01 Guide Questions - Audits of Agriculture

Auditing & Assurance: Spec.
Industries
AUDITS OF AGRICULTUAL INDUSTRIES
1. Define the following:

a. Agricultural Activities
b. Biological Assets
c. Agricultural Produce
2. What are the common features of Agricultural Activities?
3. Give examples of examples of Biological Assets, Produce, Inventories
Biological Assets Agricultural Produce Inventories

Sheep Wool Yarn, Carpet
Pigs Carcass Sausage
Sugarcane plant Harvested cane Sugar
4. What are the Types of Biological Assets?

- Consumable and Bearer Biological Assets
- Mature and Immature Biological Assets
5. What are the criteria for recognizing biological assets?

- The entity has a control over the asset.
- The asset has future economic benefit that increase the cash inflow of the entity.
- The fair value or cost of asset is reliably measurable.
6. How should biological assets be initially and subsequently measured?

- Biological Assets are Initially and Subsequently measured at Fair Value less Cost to Sell.
7. If fair value cannot be measured reliably on initial recognition, how should biological assets be
initially measured?
- If fair value cannot be measured reliably on initial recognition, Biological asset should be
measured at Cost less Accumulated Depreciation plus Accumulated Impairment Losses.
8. How should possible changes in fair value of biological assets will be treated?
- Possible changes in Fair Value will be treated as Part of Profit or Loss.
9. Discuss the accounting treatment of Biological Assets attached to Land.

- Measure Biological Assets and Land using their own separate fair value and separately
presented in balance sheet. If there is no separate market existing, the fair value of trees is
measured at Fair Value of Combined Assets less Fair Value of the Land.
10. On January 1, ABC Company purchased a land with various biological assets. ABC company paid
a total amount of P700,000. the fair value less cost to sell to the attached biological assets is
undeterminable but the fair value of the land is P500,000. What is the entry to record the
purchase?
Journal Entry:
Dr. Land 500,000
Dr. Biological Asset 200,000
Cr. Cash 700,000
11. What is the accounting treatment for Gains & Losses on initial recognition of biological assets?
- Gains are recognized such as newborn biological asset or harvest of agricultural produce.
However, Losses are due to cost to sell.
12. ABC Company harvested 10 devil fruits from biological assets. The fair value less cost to sell of
the fruits is P 200,000. What is the entry to record the harvest?
Journal Entry:
Dr. Agricultural Produce 200,000
Cr. Gain 200,000
13. On January 1, ABC Company purchased 100 chickens for P10,000. The market price of the
chickens is P10,000, and the cost to bring them to the market is P500. What is the entry to
record the transaction?
Journal Entry:
Dr. Biological Asset 9,500
Dr. Loss 500
Cr. Cash 10,000
14. What is the accounting treatment for Animal-related recreational activities?

- Animal-related recreational activities such as animals in zoos and parks are not part of PAS
41. These animals are not used for agricultural activities but for recreational activities. These
are reported as part of PAS 16, PPE.
15. How should Biological Assets be presented in Balance Sheet?
- A Biological Asset may be presented as Current Asset if the produce growing in a plant that
is yet to be harvested and requires less than 12 months from the reporting period.
Livestock held for slaughter purposes only. On the other hand, it may also be presented as
Non-Current Asset if the produce growing in a plant that is yet to be harvested and requires
more than 12 months from the reporting period. Livestock held for breeding purposes only.
16. ABC company provided the following assets in a forest plantation and farm:
Freestanding trees P5,000,000

Land under trees 600,000
Roads in forests 300,000
Animal related to recreational activities 1,000,000
Bearer Plants 1,500,000
Bearer Animals 2,000,000
What total amount of assets should be classified as biological assets?
Asset Amount
Freestanding trees P5,000,000.00
Bearer Animals P2,000,000.00
Biological Asset P7,000,000.00
17. ABC 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 Dec 31, 2016, the entity has harvested
coffee costing P 3,000,000 and with fair value less cost to sell of P 3,500,000 at the point of
harvest. Because of long aging and maturation process after harvest, the harvested coffee beans
were still on hand on Dec 31, 2017. On such date, the fair value less cost of disposal is P
3,900,000 and the net realizable value is 3,200,000.
What is the measurement of the coffee beans inventory on Dec 31, 2016?
P 3,500,000.00
What is the measurement of the coffee beans inventory on Dec 31, 2017?
P3,200,000.00
18. ABC Company is engaged in raising dairy livestock. The entity provided the following information
during the current year.
Carrying amount, January 1 P 5,000,000
Increase due to purchases 2,000,000
Gain arising from change in FVLCD due to price change 400,000
Gain arising from change in FVLCD due 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 Dec 31?
Carrying amount, January 1 P5,000,000.00
Increase due to purchases P2,000,000.00
Gain arising from change in FVLCD due to price P400,000.00
change
Gain arising from change in FVLCD due to P600,000.00
physical change
Decrease due to sales (P850,000.00)
Decrease due to harvest (P200,000.00)
Carrying Amount, December 31 P6,950,000.00

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Auditing & Assurance: Spec.

AUDITS OF AGRICULTUAL INDUSTRIES

1. Define the following:

Biological Assets Agricultural Produce Inventories

4. What are the Types of Biological Assets?

5. What are the criteria for recognizing biological assets?

6. How should biological assets be initially and subsequently measured?

9. Discuss the accounting treatment of Biological Assets attached to Land.

14. What is the accounting treatment for Animal-related recreational activities?

Freestanding trees P5,000,000

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