVIEW CENTER
SR
ER
2%
8%
ER 8% for 5 years
0.6806
3.9927
1,000,000
1,000,000
(1M - 760,454)
1,000,000
239,546
Present value
Cash
Discount on notes payable
Notes payable
Deferred Income - GG
LEAD
680,600
79,854
760,454
2%
1,000,000
239,546
Interest paid
Jan. 2, 20x8
Dec. 31, 20x8
Face value
Present value
Interest expense
Discount on Notes payable
Interest expense
Disc. Amortization
20,000
60,836
1,000,000
(801,290)
198,710 Deferred income
Less:Amortization
Deferred income
40,836
40,836
Deferred income - GG
Income from Government Grant
40,836
Interest expense
Cash
20,000
40,836
CV
760,454
801,290
239,546
(40,836)
198,710
40,836
20,000
Use the following information for the next two (2) questions
On January 2, 20x8 the government granted and transferred a land to Lion Company for a nominal consideration of P10,000.
The market value of the land on this date was P10,000,000. The condition attached to the grant was Lion Company shall clean
up the water pollution in the river for 10 years.
3.
If Lion Company elects to measure the land at the nominal value, what amount of deferred income should be recognize on
January 2, 20x8?
A. None
B. P10,000
C. P9,990,000
D. P10,000,000
4.
If Lion Company elects to measure the land at its fair value, what amount of deferred income should Lion Company recognize
on January 2, 20x8?
A. None
B. P10,000
C. P9,990,000
D. P10,000,000
Nominal value - amount given up only
Land
Cash
Land
Cash
Deferred income from government grant
5.
10,000
Fair value
10,000,000
10,000
9,990,000
On January 2, 20x8, Mike Company received a grant related to a factory building. The total amount of the grant was
P18,000,000. Kenneth Company acquired the building from an industrialist identified by the government. If Mike Company did
not purchase the factory building, which was located in the slums of the city; it would have been repossessed by a government
agency. Mike Company purchase the building for P54,000,000. The useful life of the building is not considered to be more than
three years, mainly due to the fact that the previous owner did not properly maintain it. Assuming the grant is treated as a
reduction of the gross carrying amount of the asset, what is the carrying value of building in the December 31, 20x8 statement
of financial position?
A. P18,000,000
B. P24,000,000
C. P36,000,000
D. P54,000,000
Building
Deferred income
x
Carrying value
6.
Nominal Value
10,000
(Principal market vs. Most advantageous market)
measured at fair value less cost to sell.
54,000,000
(18,000,000)
36,000,000
2/3
24,000,000
ABC Co. holds a biological asset that is required by PFRSs to be
The following information relates to the asset as of the end of the current reporting period.
Active market #1
Market price
P100
Transaction costs
5
Transport costs
10
Fair value measurement, inventory and biological asset - Batch May 2020
Active market # 2
P120
5
35
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LEARNING ADVANCEMENT REVIEW CENTER
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Case 1: The principal market for the asset is Active Market #2. How much is the measurement for the biological asset?
Case 2: Neither market is the principal market for the asset. How much is the measurement for the biological asset?
A.
P80; P85
B. P85; P90
C. P80; P80
D. P85; P85
Case #1:
Answer: Fair value (120 – 35) = 85
FVLCTS = (85 – 5) = P80
Case #2:
The most advantageous market is determined as follows:
Active market #1
100
(5)
(10)
85
Market price
Transaction costs
Transport costs
Amount received from sale
Active market #2
120
(5)
(35)
80
Answer: Fair value (100 – 10) = 90
FVLCTS = (90 – 5) = P85
Most advantageous
market
The market that maximises the amount that would be received to sell the asset or minimises the amount that
would be paid to transfer the liability, after taking into account transaction costs and transport costs
Principal market
The market with the greatest volume and level of activity for the asset or liability
Use the following information for the next two (2) questions
Fantastic Company sold some of their biological assets to Graham for P200,000 on July 1, 20x8. The sale was made at
Fantastic’s Farm. However, if the biological assets are being sold at an auction they could have been sold at a higher price
because the company has to incur transportation cost of P2,000. Fantastic Company paid P6,000 commission in relation to the
sale. Graham Company incurred P3,000 as transport cost in bringing the asset to their own farm.
7.
At what amount should Graham Company recognize the assets initially?
A. P192,000
B. P194,000
C. P196,000
8.
What amount of loss should the Graham Company recognize on initial recognition related to the asset?
A. None
B. P3,000
C. P6,000
D. P9,000
D. P200,000
Fair value is computed as follows:
Market price (in principal or most advantageous market)
Less: Transport cost
Fair value
Price (Farm)
Est. CTS
Initial cost (FVLCTS)
Total consideration (P200,000 + P3,000)
Loss on initial recognition
9.
X
(x)
X
200,000
(6,000)
194,000
(203,000)
(9,000)
Finish Company purchase Dairy cattle at an auction/active market for P300,000 on July 1, 20x8. Cost of transporting the
cattle back to the company’s farm was P3,000 and the company would have to incur cost similar transportation cost if it was to
sell the cattle in the auction/active market, in addition an auctioneer’s fee of 2% of sales price. On December 31, 20x8, after
taking into account and location, the fair value of the biological assets had increased to P500,000 (that is, the market price
including auctioneer’s fee of P10,000 and transportation cost of P5,000). What amount of net gain or loss should the company
disclosed in the statement of comprehensive income related to the biological assets?
A. P182,000
B. P194,000
C. P196,000
D. P200,000
Active market
Transport cost
Fair value
Est. CTS (2%)
FVLCTS
Total consideration (P300,000 + P3,000)
Loss on initial recognition
July 1, 20x8
Dec. 31, 20x8
300,000
500,000
(3,000)
(5,000)
297,000
495,000
(6,000)
(10,000)
291,000
485,000
(303,000)
(12,000)
Net Gain
194,000
(12,000)
182,000
10. The following information pertains to the bearer plant and agricultural produced of Christopher Company. On January 1, 20x8,
the cost/carrying value of the company’s bearer plant was P25,000,000 and estimated remaining life is 10 years. As of
December 31, 20x8 the company determines the following:
Fair value of the grapes before the harvest at December 31, 20x8
P5,000,000
Estimated point-of-sale costs of the grapes
100,000
Estimated point-of-sale costs of bearer plant
500,000
Fair value measurement, inventory and biological asset - Batch May 2020
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With the assistance of valuation experts, Christopher Company determines that the fair value of the bearer plant including the
fruit they bear as of December 31, 20x8 is P26,000,000. What total amount should Christopher Company report in its
December 31, 20x8 statement of comprehensive income in relation to the bearer plant?
A. None
B. P2,000,000
C. P2,500,000
D. P4,500,000
Bearer plant
Depreciation (10 years)
Carrying value
25,000,000
(2,500,000)
22,500,000
Fair value
26,000,000
Grapes
(5,000,000)
CTS
(500,000)
Impairment loss
Carrying value after impairment loss
2,500,000
22,500,000
20,500,000
2,000,000
(2,000,000)
20,500,000
Total expenses
Fair value
CTS
FVLCTS
Bearer plants
21,000,000
(500,000)
20,500,000
2,000,000
4,500,000
Fruits
5,000,000
(100,000)
4,900,000
Use the following information for the next two (2) questions
Junior Company is in business of deer farming. A herd of 100 2-year old and 50 3-year old deer are held throughout the
financial year of 20x8. The relevant data are as follows:
FVLCTS of a 2-year old deer at January 1, 20x8
P3,000
FVLCTS of a 3-year old deer at January 1, 20x8
4,000
FVLCTS of a 2-year old deer at December 31, 20x8
3,300
FVLCTS of a 3-year old deer at December 31, 20x8
4,500
FVLCTS of a 4-year old deer at December 31, 20x8
5,800
Additional information:
The relevant data pertaining to herd of 50 3-year old deer:

Three animals were sold at January 1

One animal was sold at December 31

One animal was died at January 1

Two animals were died at December 31
The relevant data pertaining to newly born deer:

One animal was born on July 1,20x9

Two animals (newly born) were purchase on July 1, 20x9

Per unit fair value less cost to sell were as follows:
July 1, 20x9
New born animal
December 31,20x9
New born animal
0.5-year old animal
P7,000
7,200
8,000
11. How much is the increase in the fair value of the biological asset due to physical change?
A. P55,000
B. P52,600
C. P185,000
D. P186,600
12. How much is the increase in the fair value of the biological asset due to price change?
A. P55,000
B. P52,600
C. P185,000
D. P186,600
Use the following information for the next four (4) questions
The following information are based on the biological asset of Agri-farm Company. The following costs were incurred from
January 1, 20x14 being the time the biological assets were cultivated up to the time of initial commercial harvest being on
December 31, 20x18:
Direct labor costs (50% incurred in 20x14, 20% incurred in 20x15 and 10% each incurred in 20x16, 20x17 and
P700,000
20x18
Cost of seedlings (incurred in 20x14)
60,000
Costs of fertilizers and chemicals (incurred during the first two years)
40,000
Depreciation of farm equipment, bunkhouses
100,000
Utilities
50,000
Other plantation overheads
250,000
Total
P1,200,000
As of December 30, 20x19 the estimated fair value of the combined assets (bearer plants and the fruits they bear) is
P3,000,000. The estimated fair value of the fruits bearing on the plants is P400,000. The estimated costs to sell are P100,000
and P20,000 for the plants and the fruits respectively.
Fair value measurement, inventory and biological asset - Batch May 2020
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13. If the biological assets (plants) are considered as bearer plant with singular purpose, with an estimated life of ten years and with
an estimated salvage value of P20,000 after 10 years, what amount should be charged against income during 20x19 in relation
to the bearer plants?
A. P70,000
B. P80,000
C. P118,000
D. P150,000
14. If the biological assets (plants) are considered as bearer plants with dual purpose, what amount should be recognized as an
expense in 20x18 in relation to the bearer plants?
A. P70,000
B. P80,000
C. P118,000
D. P150,000
15. If the biological assets (plants) are considered as bearer plants with dual purpose, at what amount should the bearer plant be
reported in the statement of financial position for the year ended December 31, 20x19?
A. P1,082,000
B. P2,500,000
C. P2,500,000
D. P2,880,000
16. If the biological assets (plants) are considered as bearer plant with singular purpose, what amount of agricultural produced
should the company report in the 20x19 statement of financial position?
A. None
B. P190,000
C. P380,000
D. P400,000
17. A herd of ten 2-year old animals was held at January 1, 20x9. One animal (aged 2.5 years old) was purchased on July 1, 20x9
for P10,800 and one animal was born on July 1,20x9. Two 3-year old animals were sold at December 31, 20x9 for P13,500
each, the company incurring P1,500 on the sale of each. Per unit fair value less estimated point of sale costs were as follows:
January 1, 20x9
2-year old animal
P10,000
July 1, 20x9
New born animal
7,000
2.5-year old animal
10,800
December 31,20x9
New born animal
7,200
0.5-year old animal
8,000
2-year old animal
10,500
2.5-year old animal
11,100
3-year old animal
12,000
REQUIRED:
a.
Compute for changes in fair value less point of sale costs attributable to price change and to physical change.
b.
Prepare the entries for the foregoing.
c.
Prepare a schedule reconciling the beginning balance with the ending balances and showing the changes during the period
due to purchase, change in fair value and sale of biological assets.
a. Price change
2 year-old animals on January 1 10 x (P10,500 – P10,000)
2.5 year-old animal on July 1 1 x (P11,100 – P10,800)
Animal born on July 1 1 x (P7,200 – P7,000)
Change in FV less CTS due to price change
P5,000
300
200
P5,500
Physical change
3 year-old animals on 12/31 10 x (P12,000-P10,500)
3 year-old animal on 12/31 1 x (P12,000 – P11,100)
Born on July 1 upon birth
On December 31 (P8,000 – P7,200)
Change in FV less CTS due to physical change
b. Entries
20x9
July 1
July 1
December 31
December 31
Biological assets
Cash
Purchased one animal
P15,000
900
7,000
800
P23,700
P10,800
P10,800
Biological assets
Increase in FVLCTS due to physical change
7,000
Biological asset
Increase in FVLCTS due to price change
Increase in FVLCTS due to physical change
(P23,700 – P7,000)
22,200
Cash (2 x (13,500 -1,500)
Biological assets
24,000
c.
Balance, 1/1/20x9 (10 animals x P10,000)
Purchase
Change in FV less CTS due to price change
Change in FV less CTS due to physical change (including the birth of one animal)
Sale at FVLCTS
Balance, December 31, 20x9
7,000
5,500
16,700
24,000
P100,000
10,800
5,500
23,700
(24,000)
P116,000
18. In accordance with PIC Q&A No 2018-4, to determine that fair value cannot be reliably measured, an entity must demonstrate
A. Quoted market prices for the biological asset are not available
Fair value measurement, inventory and biological asset - Batch May 2020
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LEARNING ADVANCEMENT REVIEW CENTER
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B. Alternative fair measurements for the biological asset are determined to be clearly unreliable
C. Both A and B
D. Either A or B
19. Cost may sometimes approximate fair value particularly when:
A. Little biological transformation has taken place since initial cost incurrence.
B. The impact of the biological transformation on price is not expected to be material.
C. Either A or B.
D. Neither A nor B.
20. Cost may approximate fair value in which of the following?
A. Fruit tree seedlings planted immediately prior to the end of a reporting period.
B. The initial growth in a 30-year pine plantation production cycle.
C. Either A or B.
D. Neither A nor B.
21. Which of the following is not a basis for the measurement of change in biological assets?
A. Ripeness of vegetables
B. Weight of animals
C. Circumference of trees
D. Fishing season
Net
Net
Net
Net
purchases (SQUEEZE)
markups
markdowns
purchases after markup and markdown
4,200,000
4,200,000
Net purchases at cost
Divided by: FIFO cost ratio
Net purchases after markup and markdown
6,400,000
800,000
(200,000)
7,000,000
4200000
60%
7,000,000
Beg inventory
Net purchases
Net markup
Net markdown
Goods available for sale
Average cost ratio (5.85M / 9M) = 65%
Ending inventory at cost
Divided by: average cost ratio
Ending inventory at retail
Goods available for sale
Ending inventory at retail
NET SALES
1,650,000
4,200,000
5,850,000
2,000,000
6,400,000
800,000
(200,000)
9,000,000
1,950,000
65%
3,000,000
9,000,000
(3,000,000)
6,000,000
Goods available for sale at cost
Ending inventory at cost
COST OF GOODS SOLD
5,850,000
(1,950,000)
3,900,000
AGRICULTURE
Problem 1: The following information pertains to the agricultural activity of AAA Corporation for the year ended December 31,
20x21:
Maize plants
P200,000
Dairy cattle
100,000
Bottled milk
60,000
Santol tree
100,000
Mango tree
90,000
Picked fruit
30,000
Tea bushes
40,000
Picked leaves
10,000
Fruit still waiting ripening in the tree
50,000
Plant with dual use
30,000
Rubber tree
70,000
Land used in agriculture
1,400,000
Rubber shoes
10,000
Lumber trees
200,000
Lumber
50,000
Dogs used in rendering security services
10,000
Dogs used for breeding
20,000
Trees for display purposes
50,000
Additional information: The mango tree is also being sold as a living plant
Requirements: Determine the total amount of the following:
a. Biological assets under PAS 41
b. Property, Plant and Equipment under PAS 16
Fair value measurement, inventory and biological asset - Batch May 2020
Page 55 of 61
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Agricultural produce under PAS 41
Inventory under PAS 2
Maize plants
Dairy cattle
Bottled milk
Santol tree
Mango tree
Picked fruit
Fruit still waiting ripening in the tree
Plant with dual use
Tea bushes
Picked leaves
Rubber tree
Land used in agriculture
Rubber shoes
Lumber trees
Lumber
Dogs used in rendering security
services
Dogs used for breeding
Trees for display purposes
Total
P200,000
100,000
60,000
100,000
90,000
30,000
50,000
30,000
40,000
10,000
70,000
1,400,000
10,000
200,000
50,000
10,000
Biological
assets
200,000
100,000
PPE
O
Agriculture
produce
Inventory
60,000
100,000
*90,000
30,000
50,000
30,000
40,000
10,000
70,000
1,400,000
10,000
200,000
50,000
10,000
20,000
50,000
20,000
50,000
1,670,000
690,000
40,000
120,000
Problem 2: The following information is available for the biological assets of BBB Corporation, on the acquisition date, January 1,
20x21:
Market price
Commissions to brokers
Transfer taxes
Transport cost
Active Market 1
P500
30
20
40
Active Market 2
P550
20
15
50
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Requirements:
a. If “Active Market 1” is the principal market, how much should the biological assets initially measured?
b. If neither of the markets is considered as principal market for the biological asset, what amount of biological asset be recognized
in the financial statements.?
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Problem 3: On June 1, 20x1, an entity has the following information:
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Price in the principal market
Commissions to brokers
Transport and other cost expected to be incurred to bring the asset to the market
Levies by commodity exchange
Transfer taxes and duties
Advertising costs
Selling price in a binding sale agreement
P20,000
1,000
700
300
500
200
30,000
Additional information: On December 31 the FVLCTS P50,000
Required: Compute for the following:
a. Fair value
b. Cost to sell
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c. Fair value less cost to sell
d. Gain due to changes in FVLCTS-Dec. 31
Problem 4: (Biological assets attached to land) On January 2, 20x7, Sarsi Company acquired forest assets for a lump-sum
amount of P42,000,000 which is equal to the lump sum value of the group of assets. At the time of purchase the company is 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 forest assets are listed below and their related fair value less point of sell costs:
Contributory assets (Land under trees) P4,000,000
Concrete roads in forest
2,000,000
The concrete roads were newly constructed and the estimated economic life is 20 years. On December 31, 20x7,
estimated fair value of the assets is P48,000,000.
Required: What is the net effect in the profit or loss of 20x7, as a result in the change in the value of the assets?
the combine
'¥1,48,
Problem 5: On January 1, of the current year, AAA Company acquired a two-year old, biological asset at its fair value of P10,000.
The cost to sell the biological asset amounted to P1,000.
Betta,
Required: Prepare the necessary journal entry.
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Problem 6: On April 1, of the current year, BBB Company’s goat gave birth to two kids. The fair value less costs to sell is P9,000
per kid.
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Required: Prepare the necessary journal entry.
Problem 7: On February 14, of the current year, CCC Company harvested ripe strawberries from its farm in La Trinidad, Benguet.
The fair value less costs to sell is P10,000. Labor on harvesting amounted to P1,000.
Fair value measurement, inventory and biological asset - Batch May 2020
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Page 56 of 61
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Required: Prepare the necessary journal entry.
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LEAD
Problem 8: DDD Corporation 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
P5,000,000
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
800,000
Decrease due to harvest
200,000
Requirement: What is the carrying amount of the biological asset on December 31?
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Problem 9: EEE Corporation has a herd of 10 2-year old animals on January 1, 20x21. One animal aged 2.5 years was purchased
on July 1, 20x21 for P108, and one animal was born on July 1, 20x21. 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 animals on January 1
P100
2.5 -year old animals 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
New born animal on December 31
72
3-year old animal on December 31
120
0.5-year old animal on December 31
80
Requirements: Compute for the following:
a. Change in FVLCTS due to price change
b. Change in FVLCTS due to physical change
-
Problem 10: DDD Company has a herd of 15, one-year old animals on January 1, 20x18. Three animals were born on July 1,
20x18. Fair value less per unit less costs to sell costs are summarized below:
One-year old animal at January 1, 20x18
Newborn animal at July 1, 20x18
One-year old animal at December 31, 20x18
Newborn animal at December 31, 20x18
Two-year old animal at December 31, 20x18
0.5 year-old animal at December 31, 20x18
P4,500
3,000
4,600
3,300
5,500
3,400
Required:
1. Compute the gain or loss due to price change
2. Compute the gain or loss due to physical change
3. Prepare all related journal entries.
300
Problem 11: EEE Company has a herd of 15, one-year old animals on January 1, 20x18. Two animals aged 1.5 years were
purchased on July 1, 20x18 for P5,000 and three animals were born on July 1, 20x18. No animals were sold or disposed of during
the period. Fair value per unit less costs to sell are summarized below:
One-year old animal at January 1, 20x18
1.5 year-old animal at July 1, 20x18
Newborn animal at July 1, 20x18
One-year old animal at December 31, 20x18
1.5 year-old animal at December 31, 20x18
Newborn animal at December 31, 20x18
Two-year old animal at December 31, 20x18
0.5 year-old animal at December 31, 20x18
P4,500
5,000
3,000
4,600
5,200
3,300
5,500
3,400
The January 1, 20x19, four (4) animals were sold at P5,700 each. These animals are part of the entity’s herd on January 1, 20x18.
Required:
1. Compute for the following:
a. Gain or loss due to physical change.
b. Gain or loss due to price change.
c. Carrying amount of the biological asset at December 31, 20x18 to be presented in the non-current section of the statement
of financial position.
d. Gain or loss on sale of biological asset in 20x19.
2. Prepare journal entries to record the acquisition, change in value and sale of the biological assets.
FINANCIAL STAEMENT PRESENTATION
Problem 12: (Financial Statements Presentation)
FFF Co. a company engaged in production of livestock, has the following data on December 31, 20x18:
Cash
Trade and other receivables
Inventories
Dairy livestock -immature
Dairy livestock – mature
Fair value measurement, inventory and biological asset - Batch May 2020
P10,000
88,000
82,950
52,060
372,990
Page 57 of 61
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Property, plant and equipment, net
Trade and other payables
Note payable – long term
Share capital
Retained earnings, January 1
Fair value of milk produced
Gain – change in fair value
Inventories used
Staff costs
Depreciation expense
Other operating expenses
Income tax expense
1,462,650
65,822
100,000
1,000,000
865,000
518,240
39,930
137,523
127,283
15,250
197,092
43,194
Required: Prepare the Statement of Comprehensive Income and Statement of Financial Position
F FF Corporation
Statement of Comprehensive Income
F or the period ended December 31, 20x18
Fair value of milk produced
Gain from change in fair value
Total gain
Inventories used
Staff costs
Depreciation expense
Other operating expenses
Profit from Operations
Income tax expense
Profit for the y ear
518,240
39,930
558,170
137,523
127,283
15,250
197,092
(477,148)
81,022
(43,194)
37,828
F FF Corporation
Statement of F inancial Position
As of December 31, 20x18
Current assets
C ash
Trade and other receivables
Inventories
Total current assets
Noncurrent assets
Dairy livestock - immature
Dairy livestock - mature
Total Dairy livestock - Subtotal
Property, plant and equipment, net
Total Noncurrent assets
Total assets
10,000
88,000
82,950
180,950
52,060
372,990
425,050
1,462,650
1,887,700
2,068,650
Liabilities and Equity
Trade and other payables
Total current liabilities
65,822
65,822
Noncurrent liabilities
Note payable - long term
Total Noncurrent liabilities
100,000
100,000
Total Liabilities
165,822
Equity
Share capital
Retained earnnings
Total Equity
1,000,000
902,828
1,902,828
Total liabilities and Equity
2,068,650
How should subsequent expenses relating to agricultural activity be presented?
It depends. Such costs may include feeding, veterinary services, planting, weeding, irrigation, fertilizer, and harvesting and
slaughtering costs. IAS 41 does not prescribe the treatment of such costs. Prior to adoption of IAS 41, many agricultural
businesses had a policy of capitalising some of these costs, particularly those relating to the development of immature plants or
livestock up to the point they were productive. As IAS 41 does not prescribe the treatment of subsequent expenditure, such
a treatment would still be permissible under IAS 41. However, difficulties may be encountered in defining what should be
capitalised and what should be expensed; many entities now adopt a policy of treating all such expenditure as a ‘cost of
production’. This is also permissible. However, the measurement of the aggregate gain or loss arising during the current period on
initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets,
which has to be disclosed in accordance with IAS 41 para 40, will be directly affected by whether any part of these costs has been
capitalised, so the accounting policy for the treatment of such costs should be disclosed.
Both IAS 2 and IAS 16 exclude biological assets from their scope, but they can be used by analogy if the entity adopts the policy of
capitalising such costs. Therefore, those costs related to the development of biological assets are capitalised by using the criteria of
those standards and adjusted periodically by the re-measurement of the biological assets at its fair value. Management should use
judgement to determine which costs would be eligible for capitalisation (that is, labour costs of those employees directly involved
with the management of biological assets could be capitalised, but labour costs related to selling staff would not).
Fair value measurement, inventory and biological asset - Batch May 2020
Page 58 of 61
LEARNING ADVANCEMENT REVIEW CENTER
LEAD
Government Grants Related to a Biological Asset
Problem 1: On January 1, 20x21, DDD Inc. was granted by a local government grant of P500,000 to aid the company in financing
the domestication of ostriches. The ostriches are managed to produce eggs that are sold to the community.
On June 30, 20x21, DDD Inc. was granted by a national government a grant of P600,000 to aid the company in maize plants. The
grant requires the company to farm only within the city limits for 6 years. If any conditions is breached, the entity must return the
grant taking into consideration the portion retained based on passage of time.
Requirement: What is the total income from government grant to be recognized by DDD Inc. for the year 20x21?
First grant
Second grant (P600,000/6 years x 6/12)
Total income from government grant
P500,000
50,000
P550,000
Problem 2: (Unconditional government grant) AAA Co. was granted by the local government of Bohol amounting to P500,000
on January 1, 20x18, to aid AAA in financing the domestication of tarsiers. AAA Co. measures its biological assets at fair value less
costs to sell. No conditions are attached to the grant.
Required: Prepare all journal entry in 20x18.
The journal entry to record the receipt of government grant on January 1, 20x18 is as follows:
Dr. C ash
500,000
C r. Income from government grants
500,000
Problem 3: (Conditional government grant) BBB Co. was granted by the provincial government of Isabela amounting to
P500,000 on November 1, 20x18, to aid in planting a Mahogany tree. The grant becomes receivable when BBB acquires a suitable
site to plant the trees. As of December 31, 20x18, BBB has not yet found any suitable place in which to plant the trees but on
January 15, 20x19, however, BBB acquired a site in Karagsakan, Roxas Isabela to plant the trees at a cost of P200,000.
Fair value measurement, inventory and biological asset - Batch May 2020
Page 59 of 61
LEARNING ADVANCEMENT REVIEW CENTER
LEAD
Required: Prepare all journal entries in 20x18 and 20x19.
1. Journal entry to record the receipt of grant on November 1, 20x18 is as follows:
Dr. C ash
500,000
C r. Deferred Income - government grants
500,000
2. Journal entry to record the acquisition of the land nad recognition of income from
government grants on January 15, 20x19
Dr. Land
200,000
C r. C ash (or other appropriate account)
200,000
Dr. Deferred income - government grants
C r. Income from government grants
500,000
500,000
Problem 4: (Conditional government grant) CCC Company was granted by the local government of Roxas, Isabela 5-hectare
land on January 1, 20x18, for the planting of Mahogany tree. The grant has a fair value of P500,000. The grant requires that CCC
Company to farm only within Roxas, Isabela for five years and require the entity to return the entire grant if it farms for a period
shorter than five years.
Required: Prepare all necessary entries in 20x18 and December 31, 20x22.
Solution:
1. To record the grant related to non-monetary asset (land) received on January 1, 20x18:
Dr. Land
500,000
C r. Deferred income - government grants
500,000
2. On December 31, 20x18 through 20x22, no entry will be made since there is no assurance
that CCC Company will comply with the condition.
3. To record the realization of income from government grant on December 31, 20x18, assuming
CCC Company has complied with the conditions attached to the grant:
Dr. Deferred income - government grants
500,000
C r. Income from government grants
500,000
Problem 5: (Part of government grant retained due to passage of time) FFF Co. was granted by the local government of
Roxas, Isabela a 5-hectare land on January 1, 20x18, for the planting of Mahogany tree. The grant has a fair value of P500,000.
The grant requires that FFF Co. to farm only within Roxas, Isabela for five years and require the entity to return part of the grant if it
farms for a period shorter than five years taking into consideration the portion retained based on passage of time.
Required:
1. Prepare all necessary entries in 20x18 and on December 31, 20x19 assuming no breach of condition.
2. Prepare all necessary entries in 20x18 and on January 1, 20x19 assuming there is a breach of condition.
Fair value measurement, inventory and biological asset - Batch May 2020
Page 60 of 61