Page 1 of 5 | FAR Physical Handout 04
BIOLOGIGAL ASSETS AND PPE PART 1
ABITAGO, K./ CALIWAN, F./ ESCALA, R./ GARCIA, V.
BIOLOGICAL ASSETS AND PROPERTY, PLANT
AND EQUIPMENT (PART 1)
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THEORETICAL CONCEPTS
1. The following are accounted for using IAS 41 Agriculture, except
a. Livestock from which milk is produced.
b. Fruit trees from which a fruit is harvested.
c. Fish in farms.
d. Trees grown for use as lumbers.
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ABITAGO, K./ CALIWAN, F./ ESCALA, R./ GARCIA, V.
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2. Harvested mangoes in a mango plantation are presented in the financial statements as
a. Biological assets.
b. Inventories.
c. Property, Plant and Equipment.
d. Supplies.
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3. Which of the following statements about the measurement of biological assets and agricultural produce is not
correct?
a. A loss may arise on initial recognition of biological assets.
b. A gain may arise on initial recognition of biological assets.
c. In all cases, an entity measures agricultural produce at the point of harvest at fair value less cost to sell.
d. The costs of re-establishing biological assets after harvest such as the cost of replanting trees in plantation
forest after harvest are capitalized as cost of biological assets.
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4. When agricultural produce is harvested, the harvest should be accounted for as “inventory”. For this purpose, the
deemed cost of the inventory is the
a. fair value less cost of disposal at the point of harvest.
b. historical cost of the harvest.
c. historical cost less impairment.
d. market value.
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5. IAS 16 Property, Plant and Equipment applies to which of the following assets?
a. Land classified as held for sale.
b. Exploration and evaluation assets.
c. Equipment used to develop or maintain biological assets related to agricultural activity.
d. None of the above.
6. Which of the following statements about the property, plant and equipment is not correct?
a. Items such as spare parts, stand-by equipment and servicing equipment are generally classified as inventory.
b. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as
incurred.
c. Items of property, plant and equipment acquired for safety or environmental reasons, although not directly
increasing the future economic benefits of the related asset, but is necessary for an entity to obtain the future
economic benefits from its other assets, qualify for recognition as property, plant and equipment.
Effectiveness. Efficiency. Convenience
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Page 2 of 5 | FAR Physical Handout 04
ABITAGO, K./ CALIWAN, F./ ESCALA, R./ GARCIA, V.
BIOLOGIGAL ASSETS AND PPE PART 1
d. All of these statements are correct.
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7. Which of the following statements about the cost of self-constructed assets is not correct?
a. The cost is determined using the same principles as for an acquired assets.
b. If an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the
same as the cost of constructing an asset for sale.
c. Any internal profits or savings from construction are deducted from the cost of the asset.
d. All of these are correct.
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8. The cost of a non-monetary asset acquired in exchange for another non-monetary asset and the exchange has
commercial substance is usually recorded at
a. the fair value of the asset given up, and a gain or loss is recognized.
b. the fair value of the asset given up, and a gain but not a loss may be recognized.
c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up.
d. either the fair value of the asset given up or the asset received, whichever one results in the largest gain
(smallest loss) to the company.
P2,500,000
1,000,000
400,000
200,000
300,000
150,000
450,000
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Livestock intended for production of meat
Livestock from which milk is produced
Livestock held for sale
Production cost of milk
Production cost of cheese
Production cost of carcass
Production cost of sausages and hams
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PROBLEM SOLVING
1. On December 31, 2023, Nestle Company engaged in raising livestock and production of livestock products,
presented the following assets valued at fair value less cost to sell and cost:
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All production costs are lower than their net realizable values.
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What amount of biological assets shall be presented in the December 31, 2023, statement of financial position?
a. P2,500,000
b. P2,900,000
c. P3,500,000
d. P3,900,000
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What amount of inventories shall be presented in the December 31, 2023, statement of financial position?
a. P1,100,000
b. P1,500,000
c. P2,500,000
d. P4,000,000
2. The following information pertains to an agricultural company’s assets on December 31, 2023:
Fair value of livestock in a binding sale agreement
Fair value of livestock in an active market
Estimated brokers’ commission
Estimated transport cost
Effectiveness. Efficiency. Convenience
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P3,300,000
3,500,000
100,000
150,000
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Page 3 of 5 | FAR Physical Handout 04
ABITAGO, K./ CALIWAN, F./ ESCALA, R./ GARCIA, V.
BIOLOGIGAL ASSETS AND PPE PART 1
At what amount should the biological assets be reported on the company’s December 31, 2023, statement of
financial position?
a. P3,050,000
b. P3,200,000
c. P3,250,000
d. P3,400,000
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3. A company produces milk and sell them to local ice cream producers. It began operations in 2022, by purchasing
milking cows for P850,000. The following information were available in 2023:
P1,100,000
250,000
175,000
350,000
150,000
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Carrying value of the cows on January 1
Increase in fair value of the cows due to price and physical changes
Decrease in fair value of the cows due to harvest
Net selling price of the cows sold during the year
Carrying value of unsold milk on December 31
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What was the value of the milking cows on December 31, 2023?
a. P1,175,000
b. P1,025,000
c. P975,000
d. P825,000
P 2,750
2,900
3,500
4,400
4,500
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June 30, 2022
1.5-year-old cattle
December 31, 2022
1.5-year-old cattle
2-year-old cattle
3-year-old cattle
4-year-old cattle
December 31, 2023
1.5-year-old cattle
2-year-old cattle
2.5-year-old cattle
3-year-old cattle
4-year-old cattle
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4. Magnolia Company purchased 1,000, 1.5-year-old cattle on July 1, 2022. On December 31, 2022, the company
purchased another 2,000, 3-year-old cattle and 500, 2-year-old cattle. The per unit fair values less cost to sell were
as follows:
3,200
3,750
4,150
4,700
5,500
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How much was taken to 2023 profit or loss as a gain arising from change in fair value due to physical change?
a. P2,050,000
b. P2,300,000
c. P2,625,000
d. P3,025,000
How much was taken to 2023 profit or loss as a gain arising from change in fair value due to price change?
a. P1,575,000
b. P1,225,000
Effectiveness. Efficiency. Convenience
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Page 4 of 5 | FAR Physical Handout 04
ABITAGO, K./ CALIWAN, F./ ESCALA, R./ GARCIA, V.
BIOLOGIGAL ASSETS AND PPE PART 1
c. P1,025,000
d. P975,000
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5. Manila company purchased a land with a dilapidated building for P10,000,000. Taxes in arrears on the property
assumed by the entity amounted to P500,000. The building was demolished right away to make way for the
construction of a new building. Demolition cost net of P70,000 proceeds from sale of salvaged materials, was
P430,000. The following are the costs incurred in relation to the land purchased and the construction of the new
building: Fee for title search, P50,000; Cost of special assessment, P35,000; Payments to informal settlers to vacate
the old building, P150,000; Cost of excavation before construction of new building, P200,000; Cost of grading and
leveling, P300,000; Contract price for the new building, P15,000,000; Cost of safety fence around the site during
construction, P80,000; Cost of the removal of safety fence after the construction, P5,000; Cost of clearing the
unwanted trees from the land, P10,000; Cost of building alteration, reconditioning improvement, P200,000; Cost of
insurance for the new building, P100,000; Cost of new fence surrounding the new building, P180,000.
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What is the total cost of the building?
a. P15,650,000
b. P15,865,000
c. P16,065,000
d. P16,135,000
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What is the total cost of the land?
a. P10,585,000
b. P10,595,000
c. P10,895,000
d. P11,095,000
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6. In 2023, Mandaue Company purchased the following:
• Land with a building, for P2,280,000. It was determined that the building is worth twice as much as the land.
Mandaue Company has the intention of using the old building, hence, necessary remodeling at a cost of
P800,000 were initiated. Also, Mandaue Company constructed driveways and sidewalks amounting to
P204,000, fences of P100,000, and water system of P64,000.
• Machinery with a list price of P700,000. Freight on machinery purchased amounted to P8,000 while repairs
to machinery due to damage during shipment amounted to P4,600. The manufacturer offered 2% cash
discount for the said machine, but due to cash constraints, it was not availed.
How much is the cost of the building?
a. P1,520,000
b. P1,724,000
c. P2,320,000
d. P2,524,000
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How much is the cost of the machine?
a. P694,000
b. P698,600
c. P708,000
d. P712,600
7. Cebu Company purchased a printing machine with a list price of P100,000 but was offered a trade discount of 10%.
In addition, Cebu Company incurred the following charges:
Effectiveness. Efficiency. Convenience
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Page 5 of 5 | FAR Physical Handout 04
ABITAGO, K./ CALIWAN, F./ ESCALA, R./ GARCIA, V.
BIOLOGIGAL ASSETS AND PPE PART 1
Shipping and handling charges
Pre-production testing
Maintenance contract for 3 years
Site preparation costs
Electrical cabling costs
Floor reinforcing
In-house labor costs
Total
P 2,500
10,000
18,000
P 10,000
5,000
7,000
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22,000
P 52,500
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Included in the electrical cabling costs was P3,000 incurred to correct cabling errors as a result of the company’s
incorrect requirements for the asset. Determine the initial cost to be recorded for the machine.
a. P121,500
b. P124,500
c. P127,500
d. P130,500
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8. Calbayog Company had the following property acquisitions of machineries during the current year:
• During the early part of the year, the entity purchased a machine for P500,000 down and four monthly
installments of P1,250,000. The cash price of the machine was P4,700,000.
• At the beginning of current year, the entity purchased a machine for P2,000,000 in exchange for a
noninterest bearing note requiring four payments of P500,000. The first payment was made at the end of
current year. The rate of interest for this note at date of issuance was 10%.
• At the beginning of current year, the entity acquired a machine by issuing a four-year, noninterest-bearing
note for P2,000,000. The entity has a 10% interest for this type of note.
• During the year, the entity exchanged an old machine, costing P3,000,000 and 50% depreciated, for a used
machine and paid a cash difference of P500,000. The fair value of the old machine was determined to be
P1,800,000. The exchange was considered with commercial substance.
----- END OF HANDOUTS -----
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What is the total cost of machineries acquired? [Use PV factors with 2 decimal places].
a. P8,945,000
b. P9,445,000
c. P9,945,000
d. P9,645,000
Effectiveness. Efficiency. Convenience
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