FINANCIAL ACCOUNTING AND REPORTING

FAR09 Biological Assets

9.1. Introduction and Key Definitions ........................................................................ 1

9.2. Recognition and Measurement............................................................................. 2

9.3. Government Grants ................................................................................................... 3

9.4. Presentation and Disclosure.................................................................................. 3

FAR09 Biological Assets
9.1. Introduction and Key Definitions
 The objective of PAS 41 is to establish standards of accounting for agricultural activity.
 PAS 41 shall be applied to account for the following when they relate to agricultural activity:
a. biological assets, except for bearer plants;
b. agricultural produce at the point of harvest; and
c. government grants covered by paragraphs 34 and 35.
 PAS 41 does not apply to:
a. land related to agricultural activity (see PAS 16 and PAS 40)
b. bearer plants related to agricultural activity (see PAS 16). However, PAS 41 applies to the produce on
those bearer plants.
c. government grants related to bearer plants (see PAS 20)
d. intangible assets related to agricultural activity (see PAS 38)
 The following are the key definitions from PAS 41:
Biological asset A living animal or plant
Bearer plant A living plant that:
a. is used in the production or supply of agricultural produce;
b. is expected to bear produce for more than one period; and
c. has a remote likelihood of being sold as agricultural produce, except for
incidental scrap sales

The following are not bearer plants:

a. plants cultivated to be harvested as agricultural produce
b. plants cultivated to produce agricultural produce when there is more
than a remote likelihood that the entity will also harvest and sell the
plant as agricultural produce, other than as incidental scrap sales
c. annual crops

Agricultural produce The harvested produce of the entity’s biological assets

Agricultural activity The management by an entity of the biological transformation and harvest
of biological assets for sale or for conversion into agricultural produce or
into additional biological assets
a. Capability of change
b. Management of change
c. Measurement of change

Harvesting from unmanaged sources (such as ocean fishing and

deforestation) is not an agricultural activity.
Biological Comprises the processes of growth, degeneration, production, and
transformation procreation that cause qualitative or quantitative changes in a biological
asset
Harvest Detachment of produce from a biological asset or the cessation of a
biological asset’s life processes

 The following table provides examples of biological assets, agricultural produce, and products that are the
result of processing after harvest:
Biological assets Agricultural produce Products that are the result of
processing after harvest
Sheep Wool Yarn, carpet
Trees in a timber plantation Felled trees Logs, lumber
Dairy cattle Milk Cheese
Pigs Carcass Sausages, cured hams
Cotton plants Harvested cotton Thread, clothing
Sugarcane Harvested cane Sugar
Tobacco plants Picked leaves Cured tobacco
Tea bushes* Picked leaves Tea
Grape vines* Picked grapes Wine
Fruit trees* Picked fruit Processed fruit
Oil palms* Picked fruit Palm oil
Rubber trees* Harvested latex Rubber products
*Some plants, for example, tea bushes, grape vines, oil palms and rubber trees, usually meet the
definition of a bearer plant and are within the scope of PAS 16. However, the produce growing on bearer
plants, for example, tea leaves, grapes, oil palm fruit and latex, is within the scope of PAS 41.

FAR08 INVENTORIES 1
Case Study 1
An entity, on adoption of PAS 41, has reclassified certain assets as biological assets. The total value of the group’s forest
assets is P2,000,000 comprising:
Freestanding trees P1,700,000
Land under trees 200,000
Roads in forests 100,000

Required
Show how the forests would be classified in the financial statements.

Case Study 2
Entity X owns vineyards that include a large number of vines. These vineyards are held only for production purposes.
The grapes are harvested by X and processed to make wine afterwards with X’s technical equipment. Finally, X sells
the wine to its customers.

Required
Assess which standard applies to the accounting of the bold and underlined items in X’s financial statements and
explain their measurement by X.

9.2. Recognition and Measurement

1. the entity controls the asset as a result of past events;
Requirements for 2. it is probable that future economic benefits associated with the asset will flow to the
recognition entity; and
3. the fair value or cost of the asset can be measured reliably.

• Initial – fair value less costs to sell

Measurement of • Subsequent – fair value less costs to sell
biological assets • When fair value cannot be measured reliably – cost less any accumulated depreciation
and any accumulated impairment losses

• Initial – fair value less costs to sell at the point of harvest

Measurement of • Subsequent – lower of cost or net realizable value (PAS 2)
agricultural • Point-of-sale costs include brokers’ and dealers’ commissions, any levies by regulatory
produce authorities and commodity exchanges, and any transfer taxes and duties. They exclude
transport and other costs necessary to get the assets to a market.

• Recognize in profit or loss the following:

a. Gain or loss on changes in fair value less cost to sell
b. Gain or loss on initial recognition of agricultural produce
c. Gain or loss on initial recognition of biological asset
Gains and losses
• Gain or loss from changes in fair value less cost to sell
a. Due to price change
(FVLCS, end, Age as of beg.) – (FVLCS, beg, Age as of beg.) x Quantity
b. Due to physical change
(FVLCS, end, Ages as of end) – (FVLCS, end. Age as of beg.) x Quantity

Case Study 3
ABC Dairy produces milk for local ice cream producers. The entity began operations on January 1, 2019 by purchasing
milking cows for P2,000,000. The entity controller had the following information available at year-end relating to the
milking cows:
Carrying amount - January 1 P2,000,000
Change in fair value due to growth and price changes 400,000
Decrease in fair value due to harvest 50,000
Milk harvested during the year but not yet sold 150,000

Required
What amount of gain on biological asset should be reported in 2019?
What amount of gain on agricultural produce should be recognized in 2019?

FAR08 INVENTORIES 2
 Case Study 4
ABC Company has a herd of 100 2-year old animals on January 1, 2019. Ten animals aged 2.5 years were purchased on
July 1, 2019 for P10,800 each and ten animals were born on July 1, 2019. No animals were sold or disposed of during
the year. The fair values less cost to sell per unit were:
2-year old animal on January P10,000
2.5-year old animal on July 10,800
New born animal on July 7,000
2-year old animal on December 31 10,500
2.5-year old animal on December 31 11,100
Newborn animal on December 31 7,200
3-year old animal on December 31 12,000
0.5-year old animal on December 31 8,000

Required
a. What is the carrying amount of the biological assets on December 31, 2019?
b. What is the gain from change in fair value that should be reported for 2019?
c. Prepare the necessary journal entries for the described various transactions.

9.3. Government Grants

 PAS 20 is applied only to a government grant related to a biological asset measured at its cost less any
accumulated depreciation and any accumulated impairment losses.
 For biological assets measured at fair value less costs to sell, PAS 41 is applied.
 PAS 41 does not deal with government grants that relate to agricultural produce. These grants may include
subsidies. Subsidies are normally payable when the produce is sold and would therefore be recognized as
income on the sale.
Unconditional government grant Recognize income when the grant becomes receivable
Conditional government grant Recognize income only when the conditions of the grant
are met
Conditional government grant – Recognize income proportionately or using the straight-
piecemeal satisfaction line method

Case Study 5
Entity X owns olive plantations, which contain a large number of olive trees. The olive trees are biological assets and
are measured at fair value less costs to sell. On January 1, 2019, a government grant of P2,000,000 for the olive trees
becomes receivable. The grant is paid to X on the same date.

Consider the following independent situations:

Situation 1: The government grant is unconditional.

Situation 2: Payment of the government grant is subject to the condition that X operates the olive plantations at least
until December 31, 2020. If this condition is not met, the whole grant of P2,000,000 has to be paid back. Assume that
X finally meets this condition.

Situation 3: Payment of the government grant is subject to the condition that X operates the olive plantations at least
until December 31, 2020. If this condition is not met, the terms of the grant allow part of it to be retained according to
the time that has elapsed. Assume that X finally meets this condition.

Required
How much income from the government grant should be recognized for the years 2019 and 2020 in the given
independent situations?

9.4. Presentation and Disclosure

 Biological assets are aggregated and presented as one-line item under the heading “Biological Assets”,
classified as non-current asset.
 After point of harvest, agricultural produce is presented under “Inventories” and are classified as current
assets.
 Fair value less costs to sell of agricultural produce on initial recognition is separately presented from
gains or losses on changes in fair values of biological assets on the face of the statement of profit or loss
and other comprehensive income.
 The following should be disclosed in the notes to the financial statements:
a. Carrying amount of biological assets
b. Description of an enterprise's biological assets, by broad group
c. Change in fair value during the period. There can be physical change through growth, and there can
be a price change. Separate disclosure of these two elements is encouraged but not required.
d. Fair value of agricultural produce harvested during the period

FAR08 INVENTORIES 3
 e. Description of the nature of an enterprise's activities with each group of biological assets and non-
financial measures or estimates of physical quantities of output during the period and assets on hand
at the end of the period
f. Information about biological assets whose title is restricted or that are pledged as security
g. Commitments for development or acquisition of biological assets
h. Financial risk management strategies
i. Methods and assumptions for determining fair value
j. Reconciliation of changes in the carrying amount of biological assets, showing separately changes in
value, purchases, sales, harvesting, business combinations, and foreign exchange differences
 Disclosure of a quantified description of each group of biological assets, distinguishing between
consumable and bearer assets or between mature and immature assets, is encouraged but not required.
If fair value cannot be measured reliably, additional required disclosures include:
a. Description of the assets
b. An explanation of the circumstances
c. If possible, a range within which fair value is highly likely to fall
d. Gain or loss recognized on disposal
e. Depreciation method
f. Useful lives or depreciation rates
g. Gross carrying amount and the accumulated depreciation, beginning and ending
 Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions,
and significant decreases in the expected level of grants.

Quizzer – Problem 1
1. Jessie Company sold some of their biological assets to Kendrick Company for P200,000 on July 1, 2019. The sale
was made at Jessie’s farm. However, if the biological assets are being sold at an auction, they could have been sold
at a higher price but the company has to incur transportation costs of P2,000. Jessie Company paid P6,000
commission in relation to the sale. Kendrick Company incurred P3,000 as transport cost in bringing the asset to
their own farm.

Question 1: At what amount should Kendrick Company recognize the assets initially?
A. P192,000
B. P194,000
C. P196,000
D. P200,000

Question 2: What amount of loss should Kendrick Company recognize on initial recognition related to the asset?
A. None
B. P3,000
C. P6,000
D. P9,000

2. The following information pertains to the biological asset and agricultural produce of Lady Gaga Company. The
fair value of the company’s vineyard was P25,000,000. As of June 30, 2019, Lady Gaga Company determines the
following:
Fair value of the grapes harvested at March 31, 2019 P5,000,000
Estimated point-of-sale costs of the grapes 100,000
Estimated point-of-sale costs of the vines 200,000
Fair value of the vines as of March 31, 2019, prior to harvest 31,000,000

Lady Gaga Company determines that there is no change in fair value of the vines between March 31, 2019 and
June 30, 2019. What total amount of gain should Lady Gaga Company report in its June 30, 2019 as a result of the
change in the fair value of the biological asset and agricultural produce?
A. P800,000
B. P1,000,000
C. P4,900,000
D. P5,700,000

3. Mariah Company is in business of deer farming. A herd of one hundred deer is held throughout the financial year of
2019. The only change during the year is the increase in their physical attributes due to aging from two to three
years. The relevant data are as follows:
Fair value of a 2-year old deer at January 1, 2019 P3,000
Fair value of a 2-year old deer at December 31, 2019 3,300
Fair value of a 3-year old deer at December 31, 2019 4,800

How much is the increase in the fair value of the biological asset due to physical change?
A. P30,000
B. P150,000
C. P180,000
D. P480,000

FAR08 INVENTORIES 4
4. Nelly Company commences cultivation of oil palm crop on January 1, 2019. Costs (planting materials, labor and
other planting costs) were incurred in 2019 to develop a 10-hectare oil palm crop amounted to P4,000,000. On
December 31, 2019, the fair value of the land with a one-year old crop was valued at P24,000,000. The fair value of
an equivalent raw agricultural land was valued at P18,000,000. What is the amount of profit from plantation
operation for the year ended December 31, 2019?
A. None
B. P2,000,000
C. P4,000,000
D. P6,000,000

Quizzer – Theory 1
1. Which of the following may be classified as a biological asset?
A. breast milk B. cheese curls C. mama monkey D. dead mama monkey

2. Which of the following may be classified as an agricultural produce?

A. duck B. table egg C. egg powder D. cake

3. Which of the following is not one of the common features of agricultural activities?
A. accounting change C. management of change
B. capability to change D. measurement of change

4. A biological asset is initially and subsequently measured at

A. fair value C. cost
B. fair value less costs to sell D. fair value less costs to complete

5. Which of the following is not a biological asset that is accounted for under IAS 41 Agriculture?
A. animals that are being grown to be butchered for their meat
B. animals held to produce milk
C. plants grown to produce fruit over a long period of time
D. plants grown to be harvested and sold

6. According to IAS 41, this refers to the management by an entity of the biological transformation of biological
assets for sale, into agricultural produce, or into additional biological assets.
A. Agricultural activity C. Biological transformation
B. Agricultural management D. Biological activity

7. Agricultural activity covers a diverse range of activities. Such diverse range of activities have common features
which includes all of the following except
A. Capability to change C. Recognition of change
B. Management of change D. Measurement of change

8. It is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.
A. Harvest B. Death C. Decease D. Cultivation

9. When there is a long aging or maturation process after harvest, the accounting for such products should be dealt
with by
A. IAS 41 B. IAS 2 C. IAS 16 D. IAS 40

10. According to IAS 41, which of the following would be classified as a product that is the result of processing after
harvest?
A. Cotton B. Wool C. Bananas D. Cheese

11. Which of the following items would be classified as agricultural produce, according to IAS 41 Agriculture?
A. Tree B. Bush C. Butter D. Apple

12. According to IAS 41, which of the following items would be classified as biological assets?
I. Oranges
II. Chickens
III. Eggs
IV. Trees
A. I, II B. III, IV C. II, IV D. I, IV

13. Are the following statements about classification according to IAS 41 Agriculture true or false?
I. Sugar should be classified as agricultural produce.
II. Wool should be classified as agricultural produce.
A. False, False B. False, True C. True, False D. True, True

14. Which of the following is not dealt with by IAS 41?

A. The accounting for biological assets.
B. The initial measurement of agricultural produce harvested from the entity’s biological assets.

FAR08 INVENTORIES 5
 C. The processing of agricultural produce after harvesting.
D. The accounting treatment of government grants received in respect of biological assets.

15. Which of the following is correct regarding the applicability of IAS 41?
A. IAS 41 applies to biological assets and agricultural produce at the point of harvest even if they do not relate to
agricultural activities.
B. IAS 41 applies to unconditional government grant related to biological assets measured at cost.
C. IAS 41 applies to land on which tree recognized as biological assets are planted.
D. IAS 41 applies to living plants and animals only when such items relate to agricultural activity.

16. IAS 41 applies to which of the following when they relate to agricultural activity
I. Biological assets
II. Agricultural produce after the point of harvest
III. Agricultural produce at the point of harvest
IV. An unconditional government grant related to a biological asset measured at its fair value less costs to
sell
V. An unconditional government grant related to a biological asset measured at cost
VI. Land related to agricultural activity
VII. Intangible assets related to agricultural activity
A. I, II, IV B. I, III, IV C. I, II, III, IV, V D. I, II, IV, VI, VII

17. According to IAS 41, this refers to the harvested product of the entity’s biological assets.
A. biological produce B. agricultural products C. agricultural produce D. biological assets

18. It is a living animal or plant.

A. biological product B. biological asset C. agricultural product D. mutant assets

19. It comprises the processes of growth, degeneration, production, and procreation that cause qualitative or
quantitative changes in a biological asset.
A. agricultural activity B. biological activity C. genetic mutation D. biological transformation

20. Agricultural activity covers a diverse range of activities which includes all of the following except
A. processing of grapes into wine by a vintner who has grown the grapes
B. raising livestock, forestry, and annual or perennial cropping
C. cultivating orchards and plantations
D. floriculture and aquaculture (including fish farming)

21. Agricultural activity may include

A. ocean fishing B. deforestation C. animal hunting in the forest D. fish pond operation

22. According to IAS 41 Agriculture, which of the following criteria must be satisfied before a biological asset can be
recognized in an entity's financial statements?
I. The entity controls the asset as a result of past events
II. It is probable that economic benefits relating to the asset will flow to the entity
III. An active market for the asset exists
IV. The asset forms a homogenous biological group
A. I, II B. I, II, IV C. I, II, III D. I, II, III, IV

23. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income should be
accounted for in which of the following way?
A. No income should reported annually until first harvest and sale in 30 years
B. Income should be measured annually and reported using a fair value approach that recognizes and measures
biological growth.
C. The eventual sale proceeds should be estimated and matched to the profit and loss account over the 30-year
period.
D. The plantation forest should be valued every 5 years and the increase in value should be shown in the
statement of recognized gains and losses

24. When agricultural produce is harvested, the harvest should be accounted for by using PAS 2 Inventories, or
another applicable PFRS. For the purpose of that Standard, cost at the date of harvest is deemed to be
A. the fair value less cost to sell at point of harvest
B. the historical cost of the harvest
C. the historical cost less accumulated impairment losses
D. market value

25. A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less costs to
sell of a biological asset should be included in
A. The net profit or loss for the period C. A separate revaluation reserve
B. The statement of recognized gains and losses D. A capital reserve within equity

FAR08 INVENTORIES 6
26. Land that is related to agricultural activity is valued
A. At fair value
B. In accordance with IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property
C. At fair value in combination with the biological asset that is being grown on the land
D. At the resale value separate from the biological asset has been grown on the land

27. An unconditional government grant related to a biological asset that has been measured at fair value less cost to
sell should be recognized as
A. Income when the grant becomes receivable
B. A deferred credit when the grant becomes receivable
C. Income when the grant application has been submitted
D. A deferred credit when the grant has been approved

28. Biological assets and agricultural produce are initially recognized at

A. cost C. fair value less costs to sell
B. fair value D. lower of cost or fair value less costs to sell

29. Biological assets are

A. Living animals only C. Both living animals and living plants
B. Living plants only D. Neither living animals nor living plants

30. Agricultural activity

A. is the aggregation of similar living animals or plants.
B. is the detachment of agricultural produce from a biological asset.
C. comprises the processes of growth, degeneration, production and procreation of a biological asset.
D. is the management by an entity of the biological transformation and harvest of biological asset or sale or for
conversion into agricultural produce or additional biological asset.

31. The following provides examples of biological assets, agricultural produce and products that are the result of
processing after harvest. Which is an incorrect combination?
Biological asset Agricultural produce Product after harvest
A. Trees Felled trees Logs, lumber
B. Dairy cattle Cheese Milk
C. Pigs Carcass Sausage
D. Vines Grapes Wine

32. All of the following items are classified as biological assets, except
A. Dairy cattle B. Chickens C. Eggs D. Trees

33. All of the following are classified as agricultural produce, except

A. Sugar B. Wool C. Cotton D. Milk

34. Which of the following is classified as agricultural produce?

A. Tree B. Bush C. Butter D. Apple

35. Which of the following is classified as a product that is the result of processing after harvest?
A. Cotton B. Apple C. Bananas D. Cheese

36. Agricultural activity includes all of the following, except

A. Raising livestock C. Floriculture and aquaculture, including fishing
B. Annual perennial cropping D. Ocean fishing

37. All of the following criteria must be satisfied before a biological asset can be recognized in an entity's financial
statements, except
A. The entity controls the asset as a result of past events.
B. It is probable that future economic benefits relating to the asset will flow to the entity.
C. An active market for the asset exists.
D. The fair value or cost of the asset can be measured reliably.

38. Biological assets are measured at

A. Cost C. Net realizable value
B. Lower of cost or net realizable value D. Fair value less cost to sell

39. Agricultural produce is harvested product of an entity’s biological asset and measured at
A. Fair value C. Net realizable value
B. Fair value less cost to sell at the point of harvest D. Net realizable value less normal profit margin

40. Costs to sell include all of the following, except

A. Commissions to brokers and dealers C. Transfer taxes and duties
B. Levies by regulatory agencies D. Transport costs

FAR08 INVENTORIES 2
41. Where the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured
at
A. Cost
B. Cost less accumulated depreciation
C. Cost less accumulated depreciation and accumulated impairment losses
D. Net realizable value

42. Which of the following statements in relation to agricultural produce is true?

I. In all cases, an entity shall measure agricultural produce at the point of harvest at fair value less cost to sell.
II. The prevailing view is that the fair value of agricultural produce at the point of harvest can always be
measured reliably.
A. I only B. II only C. Both I and II D. Neither I nor II

43. A gain or loss arising on the initial recognition of biological asset and from a change in fair value less cost to sell of
a biological asset shall be included in
A. the profit or loss for the period C. a separate revaluation reserve
B. other comprehensive income D. a general reserve

44. When agricultural produce is harvested, the harvest should be accounted for as “inventory”. For this purpose, the
cost at the date of harvest is deemed to be the
A. Fair value less cost to sell at the point of harvest C. Historical cost less impairment
B. Historical cost of the harvest D. Market value

45. Land that is related to agricultural activity is measured

A. At fair value
B. At fair value in combination with the biological asset that is being grown on the land
C. At the resale value separate from the biological asset that is being grown on the land
D. In accordance with IAS 16 Property, plant and equipment or IAS 40 Investment property

FAR08 INVENTORIES 3
 Dagupan Biological Assets and
Accountancy Review
FAR – QUIZ 3 Investments

- DARe
FAR Quiz #3
1. Forester Company on adoption of PAS 41 has reclassified certain assets as biological assets. The total value of the forest
assets is P6,OOO,000 which comprises:
Freestanding trees 5,100,000
Land under trees 600,000
Roads in forests _ 300,000
6,000,000
In Forester Company's statement of financial portion, how much of the forest assets shall be classified as biological
assets?
a. 5,100,000 c. 5,400,000
b. 5,700,000 d. 6,000,000

2. Colombia Company is a producer of coffee. The entity is considering the valuation of its harvested coffee beans.
Industry practice is to value the coffee beans at market value and uses as reference a local publication "Accounting
for Successful Farms".
On December 31, 2018, the entity has harvested coffee beans costing P3,000,000 and with fair value less cost to sell of
P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were still on hand on
December 31,2018. On such date, the fair value less cost to sell is P3,900,000 and the net realizable value is P3,200,000.
The coffee beans inventory shall be measured at
a. 3,000,000 c. 3,200,000
b. 3,500,000 d. 3,900,000

Use the following information for the next two questions.

Joan Company provided the following data:
Value of biological asset at acquisition cost on December 31,2017 P 600,000
Fair valuation surplus on initial recognition at fair value on December 31, 2017 700,000
Change in fair value to December 31, 2018 due to growth and price fluctuation 100,000
Decrease in fair value due to harvest 90,000
3. What is the carrying amount of the biological asset on December 31, 2018?
a. 1,400,000 c. 1,300,000
b. 1,310,000 d. 1,490,000

4. What is the gain from change in fair value of biological asset that should be shown in the 2018 income statement?
a. 100,000 c. 710,000
b. 800,000 d. 10,000

Use the following information for the next three questions.

Honey Company has a herd of 10 2-year old animals on January 1, 2018. One animal aged 2.5 years was purchased on
July 1, 2018 for PI08, and one animal was born on July 1, 2018. No animals were sold or disposed of during the year. The
fair value less to sell per unit is as follows:
2 - year old animal on January I 100
1.5 - year old animal on July 1 108
New born animal on July 1 70
2 - year old animal on December 31 105
2.5 - year old animal on December 31 111
Newborn animal on December 31 72
2 - year old animal on December 31 120
0.5 - year old animal on December 31 80
5. What is the fair value of the biological assets on December 31,2018?
a. 1,400 c. 1,440
b. 1,320 d. 1,360
6. What is the gain from change in fair value of biological assets to be recognized in 2018?
a. 222 c. 300
b. 292 d. 332

7. What is the gain from change in fair value due to price change?
a. 292 c. 237
b. 222 d. 55

8. At the beginning of current year, Claudia Company purchased marketable equity securities to be held as “trading” for
P5,000,000. The entity also paid commission, taxes and other transaction cost amounting to P200,000. The securities
had a market value of P5,500,000 at year-end. No securities were sold during the year. The transaction costs that
would be incurred on the disposal of the investment are estimated at P100,000.
What amount of unrealized gain or loss on these securities should be reported in the income statement for the current
year?
a. 500,000 unrealized gain c. 400,000 unrealized gain
b. 500,000 unrealized loss d. 400,000 unrealized loss

1 of 6 Dagupan Accountancy Review - DARe - October 2019 CPA Exam “Dare us to bring out the best in
you.”
 Dagupan Biological Assets and
Accountancy Review
FAR – QUIZ 3 Investments

- DARe
9. On December 31, 2014, Charlton acquired an investment for P500,000 plus a purchase commission of P10,000. The
investment is designated as financial asset at fair value through other comprehensive income. On December 31, 2014,
quoted market price of the investment is P500,000. If the investment were sold, a commission of P15,000 would be paid.
On December 31, 2014, the investment should be carried at
a. P510,000 c. P485,000
b. P495,000 d. P500,000

10. Information about Echague Company’s portfolio securities measure at fair value through other comprehensive income
is as follows:
Aggregate cost – December 31, 2013 P9,000,000
Unrealized gains– December 31, 2013 500,000
Unrealized losses – Dec. 31, 2013 2,000,000
Net realized gains during 2013 300,000
On January 1, 2013 Echague reported an unrealized loss of P400,000 as a component of shareholders’ equity. In its
December 31, 2013 shareholders’ equity, Echague should report what amount of unrealized loss?
a. P2,000,000 c. P1,500,000
b. P1,100,000 d. P1,200,000

11. Mia Company acquired an equity investment a number of years ago for P3,000,000 and classified it as at fair value
through other comprehensive income. On December 31, 2015, the cumulative loss recognized in other comprehensive
income was P400,000 and the carrying amount of the investment was P2,600,000.
On December 31, 2016, the issuer of the equity instrument was in severe financial difficulty and the fair value of the equity
investment had fallen to P1,200,000.
What cumulative amount of unrealized loss should be reported as component of other comprehensive income in the
statement of changes in equity for the year ended December 31, 2016?
a. 1,400,000 c. 1,000,000
b. 1,800,000 d. 0

Use the following information for the next two questions.

Pompey Inc. carries the following marketable equity securities on its books at December 31, 2012 and 2013. All securities
were purchased during 2012 and there were no beginning balances in any market adjustment accounts.
Financial Assets through Profit or Loss:
Cost Fair value
12/31/12 12/31/13
C Company P 500,000 P 260,000 P 400,000
E Company 260,000 400,000 400,000
R Company 700,000 600,000 500,000
Total P1,460,000 P1,260,000 P1,300,000
Financial Assets through OCI:
Cost Fair value
12/31/12 12/31/13
T Company P4,200,000 P3,600,000 P3,600,000
S Company 1,000,000 1,200,000 1,400,000
Total P5,200,000 P4,800,000 P5,000,000
12. The net amount to be recognized in the 2013 profit or loss is
a. P240,000 c. P160,000
b. P200,000 d. P 40,000
13. The net amount to be recognized in 2013 as other comprehensive income is
a. P240,000 c. P160,000
b. P200,000 d. P 40,000
14. Lasam Company received dividends from its investments in ordinary shares during the year 2013 as follows:
 A share dividend of 20,000 shares from A Company when the market price of A’s shares was P30 per share.
 A cash dividend of P2,000,000 from B Company in which Lasam owns a 20% interest.
 A cash dividend of P1,500,000 from C Company in which Lasam owns a 10% interest.
 10,000 ordinary shares of D Company in lieu of cash dividend of P20 per share. The market price of D Company’s
shares was P180. Lasam holds originally 100,000 ordinary shares of D Company. Lasam owns 5% interest in D
Company.
 A liquidating dividend of P2,000,000 from E Company. Lasam owns a 5% interest in E Company.
 A dividend in kind of one ordinary share of X Company for every 5 ordinary shares of F Company held. Lasam holds
200,000 F Company shares which have a market price of P50 per share. The market price of X Company’s ordinary
share is P30 per share.
What amount of dividend income should Lasam report in its 2013 income statement?
a. P4,500,000 c. P6,300,000
b. P5,700,000 d. P5,900,000
15. On August 1, 2014, Dasol Co. acquired 80, P1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1,
2014, and mature on April 30, 2018, with interest paid each October 31 and April 30. The bonds will be added to Dasol’s
held for trading portfolio. The preferred entry to record the purchase of the bonds on August 1, 2014 is

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A. Trading securities P79,400
Cash P79,400
B. Trading securities P77,600
Interest Receivable 1,800
Cash P79,400
C. Trading securities P77,600
Interest Revenue 1,800
Cash P79,400
D. Trading securities P80,000
Interest Revenue 1,800
Discount on Debt Securities P 2,400
Cash 79,400

16. On January 1, 2014, Joseph Corporation purchased P1,000,000 10% bonds for P927,880 (including broker’s commission
of P20,000). Joseph’s business model is to hold the investment to collect contractual cash flows. The bonds were
purchased to yield 12%. Interest is payable annually every December 31. The bonds mature on December 31, 2018.
On December 31, 2014 the bonds were selling at 99. How much is the carrying amount the investment in bonds on
December 31, 2014?
A. P961,626 C. P939,226
B. P916,534 D. P990,000

17. On June 30, 2014, Aileen Corp. purchased a two-year bond at par. The bond had a stated principal amount of
P10,000,000, which Aileen Corp. will receive on June 30, 2016. The stated coupon interest rate was 10% per year, which
is paid semiannually on December 31 and June 30. The bonds are designated as financial asset at fair value through
profit or loss. On December 31, 2014, the bonds are quoted at 101.1. How much should be recognized in profit or loss
as of December 31, 2014 related to this bond investment?
A. P167,468 C. P110,000
B. P 78,567 D. P 0

18. On January 1, 2014, SMB Company acquired the entire issue of Beerman’s P6,000,000 12% serial bonds. The bonds were
purchased to yield 10%. Bonds of P2,000,000 mature at annual intervals beginning December 31, 2014. Interest is
payable annually on December 31. What is the carrying amount of the investment in bonds on December 31, 2014?
A. P6,105,650 C. P4,304,622
B. P4,105,650 D. P3,820,702

19. On January 1, 2013, Alameda Company purchased bonds with face value of P 5,000,000. The business model of the
entity in managing the financial asset is to collect contractual cash flows that are solely payments of principal and
interest and also to sell the bonds in the open market. The entity paid P 4,600,000 plus transaction costs of P 142,000. The
bonds mature on December 31, 2016 and pay 6 % interest annually on December 31 of each with 8% effective yield.
The bonds are quoted at 105 on December 31, 2014. The bonds are sold at 110 on December 31, 2014.

The gain on sale on these bonds in the 2014 income statement.

A. 500,000 C. 592,931
B. 250,000 D. 758,000

20. On October 1, 2013, Alaska Company purchased 4,000 of the P 1,000 face value, 10% bonds of Philadelphia Company
for P 4,400,000 which includes accrued interest of P 100,000. The bonds, which mature on January 1, 2020, pay interest
semi-annually on January 1 and July 1. Alaska uses the straight line method of amortization and appropriately
recorded the bonds as held to maturity.
The carrying amount of the bonds shown in Alaska’s December 31, 2013 statement of financial position at
A. 4,284,000 C. 4,300,000
B. 4,288,000 D. 4,400,000

21. On July 1, 2013, Charlize Company paid P 1,198,000 of 10%, 20-year bonds with a face amount of P 1,000,000. Interest is
paid on December 31 and June 30. The bonds were purchased to yield 8%. Charlize uses the effective interest method
to recognize interest income from this held for collection investment.
The carrying amount of bonds in December 31, 2013 statement of financial position is
A. 1,207,900 C. 1,195,920
B. 1,198,000 D. 1,193,050

22. On January 1, 2013, Panasonic Company purchased as a held for collection investment P 5,000,000 face value of Sony
Company’s 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1,
2018 and pay interest annually on December 31. Panasonic uses the interest method of amortization.
The carrying amount (rounded to nearest P 100) should Panasonic report in its December 31, 2014 statement of financial
position is
A. 4,680,020 C. 4,618,000
B. 4,662,000 D. 4,562,000

Use the following information for 23 - 24:

On January 1, 2013, Rockford Company purchased 5-year bonds with face value of P 8,000,000 and stated interest of
10% per year payable semi annually January 1 and July 1. The bonds were acquired to yield 8%. Present value factors
are:
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.6756
23. What is the purchase price of the bonds?
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A. 7,382,400 C. 8,648,800
B. 8,617,600 D. 7,351,200

24. What is the carrying value of the bond investment on December 31, 2013?
A. 8,594,752 C. 8,538,542
B. 8,540,704 D. 8,302,848
25. On January 1, 2013, Angelina Company purchased serial bonds with face value of P 3,000,000 and stated 12% interest
payable annually every December 31. The bonds are to be held for collection with a 10% effective yield. The bonds
mature at an annual instalment of P 1,000,000 every December 31.
The rounded present value of 1 at 10% for:
One period 0.91
Two periods 0.83
Three periods 0.75
What is the present value of the serial bonds on January 1, 2013?
A. 3,106,800 C. 3,045,000
B. 3,060,000 D. 3,149,400

26. On October 1, 2014, North Company purchased a debt security having a face value of P3,000,000 with an interest rate
of 10% for P3,200,000 including the accrued interest. A total of P 50,000 was incurred and paid by North Company
which is in relation to the acquisition of the debt instrument. North Company’s business model in managing the financial
asset is to collect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in
the open market. The bonds mature on January 1, 2019, and pay interest semi-annually on January 1 and July 1. On
December 31, 2014, the bonds had a market value of P3,400,000.
What is the carrying amount of the investment in debt security to be reported in the december 31, 2014 statement of
financial position?
A. P 3,125,000 C. P 3,200,000
B. P 3,400,000 D. P3,250,000

27. Melrose Company purchased a held to maturity instruments with a face value of P 5,000,000 on July 1, 2014. The 5-year
12% bonds were issued on January 2, 2014 and will mature on January 2, 2019. Interest is payable annually every
December 30. Melrose rate of interest for a similar debt instrument at the time of acquisition is 10% that is also the
market rate of interest for a similar debt instrument at the time the instrument was issued.
PV factor of 12% after 5 years 0.567
PV factor of 10% after 5 years 0.621
PV factor of annuity of 12% after 5 years 3.605
PV factor of annuity of 10% after 5 years 3.791
What is the fair value of the debt instrument at the time of acquisition?
A. P 5,348,580 C. P 5,648,580
B. P 5,626,000 D. P 5,679,600
28. On July 1, 2013, Korn Corporation acquired a held for collection security in Conrad Company’s 10-year 12% bonds, with
face value of P 5,000,000, for P 5,386,300. Interest is payable semi-annually on January 1 and July 1. The bonds mature
on July 1, 2018. Bonds effective rate is 10%. On December 31, 2014, Korn Corporation sold its debt instrument for P
5,500,000.
The gain that Korn Corporation recognize as a result of the disposal is
A. P 144,485 C. P 210,434
B. P 176,604 D. P 245,956
29. On July 1, 2009, Diamond, Inc, paid P1,000,000 for 100,000 ordinary shares (40%) of Ashley Corporation. At that date the
net assets of Ashley totaled P2,500,000 and the fair values of all of Ashley's identifiable assets and liabilities were equal to
their book values. Ashley reported net income of P500,000 for the year ended December 31, 2009, of which P300,000
was for the six months ended December 31, 2009. Ashley paid cash dividends of P250,000 on September 30, 2009.
Diamond does not elect the fair value option for reporting its investment in Ashley. In its income statement for the year
ended December 31, 2009, what amount of income should Diamond report from its investments in Ashley?
a. P 80,000 c. P120,000
b. P100,000 d. P200,000
30. On January 1, 2009, Solana Co. purchased 25% of Orr Corp.'s ordinary shares; no goodwill resulted from the purchase.
Solana appropriately carries this investment at equity and the balance in Solana’s investment account was P480,000 at
December 31, 2009. Orr reported net income of P300,000 for the year ended December 31, 2009, and paid dividends
totaling P120,000 during 2009. How much did Solana pay for its 25% interest in Orr?
a. P435,000 c. P510,000
b. P525,000 d. P585,000
31. Investor company acquired a 40% interest in an associate for P3,000,000. The investor is part of a consolidated group.
In the financial period immediately following the date on which it became an associate, the investee took the following
action:
 revalued assets up to fair value by P500,000
 generated profits of P1,600,000
 declared a dividend of P300,000
The balance in the investor’s account of ‘Shares in associate’, after equity accounting has been applied, is:
a. P3,000,000 c. P3,720,000
b. P3,960,000 d. P3,840,000

32. On January 1, 2009, Julius Corporation acquired 25% of the shares of Caesar, Inc. for P425,000. At this date all the
identifiable assets and liabilities of Caesar, Inc. were recorded at amounts equal to fair value, and the equity of Caesar
consisted of the following:
Share capital P1,000,000

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General reserve 300,000
Asset revaluation surplus 200,000
Retained earnings 200,000
In 2009, Caesar reported net income of P250,000. P50,000 of the asset revaluation surplus was realized in 2009. Caesar
paid a P40,000 dividend and transferred P30,000 to general reserve. What is the carrying amount of the investment in
Caesar, Inc. as of December 31, 2009?
a. P477,500 c. P465,000
b. P490,000 d. P482,500

33. Intor Company acquired 20% of the ordinary shares of Intee Company on January 1, 2008. At this date, all the
identifiable assets and liabilities of Intee were recorded at fair value. An analysis of the acquisition showed that
P200,000 of goodwill was acquired. Intee Company recorded a profit of P1,000,000 for 2009 and paid dividend of
P700,000 during the same year. The following transactions have occurred between the two entities.

 In December 2009, Intee sold inventory to Intor for P1,500,000. This inventory had previously cost Intee P1,000,000 and
remains unsold by Intor in December 31, 2009.
 In November 2009, Intor sold inventory to Intee at a before tax profit of P300,000. Half of this was sold by Intee before
December 31, 2009.
 In December 2008, Intee sold inventory to Intor for P1,800,000. This inventory had cost Intee P1,200,000. At December
31, 2008, this inventory remained unsold by Intor. However, it was all sold by Intor in 2009.

Ignoring income tax, Intor company shall report a "share of profit of associate" in 2009 at
a. P200,000 c. P160,000
b. P190,000 d. P140,000

Use the following information for questions 1 to 4.

Buyong, Inc. completed the construction of a building at the end of 2007 for a total cost of P100 million. The building is
estimated to be economically useful for 25 years. The building was constructed for the purpose of earning rentals under
operating leases. The tenants began occupying the building after its completion. The company opted to use the fair value
model to measure the building. An independent valuation expert was used by the company to estimate the fair value of the
building on an annual basis. According to the expert the fair values of the building at the end of 2012, 2013 and 2014 were
P104 million, P118 million and 116 million, respectively.

The company’s business expanded in 2013. As a result, the company started to use the building in its operations on January
1, 2014. Because of the change in use, the company reclassified the building from investment property to property, plant
and equipment.

34. How much should be recognized in profit or loss in 2012 as a result of the completion of the building at the end of 2012?
a. P18,000,000 c. P4,000,000
b. P16,000,000 d. P 0

35. The depreciation expense in 2013 is

a. P4,000,000 c. P4,160,000
b. P4,720,000 d. P 0

36. How much should be recognized in profit or loss in 2013 as a result of the fair value changes?
a. P18,000,000 c. P14,000,000
b. P12,000,000 d. P 0

37. How much is the carrying amount of the building on December 31, 2014?
a. P118,000,000 c. P113,083,333
b. P116,000,000 d. P113,280,000

38. Han, Inc. owns a building purchased on January 1, 2010 for P100 million. The building was used as the company’s head
office. The building has an estimated useful life of 25 years. In 2014, the company transferred its head office and
decided to lease out the old building. Tenants began occupying the old building by the end of 2014. On December
31, 2014, the company reclassified the building as investment property to be carried at fair value. The fair value on the
date of reclassification was P70 million. How much should be recognized in the 2014 profit or loss as a result of the
transfer from owner-occupied to investment property?
a. P14,000,000 c. P10,000,000
b. P 4,000,000 d. P 0

39. The following information relates to noncurrent investment that Maddela Corporation placed in trust as required by the
underwriter of its bonds:

Bonding sinking fund balance, January 1, 2013 P4,500,000

2013 additional investment 900,000
Dividends on investment 150,000
Interest income 300,000
Administration costs 100,000
Carrying amount of bonds payable 6,000,000

What amount should Maddela report in its December 31, 2013 statement of financial position related to its noncurrent
investment for bond sinking fund requirements?

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A. P5,750,000 C. P5,950,000
B. P5,850,000 D. P3,950,000

40. On March 1, 2013, Saguday Company adopted a plan to accumulate P20,000,000 by September 1, 2013. Saguday
plans to make four annual deposits to a fund that will earn interest at 10% compounded annually. Saguday made the
first deposit on September 1, 2013. Future amount factors at 10% for 4 periods are:

Ordinary annuity of 1 4.64

Annuity of 1 in advance 5.11
Saguday should make four annual deposits of (rounded to the nearest P100)
A. P5,000,000 C. P4,310,000
B. P3,913,900 D. P4,102,000

41. On January 1, 2013, Carly Company decided to begin accumulating a fund for asset replacement five years later. The
company plans to make five annual deposits of P30,000 at 9% each January 1 beginning in 2013. The following 9%
interest factors may be used.

Future Value of Ordinary

Present Value of Annuity of 1 at 9%
Periods Ordinary Annuity
4 3.2397 4.5731
5 3.8897 5.9847
6 4.4859 7.5233
What will be the balance in the fund on January 1, 2018?
A. P195,700 C. P179,540
B. P163,500 D. P150,000

42. During 2013, Stone Co. pays an insurance premium of P31,800 on a P900,000 life insurance policy covering the
president. The cash surrender value of the policy will increase from P165,000 to P175,200 during 2013. Dividends
received from the insurance company during 2013 totaled P6,300. Insurance expense for 2013 is
A. P31,800. C. P21,600.
B. P25,500. D. P15,300.

43. Casiguran Corp. took out a P5,000,000 insurance policy on the life of its president on January 1, 2005. Given below are
data on this policy:

2012 2013
Annual dividend P 3,880 P4,210
Cash surrender value, 12/31 138,030 189,350
Annual premium 121,040 121,040
The life insurance expense for Casiguran Corp. for 2013 would be
A. P64,100 C. P116,830
B. P65,510 D. P121,040

😊 END 😊

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Biological assets

1. Biological assets:
a. Are found only in land
b. Are measured only at cost
c. Are living animals or living plants and must be disclosed as a separate line item in statement
of financial position.
d. Are ornamental and do not have an economic benefit

2. Agricultural activity includes all, except

a. Ocean fishing
b. Aquaculture
c. Raising live stock
d. Perennial cropping

3. Agricultural produce harvested from bearer plant is measure at

a. Fair value
b. Fair value less cost of disposal at the point of harvest
c. Cost
d. Fair value plus cost of disposal at the point of harvest

4. Which of the following criteria must not be satisfied before a biological asset can be recognized?
a. The entity controls the asset as a result of past event.
b. It is probable that future economic benefits relating to the assets will flow to the entity.
c. The fair value can be measured reliably.
d. An active market for the asset exists.

5. Statement I: In all cases, an entity do not measure agricultural produce at fair value less cost of
disposal at the point of harvest.
Statement II: Bearer plants are considered as noncurrent assets
a. Statement I is false
b. Statement II is false
c. Both statements are true
d. Both statements are false

6. Alex and Ria corp. provided the fillowing assets in a forest plantation and farm:
Free standing plants 16,050,000
Land under trees 500,000
Roads in the Forest 500,000
Animals related to recreational activities 1,000,000
Bearer plants 3,000,000
Bearer animals 1,500,000
 Agricultural produce growing on bearer plants 800,000
Agricultural produce harvested 1,000,000
Plants with dual use 1,400,00
What amount should be recorded as biological assets?
a. 19,750,000
b. 10,200,000
c. 18,050,000
d. 22,950,000

7. You do note company is engaged in raising dairy livestock. The entity provided the following
information regarding activities relating to the dairy livestock during the current year:

Carrying amount on January 1 6,000,000

Increase due to purchases 3,000,000

Gain arising from change in fair value less cost of

disposal attributable to price change 500,000

Gain arising from change in fair value less cost of

disposal attributable to physical change 700,000

Decrease due to sales 950,000

Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31?
a. 9,250,000
b. 9,050,000
c. 6,050,000
d. 7,000,000

8. Hopey Company has different kinds of farm animals at the beginning of current year.
During the current year, several acquisitions occurred related to these farm animals.
Carrying amount on January 1:
15 Horses (1 year old) 1,000,000
10 Diary cattle (2 year old) 400,000
8 Carabaos (2.5 years old) 200,000
20 Hogs (3 years old) 500,000
Purchases on June 30.
4 Dairy cattle (1 year old) 150,000
6 Carabaos (6 months old) 100,000
Fair value less cost of disposal on December 31:
15 Horses (1 year old) 1,200,000
 10 Diary cattle (2 years old) 520,000
8 Carabaos (2.5 years old) 250,000
20 Hogs (3 years old) 550,000
4 Diary cattle (1 year old) 170,000
6 Carabaos (6 months old) 110,000
Fair value less cost of disposal on December 31:
15 Horses (2 year old) 1,350,000
10 Diary cattle (3 years old) 580,000
8 Carabaos (3.5 years old) 290,000
20 Hogs (4 years old) 600,000
4 Diary cattle (1.5 year old) 200,000
6 Carabaos (1 year old) 140,000

There were no farm animals sold during the year and neither were there any newborns nor deaths.
. What is the gain from change in fair value attributable to price change?
a. 450,000
b. 810,000
c. 360,000
d. 0
9. in relation to no. 8, What is the gain from change in fair value attributable to physical change?
a. 450,000
b. 810,000
c. 360,000
d. 0
10. Pasar lagi ta ani company planted trees on its land. The entity purchased the land two years ago at
cost of Php 1,000,000.
The trees were considered bearer plants and had accumulated cost of Php 500,000 on December
31,2016.
By January 1, 2017; the trees had matured and were expected to bear produce for a period of 5 years.
On December 31, 2017, the trees produced fruit and the fair value less cost of disposal on such date was
Php 50,000. There was no harvest during 2017.
On December 31, 2018, the fruits were harvested and the fair value less cost of disposal on such date
was Php 75,000.

What is the carrying amount of the biological asset on December 31, 201?
a. 550,000
b. 450,000
c. 50,000
d. 0
Answers:
1. C
2. A
3. B
4. D
5. a
6. 16,050,000
1,500,000
800,000
1,400,000
19,750,000

7.
. Carrying amount – January 1 6,000,000
Increase due to purchases 3,000,000
Gain from change in fair value due to price change 500,000
Gain from change in fair value due to physical change 700,000
Decrease due to sales (950,000)
Decrease due to harvest (200,000)
Carrying amount –December 31 9,050,000

8. Fair value – December 31 (same age) 2,800,000

Carrying amount (2,100,000+250,000) 2,350.000
Price Change 450,000

9. Fair value – December 31 (different age) 3,160,000

Fair value – December 31 (Same age) 2,800,000
Physical Change 360,000
10. 50,000
 Angeles University Foundation

Angeles City

College of Business and Accountancy

Investment Property
Biological Assets
Agriculture

Prepared by:

Kim Veatrice P. Cunanan

BSMA-3C

Submitted to:

Sir Patrick Cura

College Instructor

Date submitted:

October 12, 2016

I. Multiple Choice

1. Which of the following statements best describes investment property?

a. Property held for sale in the ordinary course of business
b. Property held for use in the production
c. Property held to earn rentals or for capital appreciation
d. Property held for capital appreciation

Answer: C
Source: Financial Accounting 1 by Valix
Topic: Investment Property

2. Investment of property includes all of the following, except?

a. Land held for long-term capital appreciation.
b. Land held for currently undetermined use.
c. Building held by finance leased.
d. Property held for sale in the ordinary course of business.

Answer: D
Source: Financial Accounting 1 by Valix
Title: Investment Property

3. Which of the following is an investment property?

a. Property being constructed or developed on behalf of third parties.
b. Property that is being constructed and developed as investment property.
c. Property held for future development and subsequent use as owner-occupied
property.
d. Owner-occupied awaiting disposal.

Answer: B
Source: Financial Accounting 1 by Valix
Topic: Investment Property

4. Which of the following statements best describes owner-occupied property?

a. Property held for sale in the ordinary course of business
b. Property held for use in the production and supply of goods and service and property
held for administrative purposes
c. Property held to earn rentals
d. Property held for capital appreciation
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Investment Property
5. Biological Assets
a. Are found only in Biotech entities.
b. Are living animals or living plants and must disclosed as a separate line item in the
statement of financial position.
c. Must be measured at cost.
d. Do not generally have future economic benefits.

Answer: B
Source: Financial Accounting 1 by Valix
Topic: Biological Asset

6. It is the management by an entity of the biological transformation and harvest of

biological assets for sale or for conversions into agricultural produce or into additional
biological asset.
a. Agricultural activity
b. Biological activity
c. Economic activity
d. Developmental activity
Answer: A
Source: Financial Accounting 1 by Valix
Topic: Agriculture
7. Biological assets are measured at
a. Cost
b. Lower cost and net realizable value
c. Net realizable value
d. Fair value less cost of disposal

Answer: D
Source: Financial Accounting 1 by Valix
Topic: Biological Asset

8. Agriculture produce is measured at

a. Fair value
b. Fair value less cost o disposal at the point of harvest
c. Net realizable value
d. Net realizable value less normal profit margin
Answer: B
Source: Financial Accounting 1 by Valix
Topic: Biological asset
9. Agriculture produce is
a. The harvested product from biologica asset.
b. Valued at the time of harvest at the cost of production.
c. Valued at each reporting period at fair value less cost of disposal.
d. All of the choices are correct regarding agricultural produce.
 Answer: A
Source: Financial Accounting 1 by Valix
Topic: Biological Asset

10. Agriculture activity results in which of the following type of asset?

a. Biological asset only
b. Agricultural produce only
c. Both biological asset and agricultural produce
d. Neither biological asset nor agricultural produce

Answer: C
Source:Financial Accounting 1 by Valix
Topic: Biological Asset

11. If an entity owns and manages a hotel, services provided to guest are a significant
component of the arrangement as a whole. In such case, the hotel is classified as
a. Investment property
b. Owner occupied property
c. Partly investment property
d. Neither investment property or owner occupied property

Answer: B
Source: Financial Accounting 1 by Valix
Topic: Invesment Property

12. Which statement is incorrect concerning initial measurement of an investment property?

a. The investment property shall be measured initially at fair value.
b. Start up cost
c. If payment for an investment property is deferred.
d. Interest held under a lease

Answer: A
Source: Financial Accounting 1 by Valix
Topic: Invesment property

13. Agricultural activity includes all of the following, except?

a. Raising livestock
b. Perennial cropping
c. Aquaculture
d. Ocean fishing

Answer: D
Financial Accounting 1 by Valix
Biological Asset
14. Biological transformation results from asset changes through all of the following, except?
a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce

D.
Financial Accounting 1 by Valix
Biological Asset

15. Directly attributable expenditures related to investment property include

a. Professional fees for legal services, property and transfer taxes and other transaction
costs.
b. Start up costs.
c. Operating losses incurred before the investment
d. Abnormal amounts of wasted material, labor and other resources incurred in
constructing or developing the property.
A.
Financial Accounting 1 by Valix
Invesment Property
16. What is the best evidence of fair value of an investment property?
a. Quoted price in an active market for identical asset.
b. Quoted price in an active market for a similar asset.
c. Quoted price in an inactive market for a identical asset
d. Unobservable input price for the asset.
A.
Financial Accounting 1 by Valix
Invesment property

17. It is a market in which transactions for the asset or liability take place with sufficient
regularity and volume to provide pricing information on an ongoing basis.
a. Active market
b. Principal market
c. Global market
d. Financial market

A
Financial Accounting 1 by Valix
Biological Asset

18. Generally speaking, biological assets relating to agricultural activity shall be measured
using
a. Historical asset
b. Historical cost less depreciation less impairment
 c. A fair value approach
d. Net realizable value

C
Financial Accounting 1 by Valix
Biological Asset

19. An entity had a plantation forest that is likely to be harvested and sold in 30years. The
income shall be accounted for in which of the following?
a. No income shall be reported annually until first harvest and sale in 30years.
b. Income shall be measured annually and reported using a fair value
c. The eventual sale proceeds shall be estimated and matched to the profit
d. The plantation forest shall be measured every 5 years.

B
Financial Accounting 1 by Valix
Biological Asset

20. Subsequent to initial recognition, the investment property shall be measured at

a. Fair value
b. Cost less any accumulated depreciation and any accumulated impairment losses
c. Revalued amount
d. Either fair values or cost less any accumulated depreciation and any accumulated
impairment losses

D
Financial Accounting 1 by Valix
Invesment Property

21. When the entity uses the cost model, transfers between investments property, owner
occupied property and inventory shall be made at
a. Fair value
b. Carrying amount
c. Cost
d. Assessed value

B
Financial Accounting 1 by Valix
Invesment Property

22. A transfer from investment property carried at fair value to owner occupied property shall
be accounted for at
a. Fair value, which becomes the deemed cost
b. Carrying amount
c. Historical cost
d. Fair value
 A
Financial Accounting 1 by Valix
Investment Property

23. Under IFRS, assets classified as investment property are

a. Held for rental income
b. To be sold for a quick profit
c. Held for rental income or to be sold for a quick profit
d. Held for sale in the ordinary course

C
Financial Accounting 1 by Valix
Investment Property

24. What is the measurement basis for valuing biological assets and agricultural produce?
a. Historical cost
b. Current cost
c. Present value
d. Fair value

D
Financial Accounting 1 by Valix
Biological Asset

25. If an inventory is transferred to investment property that is to be carried at fair value, the
re-measurement to fair value is
a. Included in profit or loss
b. Included in other comprehensive income
c. Included in retained earnings
d. Accounted for as revaluation surplus

A
Financial Accounting 1 by Valix
InvesmentPorperty

II. Identification

______________ 1.The amount at which an asset is currently presented in the statement of

financial position.

Carrying Amount

Wiley IFRS 2014

_______________2. The amount of cash or cash equivalents paid or the fair value of other
consideration given to acquire an asset at the time of its acquisition or construction or, where
applicable, the amount attributed to that asset when initially recognized.
 Cost
Wiley IFRS 2014

_______________3.The price that would be the price that would be received to sell an asset or
paid to transfer a liability on an orderly transaction between market participants at the
measurement date.

Fair value
Wiley IFRS 2014

_______________4. An asset held by an entity for purposes of accretion of wealth through

distributions of interest, royalties, dividends, and rentals.

Investment
Wiley IFRS 2014

_______________5.Property (land or a building) to earn rentals or for capita appreciation

purposes or both, as opposed to being held as.

Investment property
Wiley IFRS 2014

_______________6. Where the fair value of the biological asset cannot be determined reliably,
the biological asset shall be measure at

Fair value model

Wiley IFRS 2014

_______________7. A gain or loss arising on the initial recognition of a biological asset and
from change in the fair value less cost of disposal of a biological asset shall be included in

Profit or loss
Wiley IFRS 2014

______________8. Where there is a long aging or maturation process after harvest, the
accounting for such products shall be dealt with by

PAS 2, Inventories
Wiley IFRS 2014

______________9. When the agricultural produce is harvested, the harvest shall be accounted
for as inventory. For the purpose, cost at the date of harvest is deemed to be

Current Cost
Wiley IFRS 2014

______________10. Gain or loss from the disposal of investment property shall be determined
as the difference between the
 Historical Cost
Wiley IFRS 2014

III. TRUE OR FALSE

1. An investment property shall be measured initially at cost.

True
Financial Accounting 1 by Valix
invesment property

2. Building used in business is considered an investment property.

False
Financial Accounting 1 by Valix
Investment Property

3. Dairy Cattle, chickens and tress are classified as biological asset.

True
Financial Accounting 1 by Valix
Biological Asset

4. Apple would be classified as agricultural produce.

True
Financial Accounting 1 by Valix
Biological Asset

5. Bilogical transformation comprises the processes of growth, degeneration, production

and procreation that cause changes in a biological asset.
True
Financial Accounting 1 by Valix
Biological Asset
III Problems

1. Forester Company provided the following assets in a forest plantation:

Freestanding tress 5,100,000

Land under trees 600,000
Roads in forests 300,000
Animals related to recreational activities 1,000,000
Bearer plants-rubber trees and grape vines 1,500,000
 What total amount of the assets should be classified as biological assets?

a. 5,100,000
b. 7,600,000
c. 6,600,600
d. 8,500,000

Solution:

Only the freestanding trees should be classified as biological assets. The land
under trees and roads in forests should be included in PPE. Under IFRS, the
animals related to recreational activities and the bearer plants are accounted for
as property, plant and equipment.

Answer: A
Practical Accounting 1by Valix
Biological Assets

2. Micko Company provided the following data:

Value of biological asset at acquisition asset on December 31, 2015

600,000
Fair valuation surplus on initial recognition at fair value on December 31, 2015
700,000Change in fair value to December 31, 2016 due to growth and price
fluctuation 100,000Decrease in fair value due to harvest in 2016 90,000

What is the carrying amount of the biological asset on December 31, 2016?

a. 1,400,000
b. 1,310,000
c. 1,300,000
d. 1,490,000

What is the gain from change in fair value of biological asset that should be reported in the 2016
income statement?

a. 100,000
b. 800,000
c. 710,000
d. 10,000

Solution:
Acquisition cost –December 31,2015 600,000
Increasen in Fair value on initial recognition
700,000Change in fair value in 2016
100,000 Decrease in fair value due to harvest
(90,000)Carrying amount – December 31, 2016
1,310,000
Change in fair value in 2016 100,000
Decrease in fair value due to harvest in 2016 (90,000)
Net gain from change in fair value in 2016 10,000

Answer: B & D
Practical Accounting 1 by Valix
Biological Asset

3. Nagmahal Company is engaged to raising dairy livestock. The entity provided the
following information during the current year.
Carrying amount on January 1 5,000,000
Increase due 2,000,000
Gain arising from change in fair value less cost 400,000
Attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000

What is the carrying amount of the biological asset on December 31?

a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000

Solution:
Carrying amount- January 1 5,000,000
Increase due to purchases 2,000,000
Price change 400,000
Physical change 600,000
Decrease due to sales (850,000)
Decrease due to harvest (200,000)

Carrying amount – December 31 6,950,000

A.
Practical Accounting one by Valix
biological asset

Problem 4

Nasaktan Company produced milk for sale to local and national ice cream producers. The entity
began operations at the beginning of current year by purchasing 650 milk cows for 8,000,000.

The entity provided the following information for the current year:

Acquisition cost, January 1 8,000,000

Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest 250,000
Milk harvested but not yet sold 400,000

What amount of gain on change in fair value should recognized for biological asset in the
current year?
a. 2,500,000
b. 2,250,000
c. 2,900,000
d. 2,650,000

What amount of gain on change in fair value should be reported for agricultural produce
in the current year?
a. 2,250,000
b. 400,000
c. 150,000
d. 0

Solution:
Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest (250,000)
Net gain from biological asset 2,250,000

Inventory 400,000

Gain on agricultural produce 400,000

Problem 5

Nag-accounting company provided the following information for the year ended December
31,2015:

Cash 500,000
Trade and other receivables 1,500,000
inventories 100,000
Nag-accounting livestock-immature 50,000
Mature 400,000
Property, plant and equipment 1,400,000
Trade and other payables 520,000
Note payable long term 1,500,000
Share capital 1,000,000

What is the net income for 2015?

a. 650,000
b. 600,000
c. 130,000
d. 185,000

What is the fair value of biological asset on December 31?

a. 550,000
b. 450,000
c. 500,000
d. 400,000

Solution:

Fair value of milk produced 600,000

Gain from change in fair value 50,000

Total income 650,000 Inventories

used (140,000) Staff
costs (120,000)
Depreciation expense (120,000)
Other, operating expenses (205,000)

Income before income tax 185,000

Income tax expense(55,000) Net
income 130,000

Livestock-immature 50,000
livestock-mature 400,000
Fair value of biological assets 450,000

Answer: C &B
Practical Accounting one by Valix
Biological Assets

Problem 6

Colombia Company is a producer of coffee. The entity is considering the valuation of harvested
coffee beans. Industry practice is to value the coffee beans at market value and uses as
reference a local publication “accounting for successful farms”.

On December 31, 2015. The entity considering the valuation of harvested coffee beans costing
P3, 000,000 and with fair value less cost of disposal of P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest. The harvested coffee beans were
still on hand on December 31, 2016.

On such date, the fair value less cost of disposal is 3,900,000 and net realizable value is
3,200,000.

What is the measurement of the coffee beans inventory on December 31, 2016?

a. 3,000,000
b. 3,500,000
c. 3,200,000
d. 3,900,000

Solution:

Fair value measurement stops at the point of harvest and PAS 2 on inventory applies after such
date.

Accordingly, the coffee beans inventory shall be measured at the lower of cost and net
realizable value on December 31, 2016.

The fair value less cost of disposal of 3,500,000 at the point of harvest is the initial cost of coffee
beans inventory for purposes of applying PAS 2.

The net realizable value of 3,200,000 is the measurement on December 31,2016 because this
is lower than the deemed cost of 3,500,000.

Answer: C
Practical Accounting one by Valix
Biological Asset

Problem 7

Honey Company has a herd of 102 year old animals on January 1, 2015. One animal aged 2.5
years was purchased on July 1, 2015 for 108, and one animal was born on July 1, 2015. No
animals were sold or disposed of during the year. The fair value less cost of disposal per units is
as follows:

2-year old animals on 100

January 1 2.5 year old animal on July 1 108
New born animal on July 1 70
2-year old animal on December 31 105
2.5-year old animal on December 31 111
Newborn animal on December 31 72
3 year old animal on December 31 120
0.5 year old animal on December 31. 80

1. What is the fair value of the biological assets on December 31?

a. 1,400
b. 1,320
c. 1,440
d. 1,360
2. What amount of gain from change in the fair value of biological assets should be
recognized in the current year?
a. 222
b. 292
c. 300
d. 332
3. What is the gain from change in fair value due to price change?
a. 292
b. 222
c. 237
d. 55

Solutions:

Fair value of 3-year old animals on December 31 (11xP120) 1,320

Fair value of 0.5 year old animal on December 31, the new born (1xP80) 80
Total fair value- December 31 1,400

Fair value of 10 animals on January 1 (10x100) 1000

Acquisitions cost of one animal on July 1 108
Total carrying amount- December 31 1,108

Fair value on December 31 1,400

Carrying amount 1,108
Gain from change in fair value 292

Gain form change in fair value due to price change:

10 2-year old animals (105-100=5x10) 50

1 2.5 year old animal (111-108=3x1) 31
new born on July 1 (72-70=2x1) 2
total 55

Gain from change in fair value due to physical change:

10 3 year old animals acquired January 1 (120-105=15x10) 150

1 3 year old animals acquired July 1 (120-111=9x1) 9
1 newborn on July 1 (80-72=8x1) 8
1 new born (70x1) 70
Total: 237

Price change 55
Physical change 237
total gain 292

Answer: A,B,D
Practical Accounting one by Valix
Biological Assets

Problem 8

Farmland Company produces milk on its farms. The entity producers 20% of the community
milk that is consumed farmland Company owns 5 farms and had a stock of 2,100 cows and
1.050 heifers.

The farms produce 800,000 kg of milk a year and the average inventory held is 15,000 kg of
milk. However, on December 31, 2015 the entity is currently holding 50,000kg of milk in powder.

On December 31, 2015 the biological assets are:

Purchased before January 1, 2015 3 year old 2,100 cows

Purchased on January 1, 2015 2 year old 300 heifers
Purchased on July 1, 2015 1.5 year old 750 heifers

No animals were born on sold during the current year. The unit fair value less cost of disposal is
as follows.

January 1, 2015
1-year old 3,000
2-year old 4,000

July 1, 2015
1-year old 3,000

December 31, 2015

1-year old 3,200
2-year old 4,500
1.5- year old 3,600
3-year old 5,000
The entity has had problem during the year. Contaminated milk was sold to customers. As a
result, milk consumption has gone down.
The entity’s business is spread over different parts of the country. The only region affected by
the contamination was Batangas.

1. What was the fair value of biological assets on January 1, 2015?

a. 9,300,000
b. 3,000,000
c. 3,750,000
d. 3,375,000
2. What is the fair value of biological assets on July 1, 2015?
a. 2,250,000
b. 3,000,000
c. 3,750,000
d. 3,375,000
3. What is the fair value of biological assets in December 31, 2015?
a. 14,550,000
b. 15,750,000
c. 15,225,000
d. 11,850,000
4. What is the increase in fair value of biological assets on December 31, 2015?
a. 3,000,000
b. 5,250,000
c. 4,950,000
d. 6,150,000
5. What is the increase in fair value of biological assets due to physical change?
a. 1,260,000
b. 1,740,000
c. 3,000,000
d. 1,440,000

Solutions:
(2,100x4,000) 8,400,000
(300x3,000) 900,000
Total fair value-January 1 9,300,000

Heifers purchased 1year old 2,250,000

(2,100x5,000) 10,500,000
300x4,500 1,350,000
750x3,600 2,700,000

Total 14,550,000

Answer: A,A,A,A,B
Practical Accounting one by Valix
Biological Assets

Problem 9

Galore Company ventured into construction of a condominium on Makati which is rated as the
largest state of the art structure. The entity board of directors decided that instead of selling the
condominium, the entity would hold this property for purposes of earning rentals by letting out
space to business executives in the area.

The construction of the condominium was completed and the property was placed in service on
January a,2015. The cost of the construction was 50,000,000. The useful life of the
condominium is 25 years and its residual value is 5,000,000.

An independent valuation expert provided the following fair value at each subsequent year-end:

December 31, 2015 55,000,000

December 31, 2016. 53,000,000
December 31, 2017 60,000,000

1. Under the cost model what amount should be reported as depreciation of investment
property for 2015?
a. 1,800,000
b. 2,000,000
c. 2,220,000
d. 0
 2. Under the fair value model, what amount should be recognized as gain from change in
fair value in 2015?
a. 5,000,000
b. 3,000,000
c. 7,000,000
d. 0

Solution:

Cost of investment property 50,000,000

Residual value (5,000,000)
Depreciable amount 45,000,000
Annual depreciation 45,000,000/25) 1,800,000

Journal entry on December 31, 2015

Investment property 5,000,000

Gain from change in fair value 5,000,000

Fair value- December 21 55,000,000

cost- January 1 50,000,000
_ ___________

Gain from change in fair value 2015 5,000,000

Journal entry on December 2016

Loss from change in fair value 2,000,000

Investment property 2,000,000

Fair value – December 2016 53,000,000

carrying amount – December 2015 55,000,000

__________
loss Gain from change in 2016 (2,000,000)
 Answer: A,A
Practical Accounting One by Valix
Cost Model & Fair Value model

Problem 10

Fortitude Company purchased cattle at an auction for 200,000 on July 1, 2014. Cost of
transporting the cattle back to the company’s farm was 2,000 and the company would have to
incur cost similar transportation cost if it was to sell the cattle in the auction, in addition an
auctioneer’s fee of 2% sales price. What amount should the biological assets be initially
recognized?

a. 194,000
b. 196,000
c. 198,000
d. 200,000

Solution:

Fair Value 200,000

Transportation costs (2,000)
Auctioneers fee (4,000)
_ _________
Adjusted fair value 194,000

Answer: A
Practical Accounting One by Conrado O. Uberta
Cost at Initial Recognition

Problem 11

Solo Company acquired forest assets for a lump sum amount of 20,000,000 which is equal to
the lump sum value of the group of assets. At the time of purchase the company in unable to
determine the fair value of the trees separately since no active market was clearly available.
The other assets in the group had a determinable fair value. The forests assets are listed below
and their related fair value:
Land under trees 2,000,000
Roads in forest 1,000,000

1. What amount should the biological asset is initially recorded?

2. What amount should the non-current non-depreciable asset be usually recorded?
3. What amount should the non current depreciable asset be initially recorded?

Solution:

Total fair value of the group 20,000,000

Less: Fair value of other assets:
Land 2,000,000
Roads 1,000,000 3,000,000
Fair value of biological asset __________ 17,000,000

Answer: 17,000,000
2,000,000
1,000,000
Practical Accounting One by Conrado O. Uberta
Cost at Initial Recognition

Problem 12

Central Farm Corporation reported the following lists of biological asset and agricultural produce
for the year ended December 31, 2014:

Assets Fair Value

Diary cattle 3,000,000
Beef cattle 5,000,000
Sheep 2,000,000
Calves on dairy cattle 1,000,000
Calves on beef cattle 1,500,000
Lambs 800,000
Milk on dairy cattle 500,000
Carcass on beef 600,000
Wool 400,000

1. What amount of biological asset should Central Farm Company report in its December
31, 2014 statement of financial problem?
2. What amount should central farm company report as inventory related to the above
biological assets?

Solution:

Mature biological assets:

Dairy cattle 3,000,000
Beef cattle 5,000,000
Sheep 2,000,000 P10,000,000
Immature biological assets:
Calves on dairy cattle 1,000,000
Beef cattle 1,500,000
Lambs 800,000 3,300,000
Total fair value of biological assets P13,300,000

Answer: 13,300,000
1,500,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset

Problem 13

Fortune Company purchased Dairy cattle at an auction for 300,000 on July 1, 2014. Cost of
transporting the cattle back to the company’s farm was 3,000 and the company would have to
incur cost similar transportation cost, in addition an auctioneer’s fee of 2% of sales price.

On December 31, 2014, after taking into account and location, the fair value of the biological
asset had increased to 500,000.

1. What amount should the biological assets be initially recognized?

2. What amount should be the biological assets be reported in the December 31, 2014
statement of financial position?
 3. What amount of gain or loss should the company include in the statement of
comprehensive income due to the change in the fair value of the biological assets?

Solution:

1. Fair value 300,000

Transportation costs (3,000)
Auctioneer’s fee (6,000)
Adjusted fair value 291,000
2. Fair Value 500,000
transport cost (3,000)
Auctioneer’s fee (10,000)
Adjusted fair value 487,000
3. Fair value on December 31, 2014 487,000
July 1, 2014 (291,000)
Increase in fair value 196,000

Answer: 291,000
487,000
196,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset

Problem 14

Vortex Company’s standing cane fair value as of January 1, 2014 was 2,700,000 and as
December 31, 2014 was 2,250,000. The fair value of the agricultural produce harvested during
the period was 2,100,000 on the respective dates of harvest.

What net amount of gain or loss should Cortex Company report in its December 31, 2014 profit
or loss related to the biological asset and agricultural produced?

Solution:

Total value fair end of year

 Biological asset 450,000

Agricultural produced 420,000 870,000

Less: fair value start of year 560,000

Net increase in fair value to profit or loss 310,000

Answer: 310,000
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset

Problem 15

On December 31, 2014, Sony Company reported the following information involving its
biological assets:

Biological assets, at cost on December 31, 2012 6,000,000

Fair value surplus 7,000,000
Change in fair value to December 31, 2014 1,000,000
Decrease in fair value due to harvest 2014 900,000

1. What amount should the biological asset be reported in the December 31, 2014 balance
sheet?
2. What amount of net gain should Sony Company report in its December 31, 2014 income
statement?

Solution:

Biological assets, cost on December 31, 2014 6,000,000

Fair value surplus 7,000,000

Change in fair value 1,000,000
Decrease in fair value (900,000)
Fair value as of December 31, 2014 13,100,000

Change in fair value to December 31, 2014 1,000,000

Decrease in fair value due to harvest during 2014 (900,000)
Net change in fair value – reported in income statement 100,000
 Answer: 13,100,000
100,000
Practical Accounting One by Conrado O. Uberta

Measurement of Biological Asset

Problem 16

Rainbow Company has the following information pertaining to its biological assets for the year
2014:

A herd of 100, 2-year old animals was held at January 1, 2014. Ten animals aged 2.5 were
purchased on july 1, 2014 for 5,400 and ten animals were born on July 1, 2014. No animals
were sold or disposed of during the period. Per unit fair value less estimated point-of-sale costs
were as follows:

2 year old animal at January 1, 2014 5,000

Newborn animal at July 1, 2014 3,500
2-5 year old animal at July 1, 2014 5,400
Newborn animal at December 31, 2014 3,600

0.5 year old animal at December 31, 2014 4,000

2.0 year old animal at December 31, 2014 5,250
2.5 year old animal at December 31, 2014 5,550
3 year old animal at December 31, 2014 6,000

1. How much of the increase in the fair value of the biological assets due to price change?

2. How much of the increase in the fair value of the biological assets due to physical change?

3. What is the fair value of the biological assets as of December 31, 2014?

Solutions:

Increase in fair value less estimated point of sale cost due to price change:
100 (5,250-5,000) 25,000
10(5,550-5,400) 1,500
10(3,600-3,500) 1,000
Total 27,500
100 (6,000-5250) 75,000
10(6,000-5,500) 4,500
10(4,000-3,600) 4,000
10x3,500 35,000
Total 118,500

Answer: 27,500
118,500
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset

Problem 17

Eragon Company and its subsidiaries own the following properties

At year-and

Land help by eragon for undetermined use 5,000,000

A vacant building owned by eragon and to be
Leased uot under an operating lease 3,000,000
Property helps by a subsidiary of eragon, a real
Estate film,in the ordinary of eragon couse of business 2.000.000
Property help by eragon for use in production 4,000,000
Building owned by a subsidiary of erafon and
For which the subsidiary provides sucrity
And maintenance service to the lessees 1,500,000
Land leased by eragon to a subsidiary under an
Operating lease 2,500,000
Property under construction for use as investment
Property 6,000,000
Land help for future factory site 3,500,000
Machinery leasd uot by eragon to an unrelated
Party under an operating lease 1,000,000

1 what the total investment property that should be reported in the

Consolidated statement of financial position of the parent and
Its subsidiaries?

a. 12,000,000
b. 15,500,000
c. 10,500,000
d. 9,5000,000

2 what total amount should be considered as owner-occupied

Property and include in property, plant and equipment in the
Consolidated statement of financial position?

a. 11,000,000
b. 13,000,000
c. 10,500,000
d. 8,500,000

Solution 43-2
Question 1 answer b
Land for undetermined use 5,000,000
Vacant building to be leased out under an operating lease 3,000,000
Building owned and for which the subsidiary provide
Security and maintenance service to the lessees 1,500,000
Property under construction for use as investment property 6,000,000

Total investment property 15,500,000

Question 2 answer a

Property help for use in production 4,000,000

Land lease by parent to subsidiary under
An operating lease 2,500,000
Land help for future use as factory site 3,500,000
Machinery lease out to an unrelated party under
An operating lease 1,000,000

Total operating, plant ang equipment 11,000,000

The property by a subsidiary in the ordinary cause of business is include in

Inventory.

The land leased by the parent to the subsidiary under an operating lease is owned-occupied
Property for purpose of consolidated financial statement.

However, from the perspective of separate financial statement of the parent,the

Land its an investment property.

The machinery leased out to a un related party is owned-occupied property investment

Because investment property include only land and building and not movable
property, like machinery.

B&A

Practical Accounting One by Conrado O. Uberta

Measurement of Biological Asset
PROBLEM 18

Bona company purchased an investment property on January 1,2013 for P2,2000,000

The property had a useful life of 40, years and on December 31,2015 had a fair value of
P3, 000,000.

On December 31, 2015,the property was sold for net proceeds of

P2, 900,000. The entity used the cost model to account for the
Investment property.
Bona company purchased an investment property on January 1,2013 for P2,2000,000
The property had a useful life of 40, years and on December 31,2015 had a fair value of
P3, 000,000.

On December 31, 2015, the property was sold for net proceeds of
P2, 900,000. The entity used the cost model to account for the
Investment property.

1 what is the carrying amount of the investment property on December 31,2015?

a. 2.200.000
b. 2.035.000
c. 2.145.000
d. 2.090.000

2 What is the gain or loss to be recognized for the year ended December31,2015 regarding
The disposal of property?

a. 865,000 gain
b. 810,000 gain
c. 100,000 loss
d. 700,000 gain

Solution 43-3

Question 1 answer b

Cost-January 1, 2013 2,200,000

Accumulated depreciation (2,200,000/40 x 3 years) ( 165,000)

Carrying amount-December 31,2015 2,035,000

Question 2 answer a

Sale price 2,900,000

Carrying amount-December 31,2015 2,035,000
Gain on disposal of property 865,000

1 what is the carrying amount of the investment property on December 31,2015?

 e. 2.200.000
f. 2.035.000
g. 2.145.000
h. 2.090.000

2 What is the gain or loss to be recognized for the year ended December31,2015 regarding
The disposal of property?

e. 865,000 gain
f. 810,000 gain
g. 100,000 loss
h. 700,000 gain

Solution

Question 1

Cost-January 1, 2013 2,200,000

Accumulated depreciation (2,200,000/40 x 3 years) ( 165,000)

Carrying amount-December 31,2015 2,035,000

Question 2

Sale price 2,900,000

Carrying amount-December 31,2015 2,035,000
Gain on disposal of property 865,000
B,A
Practical Accounting One by Conrado O. Uberta
Measurement of Biological Asset

Problem 19

Dayanara Company owned three properties which are classified as investment

Property.

Initial Fair value Fair value

Cost 12/31/2015 12/31/2016

Property 1 2,700,000 3,200,000 3,500,000

Property 2 3,450,000 3,050,000 2,850,000
Property 3 3,300,000 3,850,000 3,600,000

Each property was acquired three years ago useful life 25 years. the accounting policy
It’s to use to fair value model for investment property.
What is the gain or loss to be recognize for the year ended
December 31, 2016?

a. 189,000 loss
b. 150,000 loss
c. 300,000 gain
d. 450,000 loss

Solution

Fair value fair value

12/31/2015 12/31/2016 gain(loss)

Property 1 3,200,000 3,500,000 300,000

Property 2 3,050,000 2,850,000 (200,000)
Property 3 3,850,000 3,600,000 (250,000)

Net loss change an fair value (150,000)

Answer: B
Practical Accounting One by Conrado O. Uberta
 FINANCIAL ACCOUNTING
THEORY & PRACTICE
INVENTORIES – COST ESTIMATION & BIOLOGICAL ASSETS
QUIZZER
 FINANCIAL ACCOUNTING

INVENTORY VALUATION
Essay Questions

Inventory Estimation Methods

1. What are the reasons for making an estimate of inventory?

1. Determination of inventory loss due to fire and other 
catastrophe or theft of

merchandise.

2. Proof of the reasonable accuracy of a physical count. This is 
popularly known as the
"gross profit test."

3. Preparation of interim statements or statements of less than 
one year. Interim

statements are usually for a quarter.

However, year-end statements require physical count, not a mere estimate of inventory value.

Gross profit method

2. Explain the gross profit method of estimating the cost of ending inventory.

Under the gross profit method, the ending inventory is computed as "goods available for sale
minus cost of sales".

The cost of sales is determined through the use of the gross profit rate and this is the reason
the gross profit method is called as such.

This method is based on the major assumption that the rate of gross profit remains
approximately the same from period to period and therefore the ratio of cost of goods sold to
net sales is relatively constant from period to period.

Retail inventory method

3. Explain the retail method of estimating the cost of ending inventory.

The retail inventory method came to its name because the selling price or retail price is tagged
to each item and therefore the ending inventory is stated at selling price.

The ending inventory is computed as follows:

Goods available for sale at selling price minus net sales equals ending inventory at selling

Essay Questions: Inventory – Cost Estimation Page 4

 Inventory – Cost Estimation

price which is multiplied by the cost ratio to get the inventory at cost.

The cost ratio under the retail method is computed by dividing the goods available for sale at
cost by the goods available for sale at selling price.

4. What are the four applications of the retail inventory method?

1. Conservative approach - The cost ratio is determined by including markups and

excluding markdowns in computing the goods available for sale at retail. This approach
is also known as the conventional or lower of average cost or market approach.

2. Average cost approach - The markups and markdowns are 
both included in the
computation of the cost ratio.

3. FIFO approach - A cost ratio is computed for the current 
year. Thus, only the current
purchases are considered 
together with markups and markdowns. The beginning

inventory is excluded in the computation.

4. LIFO approach - The cost ratio is computed following the 
same procedure under FIFO
approach. Thus, the FIFO and 
LIFO would have the same cost ratio for the current year.

5. Which approach is followed in measuring inventory under the retail inventory method?

PAS 2, paragraph 22, provides that the percentage used under the retail method shall take
into consideration inventory that has been marked down to below its original selling price.

An average percentage for each retail department is often used.

This means that the average cost approach shall be applied in conjunction with the retail
inventory method.

Of course, PAS 2 requires either the FIFO or average method as a cost formula.

6. Define the following:

1. Original retail
2. Initial markup
3. Additional markup
4. Markup cancelation

Essay Questions: Inventory – Cost Estimation Page 5

 FINANCIAL ACCOUNTING

5. Net markup
6. Markdown
7. Markdown cancelation
8. Net markdown

1. Original retail - is the sales price at which the goods are first offered for sale.
2. Initial markup - the original markup on the cost of goods or the amount added to the
original cost to get the original retail price.
3. Additional markup - is an increase in the sales price above the original sales price or the
amount added to the original retail price.
4. Markup cancelation - is a decrease in the sales price that does not reduce the sales price
below the original sales price.
5. Net markup - additional markup minus markup cancelation.
6. Markdown - is a decrease in the sales price below the original price.
7. Markdown cancelation - is an increase in sales price that does not raise the sales price
above the original sales price.
8. Net markdown - markdown minus markdown cancelation.

BIOLOGICAL ASSETS
Essay Questions

1. What is the scope of PAS 41 on "agriculture"?

PAS 41 shall be applied to account for the following when they relate to agricultural activity:

a. Biological assets
b. Agricultural produce
c. Government grant related to a biological asset

Note that PAS 41 is applied to agricultural produce at the point of harvest. Thereafter, PAS 2
on inventories shall be applied. PAS 41 does not deal with the processing of agricultural
produce after harvest. For example, the processing of grapes into wine is covered by PAS
2.

2. Define biological assets, agricultural produce and harvest.

Biological assets are "living animals and living plants".

Agricultural produce is the harvested product of the entity's biological assets.

Essay Questions: Biological Assets Page 6

 Biological Assets

Harvest is the detachment of produce from a biological asset or the cessation of a biological
asset's life processes.

3. Give examples of biological assets, agricultural produce and products that are the result of
processing after harvest.

The following table provides examples of biological assets, agricultural produce and products
that are the result of processing after harvest.

Biological asset Agricultural Product

produce after harvest
1. Sheep Wool Yarn, carpet
2. Trees in plantation forest Felled trees Logs, lumber
3. Plant Harvested cane Sugar
4. Dairy cattle Milk Cheese
5. Pigs Carcass Sausage, cured ham
6. Bushes Leaf Tea, cured tobacco
7. Vines Grapes Wine
8. Fruit trees Picked fruit Processed fruit

Again, the measurement of biological assets and agricultural produce is covered by PAS 41
and the measurement of products after harvest is covered by PAS 2 on inventories.

4. Define agricultural activity and biological transformation.

Agricultural activity or simply "agriculture" is the management by an entity of the biological

transformation and harvest of biological assets for sale or for conversion into agricultural
produce or into additional biological assets.

Biological transformation comprises the processes of growth, degeneration, production and

procreation that cause qualitative or quantitative changes in a biological asset.

5. Give examples of agricultural activity.

Agricultural activity covers a diverse range of activities such as the following:

1. Raising livestock
2. Annual or perennial cropping
3. Cultivating orchards and plantations
4. Floriculture

Essay Questions: Biological Assets Page 7

 FINANCIAL ACCOUNTING

5. Aquaculture, including fish farming

6. What are the common features of agricultural activity?

The common features of agricultural activity are as follows:

a. Capability to change
b. Management of change
c. Measurement of change

Capability to change
Living animals and plants are capable of biological transformation.

Management of change
The agricultural activity must be "managed" to facilitate biological transformation by
enhancing or at least stabilizing conditions necessary for the process to take place.

Such management distinguishes agricultural activity from other activities.

For example, harvesting from "unmanaged" sources, such as ocean fishing and
deforestation, is not agricultural activity.

Measurement of change
The change in quality or quantity brought about by biological transformation or harvest is
measured and monitored as a routine management function.

7. Give examples of biological transformation.

Biological transformation results from the following types of outcome:
1. Asset changes through:
a. Growth - an increase in quantity or improvement in 
quality of an animal or plant.
b. Degeneration - a decrease in quantity or deterioration 
in quality of an animal or
plant.
c. Procreation - creation of additional living animal or 
plant.
2. Production of agricultural produce such as latex, tea leaf, 
wool and milk.

8. What are the conditions for the recognition of a biological asset or agricultural produce?
An entity shall recognize a biological asset or an agricultural produce when:
1. The entity controls the asset as a result of past event.
2. It is probable that future economic benefits associated 
with the asset will flow to the
entity.

Essay Questions: Biological Assets Page 8

 Biological Assets

3. The fair value or cost of the asset can be measured 
reliably.

9. Explain the measurement of biological asset and agricultural produce.

A biological asset shall be measured on initial recognition and at the end of each reporting
period at fair value less cost of disposal.

Agricultural produce shall be measured at fair value less cost of disposal at the point of
harvest.

10. What is the meaning of "cost of disposal"?

"Cost of disposal" is the incremental cost directly attributable to the disposal of an asset.

In other words, cost of disposal is a necessary cost for a sale to occur that would not
otherwise arise.

Examples include commission to brokers and dealers, levy by regulatory agency and
commodity exchanges, and transfer tax and duty.

Under the Basis for Conclusions on PAS 41, cost of disposal specifically excludes transport
cost, finance cost and income tax.

11. Explain the fair value measurement of biological asset.

There is a presumption that fair value can be measured reliably for a biological asset.
However, this presumption can be rebutted only on initial recognition for a biological asset
for which market-determined prices are not available or estimates of fair value are determined
to be clearly unreliable.

In such a case, the biological asset shall be measured at cost less accumulated depreciation
and any accumulated impairment loss.

However, once the fair value of such biological asset becomes clearly measurable, the entity
shall measure the biological asset at fair value less cost of disposal.

12. Explain the fair value measurement of agricultural produce.

In all cases, an entity shall measure agricultural produce at the point of harvest at fair value
less cost of disposal.

Essay Questions: Biological Assets Page 9

 FINANCIAL ACCOUNTING

The prevailing view is that the fair value of agricultural produce at the point of harvest can
always be measured reliably.

The fair value measurement of agricultural produce stops at the time of harvest. After that
date, PAS 2 on inventory shall apply.

In other words, the harvested product becomes an inventory and shall be measured
subsequently at the lower of cost and net realizable value.

The harvested product is recorded by debiting inventory and crediting gain from change in
fair value.

13. Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
PFRS 13, paragraph 72, enumerates the fair value hierarchy or best evidence of fair value
as follows:
1. Level 1 inputs are the quoted prices in an active market for identical assets. An active
market is a market in which transactions for the asset or liability take place with sufficient
regularity and volume to provide pricing information on an ongoing basis. A principal
market is the market with the greatest volume and level of activity for the asset or liability.
2. Level 2 inputs are observable inputs either directly or 
indirectly. Level 2 inputs include
quoted prices for similar assets in an active market and quoted prices for identical or
similar assets in an inactive market.
3. Level 3 inputs are unobservable inputs for the asset 
usually developed by the entity
using the best available 
information from the entity's own data.
An example is the financial forecast of expected cash inflows from the asset.

14. Explain the treatment of gain or loss from the fair value measurement of biological asset and
agricultural produce.
A gain or loss arising on initial recognition of a biological asset at fair value less cost of
disposal and any subsequent changes in fair value cost of disposal shall be included in profit
or loss.
A loss may arise on initial recognition of a biological asset because cost of disposal is
deducted in determining fair value loss cost of disposal of a biological asset.

A gain may arise on initial recognition of a biological asset, for example, when a calf is born.

A gain or loss arising from initial recognition of agricultural produce at fair value less cost of
disposal shall also be included in profit or loss.

Essay Questions: Biological Assets Page 10

 Biological Assets

A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.

An entity shall disclose the aggregate gain or loss arising on the initial recognition of biological
asset and agricultural produce and from the change in fair value less cost of disposal of
biological asset.

15. Is agricultural land a biological asset?

Agricultural land is not a biological asset.

The principles espoused in PAS 41 for biological assets and agricultural produce do not apply
to agricultural land.

The requirements of PAS 16 which are applicable to property, plant and equipment apply
equally to agricultural land for purposes of measurement.

16. Explain the fair value measurement of biological assets physically attached to land.

Biological assets are often physically attached to land, for example, trees in a plantation
forest.

There may be no separate market for biological assets that are attached to the land but an
active market may exist for the combined assets, that is, for the biological assets and land as
a package.

An entity may use information regarding the combined assets to determine the fair value of
the biological assets.

For example, the fair value of the land may be deducted from the fair value of the combined
assets to arrive at the fair value of the trees in the plantation forest.

17. Explain the treatment of a government grant related to:

1. Biological asset measured at fair value less cost of 
disposal.

2. Biological asset measured at cost less any accumulated 
depreciation and any
accumulated impairment losses.

1. An unconditional government grant related to a biological asset that has been measured
at fair value less cost of disposal shall be recognized in profit or loss when the grant

Essay Questions: Biological Assets Page 11

FINANCIAL ACCOUNTING

becomes receivable. If a government grant related to a biological asset measured at fan

value less cost of disposal is conditional, the grant shall be recognized in profit or loss
only when the conditions attaching to the grant are met.

2. If a government grant relates to a biological asset 
measured at cost less any

accumulated depreciation and 
any accumulated impairment losses, PAS 20 on
"government 
grant" is applied.

Essay Questions: Biological Assets Page 12

 Inventory – Cost Estimation

MCQ – Theory: Inventories – Cost Estimation

Gross profit method
1. The gross profit method assumes that
A. The amount of gross profit is the same as in prior years.
B. Inventory values have not increased from previous 
years.
C. Sales and cost of goods sold have not changed from 
previous years. FA © 2014
D. The relationship between selling price and cost of goods 
sold is similar to prior years.

2. Which of the following is not a basic assumption of the gross profit method?
A. Goods not sold must be hand.
B. The beginning inventory plus purchases equal total goods to be accounted for.
C. The amount of purchases and the amount of sales remain relatively unchanged from the
comparable previous period.
D. The sales reduced to cost basis when deducted from the sum of beginning inventory and
purchases would result to inventory on hand. FA © 2014

3. How is the gross profit method used in relation to inventory valuation?

A. To provide a FIFO inventory value
B. To estimate the cost of goods sold
C. To verify the accuracy of the physical inventory
D. To verify the accuracy of the perpetual inventory record FA © 2014

4. The gross margin method of estimating ending inventory 
may be used for all of the following,
except
A. Internal as well as external interim reports
B. Internal as well as external year-end reports
C. Estimate of inventory destroyed by fire or other casualty
D. Rough test of the validity of an inventory cost 
determined under either periodic or
perpetual system. FA © 2014

5. Which would not require an estimate of inventory?

A. Inventory destroyed by typhoon
B. Interim financial statements are prepared
C. Proof of the reasonable accuracy of the physical count
D. Determination of the ending inventory to be reported 
in the statement of financial
position at year-end FA © 2014

MCQ – Theories: Inventory – Cost Estimation Page 13

 FINANCIAL ACCOUNTING

6. The gross profit method of estimating inventory would not be useful when
A. There is a significant change in the mix of products being 
sold.
B. The relationship between gross profit and sales remains 
stable over time.
C. A periodic system is in use and inventories are required 
for interim statements.
D. Inventories have been destroyed or lost by fire, theft or 
other casualty, and the specific
data required for 
inventory valuation are not available. FA © 2014

7. The gross profit method of inventory valuation is not valid when

A. All ending inventory is destroyed by fire before it can 
be counted.
B. The gross margin percentage changes significantly 
during the year.
C. There is substantial increase in the cost of inventory 
during the year.
D. There is substantial increase in the quantity of inventory 
during the year. FA © 2014

8. The gross profit method of inventory valuation is invalid when

A. A portion of inventory is destroyed.
B. There is a substantial increase in inventory during the year.
C. There is no beginning inventory because it is the first year of operation.
D. The gross profit percentage applicable to the goods in ending inventory is different from
the percentage applicable to goods sold during the period. FA © 2014

9. If the gross profit rate is based on sales, the cost of goods sold is computed as
A. Gross sales divided by sales ratio C. Net sales divided by sales ratio
B. Gross sales times cost ratio D. Net sales times cost ratio TOA © 2013

10. If the gross profit rate is based on cost, the cost of goods sold is computed as
A. Gross sales divided by sales ratio C. Net sales divided by sales ratio
B. Gross sales times cost ratio D. Net sales times cost ratio FA © 2014

11. Which statement is not valid about the gross profit method?
A. It may be used by auditors.
B. It is an acceptable accounting procedure.
C. It may be used to estimate inventory for annual 
statements.
D. It may be used to estimate inventory for interim 
statements. FA © 2014

Retail inventory method

12. The retail method is based on the assumption that
A. Ratio of cost to retail changes at a constant rate.
B. Ratio of gross margin to sales is approximately the same 
each period.
C. Proportions of markup and markdown to selling price 
are the same.

MCQ – Theories: Inventory – Cost Estimation Page 14

 Inventory – Cost Estimation

D. Final inventory and the total of goods available for sale 
contain the same proportion of
high cost and low cost 
ratio goods. FA © 2014

13 A major advantage of the retail inventory method is that it

A. Hides costs from customers and employees.
B. Permits entities to avoid taking an annual physical 
inventory.
C. Gives a more accurate measurement of inventory than 
other methods.
D. Provides a method for inventory control and facilitates 
determination of the periodic
inventory. FA © 2014
14. Which of the following is not a reason why the retail 
inventory method is used widely?
A. For insurance information
B. To defer income tax liability
C. As a control measure in determining inventory shortage FA © 2014
D. To permit the computation of net income without a 
physical count of inventory

15. Which of the following is not required when using the retail inventory method?
A. Total sales for the period.
B. A record of the total cost and retail value of goods purchased for the period. FA © 2014
C. All inventory items must be categorized according to the retail markup percentage.
D. A record of the total cost and retail value of the goods available for sale for the period.

16. What condition is not necessary when using the retail inventory method?
A. A record of sales for the period
B. A record of total cost of goods sold for the period
C. A record of total cost and retail value of goods purchased for the period FA © 2014
D. A record of total cost and retail value of goods available for sale for the period

17. The retail inventory method would include which of the following in the calculation of the
goods available for sale at both cost and retail?
A. Freight in C. Markups
B. Markdowns D. Purchase returns FA © 2014

Average retail inventory method

18. If the average retail inventory method is used, which of the following calculations would
include or exclude net markdowns?
TOA © 2013 A. B. C. D.
Cost ratio Include Include Exclude Exclude
Ending inventory at retail Include Exclude Include Exclude

MCQ – Theories: Inventory – Cost Estimation Page 15

 FINANCIAL ACCOUNTING

Conventional retail inventory method

19. An inventory method which is designed to approximate inventory valuation at the lower of
cost and net realizable value is
A. Average retail method C. FIFO retail
B. Conventional retail method D. LIFO retail FA © 2014

20. The conventional retail method produces an ending inventory that approximates
A. Lower of cost or net realizable value
B. Lower of LIFO cost or net realizable value
C. Lower of FIFO cost or net realizable value
D. Lower of average cost or net realizable value FA © 2014

21. To produce an inventory valuation which approximates the lower of cost or net realizable
value using the retail inventory method, the computation of the ratio of cost to retail should
FA © 2014
A. Include markups and markdowns C. Include markups but not markdowns
B. Include markdowns but not markups D. Ignore both markups and markdowns

22. If the conservative retail inventory method is used, which of the following calculations would
include or exclude net markdowns?
FA © 2014 A. B. C. D.
Cost ratio Include Include Exclude Exclude
Ending inventory at retail Include Exclude Include Exclude

23. When the conventional retail inventory method is used, markdowns are commonly ignored in
the computation of cost to retail ratio because
A. There may be no markdowns in a given year.
B. This tends to give a better approximation of the lower 
of cost or net realizable value.
C. Markups are also ignored.
D. This tends to result in the showing of a normal profit 
margin in a period when no
markdown goods have 
been sold. FA © 2014

Sensitivity analysis
24. Which of the following would cause a decrease in the cost ratio used in the retail inventory
method?
A. Higher freight in charges C. Lower net markups
B. Higher retail prices D. More employee discounts FA © 2014

MCQ – Theories: Inventory – Cost Estimation Page 16

 Biological Assets

25. What is the effect of freight in on the cost-retail ratio when using the conservative retail
method?
A. Increases the cost-retail ratio
B. Decreases the cost-retail ratio
C. No effect on the cost-retail ratio
D. Depends on the amount of the net markup FA © 2014

26. What is the effect of net markup on the cost-retail ratio when using the conservative retail
method?
A. Increases the cost-retail ratio
B. Decreases the cost-retail ratio
C. No effect on the cost-retail ratio
D. Depends on the amount of the net markdown FA © 2014

Comprehensive
27. With regard to the retail inventory method, which of the following is the most accurate
statement?
A. It is not adaptable to FIFO costing.
B. Generally, accountants ignore net markups and net 
markdowns in computing the cost
price percentage.
C. Generally, accountants exclude net markups and 
include net markdowns in computing
cost price 
percentage.
D. This method results in a lower ending inventory cost if 
net markups are included but net
markdowns are 
excluded in computing the cost price percentage. FA © 2014

MCQ – Theory: Biological Assets

Scope
28. Where there is a long aging or maturation process after harvest, the accounting for such
products shall be dealt with by
A. PAS 41, Agriculture C. PAS 40, Investment property FA © 2014
B. PAS 2, Inventories D. PAS 16, Property, plant and equipment

29. Which of the following is not dealt with by PAS 41?

A. The accounting for biological assets.
B. The processing of agricultural produce after harvesting. FA © 2014
C. The accounting treatment of government grant received 
in respect of biological assets.
D. The initial measurement of agricultural produce 
harvested from the entity's biological
assets.

MCQ – Theories: Biological Assets Page 17

 FINANCIAL ACCOUNTING

Basic concept
30. It is the management by an entity of the biological transformation and harvest of biological
assets for sale or for conversion into agricultural produce or into additional biological asset.
A. Agricultural activity C. Development activity
B. Biological activity D. Economic activity FA © 2014

31. Agricultural activity includes all of the following, except

A. Aquaculture C. Perennial cropping
B. Ocean fishing D. Raising livestock FA © 2014

32. Agricultural activity results in which of the following type of asset?

A. Biological asset
B. Agricultural produce
C. Both biological asset and agricultural produce
D. Neither biological asset nor agricultural produce FA © 2014

33. It is a market in which transactions for the asset or liability take place with sufficient regularity
and volume to provide pricing information on an ongoing basis.
A. Active market C. Global market
B. Financial market D. Principal market FA © 2014

Land
34. Land that is related to agricultural activity is measured
A. At fair value. FA © 2014
B. At fair value in combination with the biological asset 
that is being grown on the land.
C. At the resale value separate from the biological asset that is being grown on the land.
D. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment
Property.

Biological asset & agricultural produce

35. What is the measurement basis for biological asset and agricultural produce?
A. Current cost C. Historical cost
B. Fair value D. Present value FA © 2014

Biological assets
36. Biological assets are TOA © 2013
A. Living animals only C. Both living animals and living plants
B. Living plants only D. Neither living animals nor living plants

MCQ – Theories: Biological Assets Page 18

 Biological Assets

37. Biological assets

A. Must be measured at cost.
B. Are found only in Biotech entities.
C. Do not generally have future economic benefits.
D. Are living animals or living plants and must disclosed as a separate line item in the
statement of financial position. FA © 2014

38. All of the following would be classified as biological asset, except

A. Chicken C Egg
B. Dairy cattle D. Tree FA © 2014

39. Biological transformation results from asset changes through all of the following, except
A. Degeneration C. Procreation FA © 2014
B. Growth D. Production of agricultural produce

40. Which of the following criteria must not be satisfied before a biological asset can be
recognized in the financial statements?
A. An active market for the asset exists.
B. The entity controls the asset as a result of past event.
C. The fair value or cost of the asset can be measured reliably. FA © 2014
D. It is probable that future economic benefits relating 
to the asset will flow to the entity.

41. Generally speaking, biological assets relating to agricultural activity shall be measured using
A. Historical cost
B. Net realizable value
C. A fair value approach
D. Historical cost less depreciation less impairment FA © 2014

42. Biological assets are measured at

A. Cost C. Lower of cost and net realizable value
B. Fair value less cost of disposal D. Net realizable value FA © 2014

43. Which of the following is unlikely to be used in fair value measurement?

A. External independent valuation
B. Quoted price of a similar asset in an active market
C. Quoted price of an identical asset in an active market
D. Quoted price of an identical asset in an inactive market FA © 2014

MCQ – Theories: Biological Assets Page 19

 FINANCIAL ACCOUNTING

44. When the fair value of the biological asset cannot be determined reliably, the biological asset
shall be measured at
A. Cost
B. Net realizable value
C. Cost less accumulated depreciation
D. Cost less accumulated depreciation and accumulated impairment losses FA © 2014

Income from biological asset

45. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income
shall be accounted for in which of the following?
A. No income shall reported annually until first harvest 
and sale in 30 years.
B. The eventual sale proceeds shall be estimated and matched to the profit and loss
account over the 30-year 
period.
C. Income shall be measured annually and reported using 
a fair value approach that
recognizes and measures 
biological growth.
D. The plantation forest shall be valued every 5 years and 
the increase in value shall be
recognized as component 
of other comprehensive income. FA © 2014

46. A gain or loss arising on the initial recognition of a biological asset and from a change in the
fair value less cost of disposal of a biological asset shall be included in
A. A capital reserve within equity C. Other comprehensive income FA © 2014
B. A separate revaluation reserve D. The profit or loss for the period

47. An entity owns a herd of cattle. Where should changes in the fair value of a herd of cattle be
recognized in the financial statements?
A. In profit or loss only
B. In the statement of cash flows only
C. In other comprehensive income only
D. In profit or loss or other comprehensive income FA © 2014

Agricultural produce
48. It is the harvested product of the entity's biological assets.
A. Agricultural produce C. Harvest
B. Agriculture D. Product TOA © 2013
49. Agricultural produce is
A. The harvested product from biological asset.
B. Valued at the time of harvest at the cost of production.
C. All of the choices are correct regarding agricultural produce.
D. Valued at each reporting period at fair value less cost of disposal. FA © 2014

MCQ – Theories: Biological Assets Page 20

 Biological Assets

50. Which of the following would be classified as agricultural 
produce?

A. Apple C. Butter
B. Bush D. Lumber FA © 2014

51. Agricultural produce is measured at

A. Fair value
B. Net realizable value
C. Net realizable value less normal profit margin
D. Fair value less cost of disposal at the point of harvest FA © 2014

52. When agricultural produce is harvested, the harvest shall be accounted for by using PAS 2,
Inventories, or another applicable PFRS. For the purpose of that standard, cost at the date
of harvest is deemed to be
A. Market value
B. The historical cost of the harvest
C. The historical cost less accumulated impairment losses
D. The fair value less cost of disposal at the point of harvest FA © 2014

53. Which of the following costs should not be included in cost 
of disposal?
A. Commission to broker C. Transfer tax and duty
B. Levy by regulatory agency D. Transport cost FA © 2014

54. Which of the following statements is true regarding agricultural produce?

A. The fair value measurement of agricultural produce stops at the time of harvest.
B. In all cases, an entity shall measure agricultural produce at fair value less cost of disposal
at the point of harvest.
C. The prevailing view is that the fair value of agricultural produce at the point of harvest
can always be measured reliably.
D. All of these statements are true regarding agricultural produce. FA © 2014

55. Which of following statements in relation to agricultural produce is correct?

I. In all cases, an entity shall measure agricultural 
produce at the point of harvest at fair
value less cost 
of disposal.
II. The prevailing view is that the fair value of 
agricultural produce at the point of harvest
can always 
be measured reliably.
A. I only C. Both I and II
B. II only D. Neither I nor II TOA © 2013

MCQ – Theories: Biological Assets Page 21

 FINANCIAL ACCOUNTING

Processed product
56. Which of the following would be classified as a product that is the result of processing after
harvest?
A. Bananas C. Cotton
B. Cheese D. Wool FA © 2014

Government grant
57. An unconditional government grant related to a biological asset that has been measured at
fair value less cost of disposal shall be recognized as
A. Income when the grant becomes receivable.
B. A deferred credit when the grant has been approved.
C. A deferred credit when the grant becomes receivable.
D. Income when the grant application has been submitted. FA © 2014

58. If a government grant related to a biological asset is conditional on certain events, the grant
shall be recognized as
A. Income when the grant has been approved.
B. A deferred credit when the grant is approved.
C. Income when the conditions attaching to the grant are 
met. FA © 2014
D. A deferred credit when the conditions attached to the 
government grant are met.

Presentation & disclosure requirements

59. Which of the following information shall be disclosed in relation to biological asset and
agricultural produce?
A. There is no requirement in the standard to disclose 
separately any gain or loss.
B. Separate disclosure of the gain or loss relating to 
biological asset and agricultural
produce.
C. The total gain or loss from biological asset, agricultural 
produce, and from changes in
fair value less cost of 
disposal of biological asset.
D. The aggregate gain or loss arising on the initial 
recognition of biological asset and
agricultural produce 
and from the change in fair value less cost of disposal of 
biological
asset. TOA © 2013

60. Where there is a production cycle of more than one year for a biological asset, PAS 41
encourages separate disclosure of
A. Price change only C. Total change in value FA © 2014
B. Physical change only D. Physical change and price change

MCQ – Theories: Biological Assets Page 22

 Inventory – Cost Estimation

MCQ – Problems: Inventory – Cost Estimation

Gross Profit Method
Sales
1. Nefarious Company reported net income of P480,000 for current year. Percentage
distribution of some of the items in the income statement was as follows:
Selling expense 10% of sales
Administrative expenses, excluding bad debts 15% of sales
Bad debts expense 3% of sales
It is ascertained that administrative expenses are 25% of cost of sales. What is the amount
of sales for the current year?
A. 1,920,000 C. 4,000,000
B. 3,200,000 D. 4,800,000 FA © 2014

Gross profit
2. Beyonce Company sells merchandise on a consignment basis to dealers. The selling price
of the merchandise averages 25% above cost. The dealer is paid a 10% commission of the
sales price for all sales made. All dealer sales are made on a cash basis. The following
consignment activities occurred during the current year:
Manufacturing cost of goods shipped on consignment 8,800,000
Sales price of merchandise sold by dealers 9,600,000
Payments remitted by dealers after deducting commission 6,300,000
What is the gross profit on sales?
A. 1,220,000 C. 1,920,000
B. 1,700,000 D. 2,400,000 PA 1 © 2014

Ending inventory
3. Keepsake Company estimated the cost of the physical inventory on March 31 for use in
interim financial statement. The rate of markup on cost is 25%o. The inventory on January 1
was P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000, purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?
A. 2,100,000 C. 3,600,000
B. 2,800,000 D. 3,975,000 PA 1 © 2014

4. Keepsake Company estimated the cost of its physical inventory on March 31 for use in interim
financial statement. The rate of markup on cost is 25%. The inventory on January 1 was
P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000, purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?

MCQ – Problems: Inventory – Cost Estimation Page 23

 FINANCIAL ACCOUNTING

A. 2,100,000 C. 3,600,000
B. 2,800,000 D. 3,975,000 FA © 2014

5. Avarice Company has a recent gross profit history of 40% of net sales. The following data
are available from the accounting records for the three months ended March 31, 2014:
Inventory - January 1 650,000
Purchases 3,200,000
Net sales 4,500,000
Purchase return 75,000
Freight in , 50,000
Using the gross profit method, what is the estimated cost of inventory on March 31, 2014?
A. 1,120,000 C. 2,025,000
B. 1,125,000 D. 2,700,000 FA © 2014

Partial loss of inventory

6. A fire destroyed Newborn Company's inventory on October 31. On January 1, the inventory
had a cost of P2,500,000. During the period January 1 to October 31, the entity had net
purchases of P7,500,000 and net sales of P15,000,000. Undamaged inventory at the date
of fire had a cost of PI 50,000. The markup on cost is 66 2/3%. What was the cost of inventory
destroyed by fire?
A. 850,000 C. 3,850,000
B. 1,000,000 D. 4,000,000 FA © 2014

7. On June 30, 2014, a flash flood caused damage to the merchandise stored in the warehouse
of Teachable Company.
* Net sales for 2013 were P800,000 costing P560,000.
* Inventory, January 1 was P200,000, 90% of which was in the warehouse and 10% in
downtown showroom.
* From January 1 to date of flood, the invoice value of purchases all stored in the
warehouse is P100,000, freight P4,000, and purchase return P6,000.
* Cost of merchandise transferred from the warehouse to showroom was P8,000 and net
sales from January 1 to June 30, 2014 (all warehouse stock) amounted P320,000.
What is the estimated cost of merchandise destroyed by flood?
A. 46,000 C. 66,000
B. 50,000 D. 80,000 FA © 2014

8. In December 2014, Unanimous Company had a significant portion of inventory stolen. The
entity determined the cost of inventory not stolen to be P100,000.

MCQ – Problems: Inventory – Cost Estimation Page 24

 Inventory – Cost Estimation

2014 2013
Purchases 5,200,000 5,000,000
Purchase return and allowance 240,000 200,000
Sales 7,880,000 8,200,000
Sales return and allowance 80,000 200,000
Beginning inventory 1,200,000 2,000,000
What is the estimated cost of the stolen inventory?
A. 144,000 C. 644,000
B. 600,000 D. 700,000 FA © 2014
9. On December 31, 2014, Frenzy Company had a fire which completely destroyed the goods
in process inventory. A physical inventory was taken after the fire.
December 31 January 1
Finished goods 1,000,000 1,400,000
Goods in process 0 1,000,000
Raw materials 600,000 300,000
Supplies 100,000 400,000
During the year, the entity reported sales of P3,000,000, purchases of P1,000,000, freight of
P100,000, direct labor of P800,000 and manufacturing overhead at 50% of direct labor. The
average gross profit rate is 30% on sales. What is the estimated cost of the goods in process
on December 31, 2014 that were completely destroyed by fire?
A. 1,300,000 C. 2,000,000
B. 1,700,000 D. 2,100,000 FA © 2014

10. On December 31, 2014, a big fire caused severe damage to the warehouse of Kleptomaniac
Company.
2014 2013
Merchandise inventory, beginning 1,000,000 -
Purchases 8,000,000 5,600,000
Purchase return 500,000 100,000
Sales 9,000,000 6,000,000
At the beginning of 2014, the entity changed the policy on the sellIng prices of the
merchandise in order to produce a gross profit rate of 5% higher than the gross profit rate in
2013. Undamaged merchandise marked to sell at P500,000 was salvaged. Damaged
merchandise marked to sell at P100,000 had an estimated realizable value of P10,000. What
amount should be reported as inventory fire loss?
A. 1,600,000 C. 1,840,000
B. 1,780,000 D. 2,200,000 FA © 2014

MCQ – Problems: Inventory – Cost Estimation Page 25

 FINANCIAL ACCOUNTING

11. On the night of September 30, 2014, a fire destroyed most of the merchandise inventory of
Sonia Company. All goods were completely destroyed except for partial damaged goods that
normally sell for P100,000 and that had an estimated net realizable value of P25,000 and
undamaged goods that normally sell for P60,000. The following data are available:
Inventory, January 1 660,000
Net purchases, January 1 through September 30 4,240,000
Net sales, January 1 through September 30 5,600,000
Total 2013 2012 2011
Net sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of sales 6,750,000 3,840,000 2,200,000 710,000
Gross income 2,250,000 1,160,000 800,000 290,000
What is the estimated amount of fire loss on September 30,2014?
A. 580,000 C. 630,000
B. 615,000 D. 700,000 FA © 2014

12. Cool Air Company lost 50% of its inventory by fire on December 31, 2014. No inventory had
been taken on December 31, 2014. The
following profit and loss data are available:
2014 2013 2012
Inventory, January 1 1,040,000 840,000 848,000
Purchases 3,600,000 2,876,000 2,836,000
Purchase returns 240,000 140,000 200,000
Sales 4,060,000 3,900,000 3,620,000
Sales returns 60,000 100,000 20,000
What is the value of the inventory destroyed by fire?
A. 800,000 C. 1,600,000
B. 880,000 D. 1,760,000 PA 1 © 2014

13. Ombudsman Company lost all inventory by fire on December 31, 2014.
2014 2013 2012
Inventory - January 1 1,040,000 1,410,000 850,000
Net purchases 4,360,000 2,730,000 2,640,000
Net sales 5,000,000 4,000,000 3,400,000
Goods with selling price of P300,000 are sent on consignment. These goods are still unsold
by the consignee on December 31, 2014. Goods purchased costing P190.000 are in transit
on December 31, 2014. The goods were shipped FOB shipping point on December 28, 2014
and properly recorded as purchases. What amount of inventory fire loss should be reported?
A. 1,410,000 C. 1,900,000
B. 1,500,000 D. 1,690,000 FA © 2014

MCQ – Problems: Inventory – Cost Estimation Page 26

 Inventory – Cost Estimation

Total loss of inventory

14. On June 30, a fire destroyed Intense Company's entire inventory. The inventory on January
1 totaled P6,600,000. From January 1 through the time of the fire, the entity made purchases
of P3,000,000, incurred freight in of P300,000, and had sales of P7,800,000. The rate of
gross profit on selling price is 30%. What is the approximate cost of the inventory that was
destroyed?
A. 3,600,000 C. 4,140,000
B. 3,900,000 D. 4,440,000 FA © 2014

15. Lin Company sells merchandise at a gross profit of 30%. On June 30,2014, all of the inventory
was destroyed by fire. The following figures pertain to the operations for the six months ended
June 30, 2014:
Net sales 8,000,000
Beginning inventory 2,000,000
Net purchases 5,200,000
What is the estimated cost of the destroyed inventory?
A. 800,000 C. 2,800,000
B. 1,600,000 D. 4,800,000 PA 1 © 2014

16. On December 31, 2014, a storm surge damaged the warehouse of Braveheart Company.
The entire inventory and many accounting records were completely destroyed.
January 1 December 31
Inventory 1,500,000
Purchases 5,500,000
Cash sales 900,000
Collections of accounts receivable 8,400,000
Accounts receivable 700,000 1,100,000
Gross profit rate on sales 40%
What is the inventory loss from the storm surge?
A. 1,180,000 C. 2,260,000
B. 1,720,000 D. 2,700,000 FA © 2014

Missing inventory
17. Boon Company provided the following information for the current year:
Beginning inventory 500,000
Purchases 2,500,000
Sales 3,200,000
A physical inventory taken at year-end resulted in an ending inventory of P500,000. The gross
profit on sales has remained constant at 25% in recent years. The entity suspects some

MCQ – Problems: Inventory – Cost Estimation Page 27

 FINANCIAL ACCOUNTING

inventory may have been taken by a new employee. What is the estimated cost of missing
inventory at year-end?
A. 0 C. 440,000
B. 100,000 D. 600,000 FA © 2014

18. Olivia Company provided the following information for the year ended December 31,2014:
Inventory, January 1 650,000
Purchases 2,300,000
Purchase returns 80,000
Freight in 60,000
Sales 3,400,000
Sales discounts 20,000
Sales returns 30,000
On December 31, 2014, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained constant at 30% in recent years. The
entity suspects that some inventory may have been pilfered by one of the entity's employees.
On December 31,2014, what is the estimated cost of missing inventory?
A. 151,000 C. 420,000
B. 165,000 D. 585,000 PA 1 © 2014

19. Celibacy Company provided the following information for the year ended December 31, 2014:
Inventory, January 1 650,000
Purchases 2,300,000
Purchase returns 80,000
Freight in 60,000
Sales 3,400,000
Sales discounts 20,000
Sales returns 30,000
On December 31, 2014, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained, constant at 30% in recent years. The
entity suspects that some inventory may have been pilfered by one of the entity's employees.
On December 31, 2014, what is the estimated cost of missing inventory?
A. 151,000 C. 420,000
B. 165,000 D. 585,000 FA © 2014

Cost of goods sold

20. On September 30, 2014, a fire at Elusive Company's only warehouse caused severe
damaged to the entire inventory. Based on recent history, the entity has a gross profit of 30%
on cost of sales. The following information is available from the records for the nine months

MCQ – Problems: Inventory – Cost Estimation Page 28

 Inventory – Cost Estimation

ended September 30, 2014:

Inventory - January 1 550,000
Purchases 3,000,000
Net sales 3,640,000
A physical inventory disclosed usable damaged goods which can be sold to a jobber for
P50,000. What is the estimated cost of goods sold for the nine months ended September 30,
2014?
A. 2,485,000 C. 2,750,000
B. 2,548,000 D. 2,800,000 FA © 2014

21. On September 30,2014, Brock Company reported that a fire caused severe damage to the
entire inventory. The entity has a gross profit of 30%o on cost. The following data are
available for nine months ended September 30,2014:
Inventory at January 1 1,100,000
Net purchases 6,000,000
Net sales 7,280,000
A physical inventory disclosed usable damaged goods which can be sold for PI 00,000. What
is the estimated cost of goods sold for the nine months ended September 30,2014?
A. 4,970,000 C. 5,500,000
B. 5,096,000 D. 5,600,000 PA 1 © 2014

22. On October 31, 2014, Pamela Company reported that a flood caused severe damage to the
entire inventory. Based on recent history, the entity has a gross profit of 25% of sales. The
following information is available from the records for ten months ended October 31, 2014:
Inventory, January 1 520,000
Purchases 4,120,000
Purchase returns 60,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000
A physical inventory disclosed usable damaged goods which can be sold for P70,000. Using
the gross profit method, what is the estimated cost of goods sold for the ten months ended
October 31,2014?
A. 3,360,000 C. 3,830,000
B. 3,825,000 D. 3,900,000 FA © 2014

MCQ – Problems: Inventory – Cost Estimation Page 29

 FINANCIAL ACCOUNTING

Net income
23. The records of Mainstream Company were destroyed by flood at the end of the current year.
However, certain statistical data related to the income statement are available.
Interest expense 20,000
Cost of goods sold 2,000,000
Sales discount 100,000
The beginning inventory was P400,000 and decreased 20% during the year. Administrative
expenses are 25% of cost of goods sold but only 10% of gross sales. Four-fifths of the
operating expenses relate to sale activities. Ignoring income tax, what is the net income for
the current year?
A. 330,000 C. 400,000
B. 380,000 D. 480,000 FA © 2014

Comprehensive
Questions 24 & 25 are based on the following information. FA © 2014
Moderate Company provided the following information:
June July August
Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each
month is 30% of that month's cost of goods sold.

24. What i s the cost of goods sold for June?

A. 5,760,000 C. 6,080,000
B. 6,000,000 D. 6,600,000

25. What is the amount of purchases for July?

A. 6,528,000 C. 6,920,000
B. 6,800,000 D. 8,304,000

Questions 26 & 27 are based on the following information. FA © 2014

On October 15, 2014, a fire destroyed all inventory of Sham Company in a rented stockroom. The
records of the entity showed the following information:
Inventory, January 1 500,000
Sales, January 1 - October 15 3,840,000
Sales return and allowance 40,000
Purchases, January 1 - October 15 3,560,000
Purchase return and allowance 60,000
Cost of stock in display room, not destroyed 320,000

MCQ – Problems: Inventory – Cost Estimation Page 30

 Inventory – Cost Estimation

Summary of prior years' sales:

2013 2012 2011
Sales 3,700,000 3,500,000 3,000,000
Gross profit 1,295,000 1,050,000 750,000

26. If the trend in gross profit rate continues, what is the estimated cost of merchandise lost in
the fire on October 15, 2014?
A. 1,210,000 C. 1,530,000
B. 1,400,000 D. 1,720,000

27. If the average gross profit rate is used, what is the estimated cost of merchandise lost in the
fire on October 15, 2014?
A. 1,020,000 C. 1,400,000
B. 1,340,000 D. 1,720,000

Questions 28 & 29 are based on the following information. P1 © 2014

In conducting an audit of Remy Company for the year ended June 30, 2014, the entity's CPA
observed the physical inventory at an interim date, May 31, 2014. The following information was
obtained:

Inventory, July 1, 2013 875,000

Physical inventory, May 31,2014 950,000
Sales for 11 months ended May 31, 2014 8,400,000
Sales for year ended June 30, 2014 9,600,000
Purchases for 11 months ended May 31, 2014 6,750,000
Purchases for year ended June 30, 2014 8,000,000
a. Shipments received in May and included in the physical inventory
but recorded as June purchases 75,000
b. Shipments received in unsalable condition and excluded from
physical inventory. Credit memos had not been received nor
had chargebacks to vendors been recorded:
Total at May 31,2014 10,000
Total at June 30,2014 (including the May unrecorded chargebacks) 15,000
c. Deposit made with vendor and charged to purchases in April, 2014.
Product was shipped in July, 2014 20,000
d. Deposit made with vendor and charged to purchases in May, 2014.
Product was shipped FOB destination, on May 29,2014 and
was included in May 31,2014 physical inventory as goods in transit 55,000

MCQ – Problems: Inventory – Cost Estimation Page 31

 FINANCIAL ACCOUNTING

e. Through the carelessness of the receiving department a June shipment was damaged by rain.
This shipment was later sold in June at its cost of 100,000

28. What is the cost of goods sold for the month of June 2014?
A. 780,000 C. 960,000
B. 880,000 D. 980,000

29. What is the inventory on June 30, 2014?

A. 1,140,000 C. 1,240,000
B. 1,160,000 D. 1,340,000

Questions 30 thru 32 are based on the following information. P1 © 2014

Fairy Company provided the following information:

2014 2015
Net sales 7,500,000 4,500,000
Beginning inventory 1,260,000
Purchases 6,450,000 3,180,000
Freight in 350,000 220,000
Purchase discounts 90,000 45,000
Purchase returns 120,000 40,000
Purchase allowances 20,000 15,000
Ending inventory 2,355,000 ?

30. What is the amount of gross profit for 2014?

A. 2,025,000 C. 2,625,000
B. 2,250,000 D. 3,000,000

31. What is the gross profit rate for 2014?

A. 27% C. 35%
B. 30% D. 40%

32. What is the inventory on December 31, 2015?

A. 2,025,000 C. 2,505,000
B. 2,370,000 D. 3,285,000

MCQ – Problems: Inventory – Cost Estimation Page 32

 Inventory – Cost Estimation

Questions 33 thru 35 are based on the following information. P1 © 2014

On December 31, 2014, Empress Company had a fire which completely destroyed the goods in
process inventory. After the fire a physical inventory was taken. The raw materials were valued at
P600,000, the finished goods at PI,000,000 and supplies at P100,000 on December 31,2014. The
inventories on January 1, 2014 consisted of the following:
Finished goods 1,400,000
Goods in process 1,000,000
Raw materials 300,000
Supplies 400,000
Data for the current year
Sales 3,000,000
Purchases 1,000,000
Freight in 100,000
Direct labor 800,000
Manufacturing overhead - 50% of direct labor ?
Average gross profit rate 30%

33. What is the cost of goods sold?

A. 1,700,000 C. 2,100,000
B. 1,900,000 D. 2,300,000

34. What is the cost of goods manufactured?

A. 1,700,000 C. 2,500,000
B. 2,300,000 D. 3,100,000

35. What is the estimated cost of the goods in process on December 31, 2014 that were
completely destroyed by fire?
A. 1,300,000 C. 2,000,000
B. 1,700,000 D. 2,100,000

Questions 36 thru 38 are based on the following information. FA © 2014

On December 31, 2014, a fire broke out in the warehouse of Regatta Company destroying ah
inventory. The following data are available for 2014:

January 1 December 31
Inventory 500,000
Accounts receivable 480,000 440,000
Accounts payable 400,000 500,000
Collection on accounts receivable 2,640,000

MCQ – Problems: Inventory – Cost Estimation Page 33

 FINANCIAL ACCOUNTING

Payments to suppliers 1,600,000

Goods out on consignment at sales price 200,000
Salvage value of inventory 20,000

2013 2012 2011

Sales 2,800,000 2,700,000 2,500,000
Gross profit 1,260,000 1,080,000 860,000

36. What is the amount of purchases for the current year?

A. 1,500,000 C. 1,700,000
B. 1,600,000 D. 2,100,000

37. What is the amount of sales for the current year?

A. 2,200,000 C. 2,640,000
B. 2,600,000 D. 2,680,000

38. What is the inventory fire loss on December 31, 2014?

A. 420,000 C. 508,000
B. 500,000 D. 600,000

Questions 39 thru 42 are based on the following information. P1 © 2014

Ori April 30,2014, a fire damaged the office of Amaze Company. The following balances were
gathered from the general ledger on March 31, 2014:
Accounts receivable 920,000
Inventory - January 1 1,880,000
Accounts payable 950,000
Sales 3,600,000
Purchases 1,680,000
* An examination of the April bank statement and canceled checks revealed checks written
during the period April 1-30 as follows:
Accounts payable as of March 31 240,000
April merchandise shipments 80,000
Expenses 160,000
Deposits during the same period amounted to P440,000 which consisted of collections
from customers with the exception of P20,000 refund from a vendor for merchandise
returned in April.
* Customers acknowledged indebtedness of P1,040,000 at April 30. Customers owed
another P60,000 that will never be recovered. Of the acknowledged indebtedness,
P40,000 may prove uncollectible.

MCQ – Problems: Inventory – Cost Estimation Page 34

 Inventory – Cost Estimation

* Correspondence with suppliers revealed unrecorded obligations at April 30, of P340,0.00

for April merchandise shipment, including PI00,000 for shipments in transit on that date.
* The average gross profit rate is 40%.
* Inventory with a cost of P260,000 was salvaged and sold for P140,000. The balance of
the inventory was a total loss.

39. What is total amount of sales up to April 30?

A. 4,140,000 C. 4,200,000
B. 4,160,000 D. 4,220,000

40. What is the total amount of purchases up to April 30?

A. 1,680,000 C. 2,020,000
B. 1,760,000 D. 2,100,000

41. What is the inventory on April 30?

A. 1,428,000 C. 1,464,000
B. 1,440,000 D. 1,476,000

42. What is the fire loss to be recognized on April 30?

A. 1,200,000 C. 1,340,000
B. 1,300,000 D. 1,440,000

Retail Method
Conservative retail inventory method
43. On December 31, 2014, Huff Company provided the following information:
Cost Retail
Inventory, January 1 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markups - 210,000
Available for sale 4,900,000 7,000,000
Sales for the year totaled P5,530,000. Markdowns amounted to P70,000. Under the
approximate lower of average cost or marked retail method, what is the inventory on
December 31,2014?
A. 980,000 C. 1,400,000
B. 1,078,000 D. 1,540,000 PA 1 © 2014

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 FINANCIAL ACCOUNTING

44. Bouquet Company used the conventional retail inventory method to account for inventory.
Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markup 400,000
Net markdown 600,000
Sales 7,800,000
What amount should be reported as cost of sales?
A. 4,800,000 C. 5,200,000
B. 4,875,000 D. 5,250,000 FA © 2014

45. Sublime Company showed the following information on December 31, 2014.
Cost Retail
Inventory, January 1 280,000 700,000
Sales 5,000,000
Purchases 2,480,000 5,160,000
Freight in 75,000 ,
Markup 500,000
Markup cancelation 60,000
Markdown 250,000
Markdown cancelation 50,000
Estimated normal shrinkage is 2% of sales.
The entity used the retail inventory method in estimating the value of its inventory. What is
the estimated cost of inventory on December 31, 2014 at approximate lower of average cost
and net realizable value?
A. 450,000 C. 495,000
B. 460,000 D. 506,000 FA © 2014

46. Carmela Company used the conservative retail inventory method. The following
information relating to the inventory was gathered at year-end:
Cost Retail
Beginning inventory 530,000 900,000
Purchases 6,080,000 8,700,000
Purchase discounts 85,000
Freight in 105,000
Markups 600,000
Markdowns 800,000
Sales 8,600,000
Sales discounts 100,000

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 Inventory – Cost Estimation

What is the ending inventory at year-end?

A. 520,000 C. 585,000
B. 568,000 D. 800,000 FA © 2014

Average cost retail method

47. Domicile Company had the following amounts all at retail:
Beginning inventory 180,000 Purchases 6,000,000
Purchase return 300,000 Net markup 900,000
Abnormal shortage 200,000 Net markdown 140,000
Sales 3,600,000 Sales return 90,000
Employee discounts 80,000 Normal shortage 130,000
What is the ending inventory at retail?
A. 2,720,000 C. 2,880,000
B. 2,800,000 D. 2,920,000 FA © 2014

48. Fainthearted Company provided the following information for the current year:
Cost Retail
Beginning inventory 750,000 1,000,000
Purchases 4,150,000 5,800,000
Additional markup - 200,000
Available for sale 4,900,000 7,000,000
Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the average
cost approach in applying the retail method, what is the inventory at year-end?
A. 980,000 C. 1,050,000
B. 994,000 D. 1,400,000 FA © 2014

49. Dean Company used the retail inventory method to estimate inventory. Data relating
to the inventory computation on December 31,2014 are as follows:
Cost Retail
Inventory, January 1 720,000 1,000,000
Purchases 4,080,000 6,300,000
Net markups 700,000
Sales 6,820,000
Estimated normal shoplifting losses 80,000
Net markdowns 500,000
Under the average cost retail method, what is the estimated inventory on December 31,
2014?
A. 360,000 C. 408,000
B. 384,000 D. 600,000 PA 1 © 2014

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 FINANCIAL ACCOUNTING

50. Abscond Company used the retail inventory method to estimate inventory for interim
statement purposes. Data relating to the computation of the inventory on December 31, 2014
are as follows:
Cost Retail
Inventory, January 1 720,000 1,000.000
Purchases 4,080,000 6,300,000
Markup 700,000
Markdown 500,000
Sales 5,900,000
Normal shoplifting losses 100,000
Under the average cost approach, what is the estimated cost of inventory on December 31,
2014?
A. 900,000 C. 1,024,000
B. 960,000 D. 1,500,000 FA © 2014

51. Caramel Company used the average retail inventory method. On December 31, 2014, the
following information relating to the inventory was gathered:
Cost Retail
Inventory, January 1 190,000 450,000
Purchases 2,990,000 4,350,000
Purchase discounts 40,000
Freight in 150,000
Markups 300,000
Markdowns 400,000
Sales 4,400,000
Sales return 100,000
Sales discount 50,000
Sales allowance 30,000
What is the estimated cost of the inventory on December 31,2014?
A. 245,000 C. 315,000
B. 280,000 D. 400,000 PA 1 © 2014

52. Diane Company showed the following information on December 31,2014:

Cost Retail
Inventory, January 1 560,000 1,400,000
Sales 10,000,000
Purchases 4,960,000 10,320,000
Freight in 150,000
Markup 1,000,000

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 Inventory – Cost Estimation

Markup cancelation 120,000

Markdown 500,000
Markdown cancelation 100,000
Estimated normal shrinkage is 2.5% of sales.
Diane used the average cost retail inventory method in estimating the value of
inventory. What is the estimated cost of inventory on December 31,2014?
A. 460,000 C. 897,000
B. 877,500 D. 990,000 PA 1 © 2014

53. On January 1, 2014, the stock inventory of Ron Company was P1,000,000 at retail and
P560,000 at cost. During the current year, the entity registered the following purchases:
Cost 4,000,000
Retail price 6,200,000
Original markup 2,200,000
The total net sales was P5,400,000. The following reductions were made in the retail price:
To meet price competition 50,000
To dispose of overstock 30,000
Miscellaneous reductions 120,000
During the current year, the selling price of a certain inventory increased from P200 to P300.
This additional markup applied to 5,000 items but was later canceled on the remaining 1,000
items. What is the inventory on December 31,2014 using the average cost retail method?
A. 1,200,000 C. 2,000,000
B. 1,240,000 D. 2,400,000 FA © 2014

54. Airborne Company used the average cost retail inventory method. The entity provided the
following information for the year ended December 31,2014.
Cost Retail
Inventory - January 1 1,650,000 2,200,000
Net purchases 3,725,000 4,950,000
Departmental transfer - credit 200,000 300,000
Net markup 150,000
Inventory shortage - sales price 100,000
Employee discounts 200,000
Sales (including sales of P400,000 of items which
were marked down from P500,000) 4,000,000
What is the estimated cost of inventory on December 31,2014?
A. 1,924,000 C. 2,250,000
B. 1,950,000 D. 2,600,000 PA 1 © 2014

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55. Hutch Company used the average cost retail inventory method to account for inventory. The
following information related to operations for the current year:

Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markups 400,000
Net markdowns 600,000
Sales 7,800,000
What amount should be reported as cost of sales for the current year?
A. 4,800,000 C. 5,200,000
B. 4,875,000 D. 5,250,000 PA 1 © 2014

56. Bizarre Company had always inventoried finished goods at selling price and prepared the
following statement on this basis:
Sales 1,400,000
Raw materials used at cost 500,000
Labor 600,000
Overhead 240,000
Total 1,340,000
Work in process at cost:
January 1 612,000
December 31 752,000 140,000
Cost of goods manufactured 1,200,000
Finished goods at selling price:
January 1 240,000
December 31 840,000 600,000 600,000
Gross income 800,000
What is the cost of goods sold?
A. 200,000 C. 600,000
B. 500,000 D. 840,000 PA 1 © 2014

FIFO retail method

57. Union Company used the FIFO retail method of inventory valuation. The entity
provided the following information for the current year:

Cost Retail
Beginning inventory 600,000 1,500,000
Purchases 3,000,000 5,500,000
Net additional markups 500,000

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 Inventory – Cost Estimation

Net markdowns 1,000,000

Sales revenue 4,500,000

What is the estimated cost of ending inventory?

A. 960,000 C. 1,040,000
B. 1,000,000 D. 1,200,000 FA © 2014

58. Groom Company used the LIFO retail method of inventory valuation. The entity provided
the following information for the current year:
Cost Retail
Inventory - January 1 1,200,000 1,500,000
Net purchases 4,200,000 5,900,000
Net markups 200,000
Net markdowns 100,000
Net sales 5,500,000
What is the estimated cost of ending inventory?
A. 1,400,000 C. 1,460,000
B. 1,440,000 D. 1,550,000 PA 1 © 2014

59. Emeritus Company which used the FIFO retail inventory method provided the following
information for the current year:
Cost Retail
Beginning inventory 1,200,000 1,800,000
Purchases 5,600,000. 7,200,000
Freight in 400,000
Net markup 1,400,000
Net markdown 600,000
Sales 7,600,000
What is the cost of goods sold for the current year?
A. 4,350,000 C. 5,594,000
B. 5,550,000 D. 5,682,000 FA © 2014

Net Realizable Value

60. Oligarchy Company has a partially-completed inventory with the following data:
Production costs incurred to date 2,900,000
Production costs to complete 2,000,000
Transport costs to customer 300,000
Future selling costs 400,000
Selling price 2,800,000

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What is the net realizable value of the inventory?

A. 100,000 C. 2,100,000
B. 400,000 D. 2,800,000 FA © 2014

Lower Of Cost And Net Realizable Value

Work in process
61. Based on a physical inventory at year-end, Cherry Company determined the chocolate
inventory on a FIFO basis at P2,600,000 with a replacement cost of P2,500,000. Cherry
Company estimated that, after further processing costs of Pi,200,000, the chocolate could be
sold as finished candy bars for P4,000,000. The normal profit margin is 10% of sales.
Under the lower of cost and net realizable value, what amount should be reported as
chocolate inventory in the year-end statement of financial position?
A. 2,400,000 C. 2,600,000
B. 2,500,000 D. 2,800,000 FA © 2014

62. Based on a physical inventory taken on December 31,2014, Chewy Company determined
the chocolate inventory on a FIFO basis at P5,200,000 with a replacement cost of
P4,000,000. The entity estimated that, after further processing costs of P2,400,000, the
chocolate could be sold as finished candy bars for P8,000,000. The normal profit margin is
10% of sales. Using the measurement at the lower of cost and net realizable value, what
amount should be reported as chocolate inventory on December 31,2014?
A. 4,000,000 C. 5,200,000
B. 4,800,000 D. 5,600,000 PA 1 © 2014

63. Gracia Company used the lower of cost or net realizable value method to value inventory.
Data regarding the items in work in process inventory are presented below:
Markers Pens Highlighters
Historical cost 240,000 188,000 300,000
Selling price 360,000 250,000 360,000
Estimated cost to complete 48,000 50,000 68,000
Replacement cost 208,000 168,000 318,000
Normal profit margin as a percentage of selling price 25% 25% 10%
What is the measurement of the work in process inventory?
A. 676,000 C. 720,000
B. 694,000 D. 728,000 FA © 2014

Finished goods
64. Matrimony Company determined the year-end inventory on a FIFO basis at P4,000,000. The
entity provided the following information pertaining to the inventory:

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 Inventory – Cost Estimation

Estimated selling price 4,050,000

Estimated cost of disposal 200,000
Normal profit margin 500,000
Current replacement cost 3,500,000
The entity measured inventory at the lower of cost and net realizable value. What is the
carrying amount of the inventory at year-end?
A. 3,350,000 C. 3,850,000
B. 3,500,000 D. 4,000,000 FA © 2014
65. Winter Company provided the following inventory data at year-end:
Cost NRV
Skis 2,200,000 2,500,000
Boots 1,700,000 1,500,000
Ski equipment 700,000 800,000
Ski apparel 400,000 500,000
What amount should be reported as inventory at year-end?
A. 4,800,000 C. 5,200,000
B 5,000,000 D. 5,300,000 PA 1 © 2014

66. Gatekeeper Company has two products with cost and selling price as follows:
Product X Product Y
Selling price 2,000,000 3,000,000
Estimated selling cost 600,000 700,000
Materials and conversion cost 1,500,000 1,800,000
General administration cost 300,000 800,000
At year-end, the manufacture of inventory has been completed but no selling cost has yet
been incurred. The inventory shall be measured at what amount?
A. 3,200,000 C. 3,700,000
B. 3,300,000 D. 3,800,000 FA © 2014

67. Chicago Company has two products in the inventory.

Product X Product Y
Selling price 2,000,000 3,000,000
Materials and conversion costs 1,500,000 1,800,000
General administration costs 300,000 800,000
Estimated selling costs 600,000 700,000
At the year-end, the manufacture of items of inventory has been completed but no selling
costs have yet been incurred. What is the measurement of Product X and Y, respectively?
A. 1,400,000 and 1,800,000 C. 1,500,000 and 1,800,000
B. 1,400,000 and 2,300,000 D. 1,500,000 and 2,300,000 PA 1 © 2014

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 FINANCIAL ACCOUNTING

68. Starstruck Company is a retailer of Italian furniture and has five major product lines. At year-
end, the entity provided the following inventory data:
Units Unit cost NRV per unit
Sofas 100 1,000 1,020
Dining tables 200 500 450
Beds 300 1,500 1,600
Closets 400 750 770
Lounge chairs 500 250 200
What is the inventory at year-end using the lower of cost and net realizable value?
A. 1,040,000 C. 1,998,000
B. 1,075,000 D. 2,033,000 FA © 2014

Loss on inventory writedown

69. On December 31,2014, Julie Company reported ending inventory at P3,000,000, and the
allowance for inventory writedown before any adjustment at P150,000. Relevant information
on December 31,2014 follows:
Product 1 Product 2 Product 2 Product 3
Historical cost 800,000 1,000,000 700,000 500,000
Replacement cost 900,000 1,200,000 1,000,000 600,000
Sales price 1,200,000 1,300,000 1,250,000 1,000,000
Net realizable value 550,000 1,100,000 950,000 350,000
Normal profit 250,000 150,000 300,000 300,000
What amount of loss on inventory writedown should be included in cost of goods sold?
A. 100,000 C. 250,000
B. 200,000 D. 400,000 PA 1 © 2014

Cost of goods sold

70. Greece Company provided the following data for the current year:
Inventory - January 1:
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory - December 31:
Cost 4,000,000
Net realizable value 3,700,000
What amount should be reported as cost of goods sold?
A. 7,000,000 C. 7,200,000
B. 7,100,000 D. 7,300,000 PA 1 © 2014

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 Inventory – Cost Estimation

71. Uptown Company used the perpetual method to record inventory transactions for 2014.
Inventory 1,900,000
Sales 6,500,000
Sales return 150,000
Cost of goods sold 4,600,000
Inventory losses 120,000
On December 24,2014, the entity recorded a P150,000 credit sale of goods costing
P100,000. These goods were sold on FOB destination terms and were in transit on December
31,2014. The goods were included in the physical count. The inventory on December 31,2014
determined by physical count had a cost of P2,000,000 and a net realizable value of
P1,700,000. Any inventory writedown is not yet recorded. What amount should be reported
as cost of goods sold for 2014?
A. 4,500,000 C. 4,920,000
B. 4,720,000 D. 5,020,000 PA 1 © 2014

72. Altis Company reported the following information for the current year:
Sales (100,000 units at P150) 15,000,000
Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000
The inventory purchases during the year were as follows:
Units Unit cost Total cost
Beginning inventory, January 1 20,000 60 1,200,000
Purchases, quarter ended March 31 30,000 65 1,950,000
Purchases, quarter ended June 30 40,000 70 2,800,000
Purchases, quarter ended Sept. 30 50,000 75 3,750,000
Purchases, quarter ended Dec. 31 10,000 80 800,000
150,000 10,500,000
The accounting policy is to report inventory in the financial statements at the lower of cost
and net realizable value. Cost is determined under the first-in, first-out method. The entity
has determined that, on December 31,2014, the replacement cost of inventory was P70 per
unit and the net realizable value was P72 per unit. The normal profit margin is P10 per unit.
What amount should be reported as cost of goods sold for the current year?
A. 6,300,000 C. 6,700,000
B. 6,500,000 D. 6,900,000 PA 1 © 2014

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 FINANCIAL ACCOUNTING

Adjusting entry
73. In 2014, North Company experienced a decline in the value of inventory resulting in a
writedown from P3,600,000 to P3,000,000. The entity used the allowance method to record
the necessary adjustment. In 2015, market conditions have improved dramatically. On
December 31,2015, the inventory had a cost of P5,000,000 and net realizable value of
P4,600,000. What is included in the adjusting entry on December 31, 2015?
A. Debit allowance for inventory writedown P200,000
B. Credit allowance for inventory writedown P400,000
C. Debit gain on reversal of inventory writedown P200,000
D. Credit gain on reversal of inventory writedown P400,000

Comprehensive
Questions 1 thru 3 are based on the following information.
White Company carried four items in inventory. The following per-unit data relate to these items at
the end of first year of operations:

Units Cost Sale price Selling cost Normal profit

Category 1:
A 25,000 105 130 15 20
B 20,000 85 90 10 10
Category 2:
C 40,000 50 45 5 5
D 30,000 65 75 15 10

74. What is the measurement of inventory under LCNRV applied to individual item?
A. 7,625,000 C. 7,875,000
B. 7,725,000 D. 8,275,000

75. What is the measurement of inventory under LCNRV applied to inventory category?
A. 7,625,000 C. 7,875,000
B. 7,725,000 D. 8,275,000

76. What is the measurement of inventory under LCNRV applied to inventory as a whole?
A. 7,625,000 C. 7,875,000
B. 7,725,000 D. 8,275,000

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 Inventory – Cost Estimation

Purchase commitment
77. On October 1, 2014, Gorgeous Company entered into a 6-month, P5,200,000 purchase
commitment for a supply of a special product. On December 31,2014, the market value of
this material had fallen to P5,000,000.On March 31, 2015, the market value of the purchase
commitment is P4,900,000. What is the loss on purchase commitment to be recognized on
March 31,2015?
A. 0 C. 200,000
B. 100,000 D. 300,000 FA © 2014

78. On December 31, 2014, Dos Company has outstanding purchase commitments for 50,000
gallons at P20 per gallon of raw material. It is determined that the market price of the raw
material has declined to P17 per gallon on December 31,2014 and it is expected to decline
further to P15 in the first quarter of 2015. What is the loss on purchase commitment that
should be recognized in 2014?
A. 0 C. 250,000
B 150,000 D. 850,000 PA 1 © 2014

79. On January 1,2014, Card Company signed a three-year, noncancelable purchase contract,
which allows Card to purchase up to 5,000 units of a computer part annually from Hart
Company at P100 per unit and guarantees a minimum annual purchase of 1,000 units. During
2014, the part unexpectedly became obsolete. Card had 2,500 units of this inventory on
December 31,2014, and believed these parts can be sold as scrap for P20 per unit. What
amount of loss from the purchase commitment should be reported in the 2014 income
statement?
A. 160,000 C. 240,000
B. 200,000 D. 360,000 FA © 2014

80. On November 15, 2014, Diamond Company entered into a commitment to purchase 10,000
ounces of gold on February 15,2015 at a price of P310 per ounce. On December 31, 2014,
the market price of gold is P270 per ounce. On February 15,2015, the price of gold is P300
per ounce. What is the gain on purchase commitment to be recognized on February 15,2015?
A. 0 C. 300,000
B. 100,000 D. 400,000 FA © 2014

81. On November 15, 2014, Damascus Company entered into a commitment to purchase
100,000 barrels of aviation fuel for P55 per barrel on March 31, 2015. The entity entered into
this purchase commitment to protect itself against the volatility in the aviation fuel market. By
December 31,2014 the purchase price of aviation fuel had fallen to P40 per barrel. However,
by March 31, 2015, when the entity took delivery of the 100,000 barrels the price of aviation

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 FINANCIAL ACCOUNTING

fuel had risen to P60 per barrel. What amount should be recognized as gain on purchase
commitment for 2015?
A. 0 C. 1,500,000
B. 500,000 D. 2,000,000 PA 1 © 2014

MCQ – Problems: Biological Assets

Inventories
82. Colombia Company is a producer of coffee. The entity is considering the valuation of
harvested coffee beans. Industry practice is to value the coffee beans at market value and
uses as reference a local publication "Accounting for Successful Farms".
On December 31, 2014, the entity has harvested coffee beans costing P3,000,000 and with
fair value less cost of disposal of P3,500,000 at the point harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans
were still on hand on December 31, 2015. On such date, the fair value less cost of disposal
is P3,900,000 and the net realizable value is P3,200,000.
What is the measurement of the coffee beans inventory on December 31,2015?
A. 3,000,000 C. 3,500,000
B. 3,200,000 D. 3,900,000 P1 © 2014

Biological assets
83. Forester Company has reclassified certain assets as biological assets. The total value of the
forest assets is P6,000,000 which comprises:
Freestanding trees 5,100,000
Land under trees 600,000
Roads in forests 300,000
6,000,000
In the statement of financial position, what total amount of the forest assets should be
classified as biological assets?
A. 5,100,000 C. 5,700,000
B. 5,400,000 D. 6,000,000 P1 © 2014

84. Africa Company purchased 2,000 llamas at the beginning of current year. These llamas will
be sheared semiannually and their wool sold to specialty clothing manufacturers. The llamas
were purchased for P5,000,000. During the current year, the change in fair value due to
growth and price changes is P350,000, the wool harvested but not yet sold is valued at net
realizable value of P100,000, and the decrease in fair value due to harvest is P50,000. What
is the carrying amount of the biological asset at year-end?
A. 5,100,000 C. 5,350,000
B. 5,300,000 D. 5,400,000 FA © 2014

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 Biological Assets

85. Salve Company is engaged in raising dairy livestock. Information regarding activities relating
to the dairy livestock during the current year is as follows:
Carrying amount on January 1 5,000,000
Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal
attributable to price change 400,000
Gain arising from change in fair value less cost of disposal
attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31 ?
A. 6,000,000 C. 7,150,000
B. 6,950,000 D. 8,000,000 P1 © 2014

Comprehensive
Questions 86 & 87 are based on the following information. P1 © 2014
Joan Company provided the following data:
Value of biological asset at acquisition cost on Dec. 31,2014 600,000
Fair valuation surplus on initial recognition at fair value on Dec. 31,2014 700,000
Change in fair value to December 31, 2015 due to growth and price fluctuation 100,000
Decrease in fair value due to harvest 90,000

86. What is the carrying amount of the biological asset on December 31, 2015?
A. 1,300,000 C. 1,400,000
B. 1,310,000 D. 1,490,000

87 What is the gain from change in fair value of biological asset that should be reported in the
2015 income statement?
A. 10,000 C. 710,000
B. 100,000 D. 800,000

Questions 88 & 89 are based on the following information. FA © 2014

Righteous Company provided the following data:
Value of biological asset at acquisition cost on December 31, 2014 6,000,000
Fair valuation surplus on initial recognition at fair value on December 31, 2014 500,000
Change in fair value on December 31, 2015 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest 100,000

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 FINANCIAL ACCOUNTING

88. What is the carrying amount of the biological asset on December 31, 2015?
A. 6,500,000 C. 7,400,000
B. 7,300,000 D. 7,500,000

89. What amount of net gain from the change in fair value of biological asset should be reported
in 2015?
A. 800,000 C. 1,300,000
B. 900,000 D. 1,400,000

Questions 90 & 91 are based on the following information. P1 © 2014

Bear Company produces milk for sale to local and national ice cream producers. The entity began
operations on January 1, 2014 by purchasing 650 milk cows for P8,000,000. The entity had the
following information available at year-end relating to the cows:
Acquisition cost, January 1,2014 8,000,000
Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest 250,000
Milk harvested during 2014 but not yet sold 400,000

90. What amount of gain on change in fair value should be recognized for biological asset in
2014?
A. 2,250,000 C. 2,650,000
B. 2,500,000 D. 2,900,000
91. What amount of gain on change in fair value should be reported for agricultural produce in
2014?
A. 0 C. 400,000
B. 150,000 D. 2,250,000

Questions 92 & 93 are based on the following information. FA © 2014

Legend Dairy produced milk for local ice cream producers. The entity began operations at the
beginning of current year by purchasing milking cows for P2,000,000. The entity provided the
following information at year-end relating to the milking cows:
Carrying amount - January 1 2,000,000
Change in fair value due to growth and price change 400,000
Decrease in fair value due to harvest 50,000
Milk harvested during the year but not yet sold 150,000

92. What amount of net gain on biological asset should be reported in the current year?
A. 350,000 C. 550,000
B. 400,000 D. 600,000

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 Biological Assets

93. What amount of gain on agricultural produce should be recognized in the current year?
A. 100,000 C. 350,000
B. 150,000 D. 400,000

Questions 94 & 95 are based on the following information. P1 © 2014

Dairy Company provided the following information for the year ended December 31,2014:
Cash 500,000
Trade and other receivables 1,500,000
Inventories 100,000
Dairy livestock - immature 50,000
Dairy livestock - mature 400,000
Property, plant and equipment, net 1,400,000
Trade and other payables 520,000
Note payable - long-term 1,500,000
Share capital 1,000,000
Retained earnings - January 1 800,000
Fair value of milk produced 600,000
Gain from change in fair value 50,000
Inventories used 140,000
Staff costs 120,000
Depreciation expense 15,000
Other operating expenses 190,000
Income tax expense 55,000

94. What is the net income for 2014?

A. 130,000 C. 600,000
B. 185,000 D. 650,000

95. What is the fair value of biological assets on December 31, 2014?
A. 400,000 C. 500,000
B. 450,000 D. 550,000

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 FINANCIAL ACCOUNTING

Questions 96 thru 98 are based on the following information. P1 © 2014

Honey Company has a herd of 10 2-year old animals on January 1, 2014. One animal aged 2.5
years was purchased on July 1,2014 for PI08, and one animal was born on July 1, 2014. No
animals were sold or disposed of during the year. The fair value less cost of disposal per unit is as
follows:
2 - year old animal on January 1 100
2.5-year old animal on July 1 108
New born animal on July 1 70
2 - year old animal on December 31 105
2.5 - year old animal on December 31 111
Newborn animal on December 31 72
3 - year old animal on December 31 120
0.5 - year old animal on December 31 80

96. What is the fair value of the biological assets on December 31, 2014?
A. 1,320 C. 1,400
B. 1,360 D. 1,440

97. What is the gain from change in fair value of biological assets that should be recognized in
2014?
A. 222 C. 300
B. 292 D. 332

98. What is the gain from change in fair value due to price change?
A. 55 C. 237
B. 222 D. 292

Questions 99 thru 101 are based on the following information. FA © 2014

Temerity Company has different kinds of farm animals on January 1, 2014. During the current
year, several acquisitions occurred related to these farm animals. A detailed summary of these
transactions is as follows:
Carrying amount on January 1:
15 Horses (1 year old) 1,000,000
10 Dairy cattle (2 years old) 400,000
8 Carabaos (2.5 years old) ' 200,000
20 Hogs (3 years old) 500,000
Purchases on June 30:
4 Dairy cattle (1 year old) 150,000
6 Carabaos (6 months old) 100,000

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 Biological Assets

Fair value less cost of disposal on December 31:

15 Horses (1 year old) 1,200,000
10 Dairy cattle (2 years old) 520,000
8 Carabaos (2.5 years old) 250,000
20 Hogs (3 years old) 550,000
4 Dairy cattle (1 year old) 170,000
6 Carabaos (6 months old) 110,000
Fair value less cost of disposal on December 31:
15 Horses (2 years old) 1,350,000
10 Dairy cattle (3 years old) 580,000
8 Carabaos (3.5 years old) 290,000
20 Hogs (4 years old) 600,000
4 Dairy cattle (1.5 years old) 200,000
6 Carabaos (1 year old) 140,000
There were no farm animals sold during the year and neither were there any newborns nor deaths.

99. What is the carrying amount of the biological assets on December 31?
A. 2,350,000 C. 2,800,000
B. 2,380,000 D. 3,160,000

100. What is the gain from change in fair value attributable to price change?
A. 0 C. 450,000
B. 360,000 D. 810,000

101. What is the gain from change in fair value attributable to physical change?
A. 360,000 C. 700,000
B. 450,000 D. 810,000

Questions 102 thru 106 are based on the following information. P1 © 2014
Farmland Company produces milk on its farms. The entity produces 20% of the community's milk
that is consumed. Farmland Company owns 5 farms and had a stock of 2,100 cows and 1,050
heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000
kilograms of milk. However, on December 31,2014 the entity is currently holding 50,000 kilograms
of milk in powder. On December 31,2014, the biological assets are:

Purchased before January 1, 2014 (3 years old) 2,100 cows

Purchased on January 1,2014 (2 years old) 300 heifers
Purchased on July 1,2014 (1.5 years old) 750 heifers

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 FINANCIAL ACCOUNTING

No animals were born or sold during the current year. The unit fair value less cost of disposal is as
follows.

January 1, 2014: 1-year old 3,000

2-year old 4,000
July 1,2014: 1-year old 3,000
December 31, 2014: 1-year old 3,200
2-year old 4,500
1.5-year old 3,600
3-year old 5,000
The entity has had problems during the year. Contaminated milk was sold to customers. As a result,
milk consumption has gone down.
The entity's business is spread over different parts of the country. The only region affected by the
contamination was Batangas. However, the cattle in this area were unaffected by the contamination
and were healthy. The entity feels that it cannot measure the fair value of the cows in the region
because of the problems created by the contamination. There are 600 cows and 200 heifers in the
Batangas farm and all these animals had been purchased on January 1, 2014.

102. What is the fair value of biological assets on January 1, 2014?

A. 7,200,000 C. 9,300,000
B. 8,400,000 D. 9,600,000

103. What is the fair value of biological assets purchased on July 1, 2014?
A. 2,250,000 C. 3,375,000
B. 3,000,000 D. 3,750,000

104. What is the fair value of biological assets on December 31, 2014?
A. 11,850,000 C. 15,225,000
B. 14,550,000 D. 15,750,000

105. What is the increase in fair value of biological assets on December 31, 2014?
A. 3,000,000 C. 5,250,000
B. 4,950,000 D. 6,150,000

106. What is the increase in fair value of biological assets due to physical change?
A. 1,260,000 C. 1,740,000
B. 1,440,000 D. 3,000,000

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 Inventory – Cost Estimation & Biological Assets

ANSWER KEY THEORY

1.D 26.B 51.D
2.C 27.D 52.D
3.D 28.B 53.D
4.B 29.B 54.D
5.D 30.A 55.C
6.A 31.B 56.B
7.B 32.C 57.A
8.D 33.A 58.C
9.D 34.D 59.D
10.C 35.B 60.D
11.C 36.C
12.D 37.D
13.D 38.C
14.B 39.D
15.C 40.A
16.B 41.C
17.D 42.B
18.A 43.A
19.B 44.D
20.D 45.C
21.C 46.D
22.C 47.A
23.B 48.A
24.A 49.A
25.A 50.A

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FINANCIAL ACCOUNTING

ANSWER KEY PROBLEMS

1.C 26.B 51.B 76.A 101.A
2.C 27.A 52.C 77.B 102.C
3.C 28.D 53.B 78.B 103.A
4.C 29.A 54.B 79.B 104.B
5.B 30.A 55.C 80.C 105.A
6.A 31.A 56.D 81.C 106.C
7.A 32.B 57.D 82.B
8.B 33.C 58.D 83.A
9.A 34.A 59.B 84.B
10.C 35.A 60.A 85.B
11.C 36.C 61.C 86.B
12.A 37.B 62.C 87.A
13.B 38.B 63.C 88.B
14.D 39.C 64.C 89.A
15.B 40.D 65.A 90.A
16.A 41.B 66.A 91.C
17.B 42.A 67.A 92.A
18.A 43.A 68.A 93.B
19.A 44.D 69.C 94.A
20.D 45.A 70.B 95.B
21.D 46.A 71.C 96.C
22.D 47.A 72.B 97.B
23.B 48.B 73. 98.A
24.D 49.B 74. 99.D
25.C 50.B 75. 100.C

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 Inventory – Cost Estimation & Biological Assets

ANSWER EXPLANATION

1. Answer is (C).
Sales 480,000 / 12% 100% 4,000,000
Cost of sales 15% / 25% 60%
Selling expense 10%
Administrative expenses 15%
Bad debts 3%
Net income 12% 480,000

2. Answer is (C).
Sales 9,600,000
Cost of sales (9,600,000 / 125%) 7,680,000
Gross profit 1,920,000

3. Answer is (C).
Goods available for sale (5,500,000 + 4,300,000 - 200,000) 9,600,000
Cost of goods sold (7,500,000 /125%) (6,000,000)
Inventory - March 31 3,600,000

4. Answer is (C).
Goods available for sale (5,500,000 + 4,300,000 - 200,000) 9,600,000
Cost of goods sold (7,500,000 /125%) (6,000,000)
Inventory - March 31 3,600,000

5. Answer is (B).
Inventory – January 1 650,000
Purchases 3,200,000
Freight-in 50,000
Total 3,250,000
Less: Purchase returns 75,000 3,175,000
Goods available for sale 3,825,000
Less: Cost of sales (4,500,000 x 60%) 2,700,000
Inventory – March 31 1,125,000

6. Answer is (A).
Goods available for sale (2,500,000 + 7,500,000) 10,000,000
Cost of goods sold (15,000,000/166 2/3%) (9,000,000)

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 FINANCIAL ACCOUNTING

Inventory - October 31 1,000,000

Undamaged inventory ( 150,000)
Inventory destroyed by fire 850,000

7. Answer is (A).
Cost ratio (560,000 / 800,000) 70%
Inventory – January 1 200,000
Net purchases (100,000 + 4,000 – 6,000) 98,000
Goods available for sale 298,000
Cost of sales (70% x 320,000) 224,000
Inventory – June 30 74,000
Inventory in showroom (10% x 200,000 + 8,000) 28,000
Fire loss 46,000

8. Answer is (B).
Net sales in 2013 8,000,000
Less: Cost of sales:
Beginning inventory 2,000,000
Net purchases in 2013 4,800,000
Goods available for sale 6,800,000
Less: Ending inventory 1,200,000 5,600,000
Gross profit 2,400,000
Gross profit rate (2,400,000/8,000,000) 30%
Inventory, January 1, 2014 1,200,000
Net purchases – 2014 4,960,000
Goods available for sale 6,160,000
Less: Cost of sales
Sales 7,880,000
Less: Sales return & allowances 80,000
Net sales 7,800,000
Cost of sales (7,800,000 x 70%) 5,460,000
Estimated value of ending inventory 700,000
Less: Cost of inventory not stolen 100,000
Estimated cost of stolen inventory 600,000

9. Answer is (A).
Raw materials – January 1 300,000
Purchases 1,000,000
Freight in 100,000 1,100,000

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 Inventory – Cost Estimation & Biological Assets

Raw materials available for use 1,400,000

Less: Raw materials – December 31 600,000
Raw materials used 800,000
Direct labor 800,000
Manufacturing overhead (50% x 800,000) 400,000
Total manufacturing cost 2,000,000
Add: Goods in process – January 1 1,000,000
Total goods in process 3,000,000
Less: Goods in process – December 31 (squeeze) 1,300,000
Cost of goods manufactured 1,700,000
Add: Finished goods – January 1 1,400,000
Goods available for sale 3,100,000
Les: Finished goods – December 31 1,000,000
Cost of sales (70% x 3,000,000) 2,100,000
The amount of goods in process on December 31 is computed as simply working back.

10. Answer is (C).

Sales – 2013 6,000,000
Cost of sales:
Net purchases 5,500,000
Less: Inventory – December 31, 2013 1,000,000 4,500,000
Gross income 1,500,000
Rate in 2013 (1,500,000 / 6,000,000) = 25%
Rate in 2014 (25% + 5%) = 30%

Inventory – January 1, 2014 1,000,000

Net purchases – 2014 7,500,000
Goods available for sale 8,500,000
Less: Cost of sales (9,000,000 x 70%) 6,300,000
Inventory – December 31, 2014 2,200,000
Less: Undamaged merchandise (500,000 x 70%) 350,000
Realizable value of damaged merchandise 10,000 360,000
Fire loss 1,840,000

11. Answer is (C).

Average gross profit rate (2,250,000/9,000,000) 25%

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 FINANCIAL ACCOUNTING

Inventory - January 1 660,000

Net purchases 4,240,000
Goods available for sale 4,900,000
Cost of sales (5,600,000 x 75%) (4,200,000)
Inventory - September 30 700,000
Less: Undamaged goods (60,000 x 75%) 45,000
Realizable value of damaged goods 25,000 70,000
Fire loss 630,000

12. Answer is (A).

Net sales 2012 and 2013 7,400,000
Cost of sales:
Inventory - January 1,2012 848,000
Net purchases 2012 and 2013 5,372,000
Goods available for sale 6,220,000
Inventory - December 31,2013 (1,040,000) 5,180,000
Gross profit 2,220,000
Average gross profit rate (2,220,000/7,400,000) 30%
Inventory - January 1,2014 1,040,000
Net purchases - 2014 3,360,000
Goods available for sale 4,400,000
Cost of sales (70% x 4,000,000) (2,800,000)
Inventory - December 31, 2014 1,600,000
Fire loss (50% x 1,600,000) 800,000

13. Answer is (B).

Sales – 2012 and 2013 7,400,000
Cost of sales:
Inventory – 1/1/2012 850,000
Purchases – 2012 and 2013 5,370,000
Goods available for sale 6,220,000
Less: Inventory – 12/31/2013 1,040,000 5,180,000
Gross income 2,220,000
Average rate (2,220,000 / 7,400,000) 30%
Inventory – 1/1/2014 1,040,000
Purchases – 2014 4,360,000
Goods available for sale 5,400,000
Les: Cost of sales (5,000,000 x 705) 3,500,000
Inventory – 12/31/2014 1,900,000

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 Inventory – Cost Estimation & Biological Assets

Less: Goods consigned (300,000 x 70%) 210,000

Goods in transit 190,000 400,000
Fire loss 1,500,000

14. Answer is (D).

Inventory – January 1 6,600,000
Purchases 1,000,000
Freight-in 300,000
Goods available for sale 9,900,000
Cost of good sold (7,800,000 x 70%) 5,460,000
Ending inventory destroyed 4,440,000

15. Answer is (B).

Beginning inventory 2,000,000
Net purchases 5,200,000
Goods available for sale 7,200,000
Less: Cost of sales (8,000,000 x 70%) 5,600,000
Ending inventory destroyed by fire 1,600,000
In the absence of any contrary statement, the gross profit rate is based on sales. Thus, if the
gross profit rate is 30%o on sales, the cost ratio is 70%.

16. Answer is (A).

Collections of accounts receivable 8,400,000
Accounts receivable - January 1 (700,000)
Accounts receivable - December 31 1,100,000
Sales on account 8,800,000
Cash sales 900,000
Total sales 9,700,000

Inventory - January 1 1,500,000

Purchases 5,500,000
Goods available for sale 7,000,000
Cost of goods sold (9,700,000 x 60%) (5,820,000)
Inventory - December 31 1,180,000

17. Answer is (B).

Inventory – January 1 500,000
Purchases 2,500,000
Goods available for sale 3,000,000

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 FINANCIAL ACCOUNTING

Less: Cost of sales (3,200,000 x 75%) 2,400,000

Inventory – December 31 600,000
Less: Physical inventory 500,000
Missing inventory 100,000

18. Answer is (A).

Sales 3,400,000
Sales returns ( 30,000)
Net sales 3,370,000
The sales discounts are ignored for purposes of estimating inventory under the gross profit
method.
Inventory - January 1 650,000
Purchases 2,300,000
Purchase returns (80,000)
Freight in 60,000
Goods available for sale 2,930,000
Cost of sales (70% x 3,370,000) (2,359,000)
Inventory - December 31 571,000
Physical inventory - December 31 420,000
Cost of missing inventory 151,000

19. Answer is (A).

Sales 3,400,000
Sales returns ( 30,000)
Net sales 3,370,000
The sales discounts are ignored for purposes of estimating inventory under the gross profit
method.
Inventory - January 1 650,000
Purchases 2,300,000
Purchase returns (80,000)
Freight in 60,000
Goods available for sale 2,930,000
Cost of sales (70% x 3,370,000) (2,359,000)
Inventory - December 31 571,000
Physical inventory - December 31 420,000
Cost of missing inventory 151,000

20. Answer is (D).

Cost of sales (3,640,000 / 130%) 2,800,000

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 Inventory – Cost Estimation & Biological Assets

21. Answer is (D). Cost of goods sold (7,280,000 /130%) 5,600,000

22. Answer is (D).

Sales 5,600,000
Sales returns ( 400,000)
Net sales 5,200,000
Cost of goods sold (75% x 5,200,000) 3,900,000
Like sales discounts, sales allowances are ignored in determining net sales under the gross
profit method.

23. Answer is (B).

Cost of goods sold (10% / 25%) 40%
Gross sales (2,000,000 / 40%) 5,000,000
Sales discount (100,000)
Net sales 4,900,000
Cost of goods sold (2,000,000)
Gross income 2,900,000
Administrative expenses (25% x 2,000,000) (500,000)
Selling expense (500,000 / 20%) – 500,000 (2,000,000)
Interest expense (20,000)
Net income 380,000

24. Answer is (D).

Cost of goods sold for June (7,200,000 + 720,000 = 7,920,000 /120%) 6,600,000

25. Answer is (C).

Cost of goods sold for July (7,360,000 + 800,000 = 8,160,000/120%) 6,800,000
Cost of goods sold for August (7,600,000 + 1,040,000 = 8,640,000 /120%) 7,200,000
Inventory - July 1 (30% x 6,800,000) 2,040,000
Purchases for July (SQUEEZE) 6,920,000
Goods available for sale 8,960,000
Inventory-July 31 (30% x 7,200,000) (2,160,000)
Cost of goods sold for July 6,800,000

26. Answer is (B).

Gross profit rate:
2011 (750,000 / 3,000,000) 25%
2012 (1,050,000 / 3,500,000) 30%

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 FINANCIAL ACCOUNTING

2013 (1,295,000 / 3,700,000) 35%

2014 40%
There seems to be a trend in the gross profit rate, which is a yearly increase of 5%. Thus, it
can be safely assumed that the trend continues in 2014.
Inventory – January1 500,000
Net purchases, January 1 – October 15 3,500,000
Goods available for sale 4,000,000
Less: Cost of sales:
Sales 3,840,000
Sales return & allowances (40,000)
Net sales 3,800,000
Cost of sales (3,800,000 x 60%) 2,280,000
Inventory – October 15 1,720,000
Less: Inventory not destroyed 320,000
Fire loss 1,400,000

27. Answer is (A).

Goods available for sale 4,000,000
Cost of sales (70% x 3,800,000) 2,660,000
Inventory, October 15 1,340,000
Inventory not destroyed 320,000
Fire loss 1,020,000

28. Answer is (D).

Physical inventory Purchases up to Purchases up to
May 31, 2014 May 31, 2014 June 30, 2014
Balances 950,000 6,750,000 8,000,000
a - 75,000
b - ( 10,000) ( 15,000)
c - (20,000) (20,000)
d ( 55,000) ( 55,000) -
Adjusted 895,000 6,740,000 7,965,000
Inventory - July 1,2013 875,000
Purchases up to May 31, 2014 6,740,000
Goods available for sale 7,615,000
Inventory-May 31,2014 ( 895,000)
Cost of goods sold 6,720,000
Sales up to May 31, 2014 8,400,000
Cost of goods sold 6,720,000

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 Inventory – Cost Estimation & Biological Assets

Gross profit 1,680,000

Gross profit rate (1,680,000/8,400,000) 20%

Sales for June (9,600,000-8,400,000) 1,200,000

Cost of goods sold with profit (1,100,000 x 80%) 880,000
Cost of goods sold without profit 100,000
Cost of goods sold during June 2014 980,000

29. Answer is (A).

Inventory, July 1, 2013 875,000
Purchases for year ended June 30, 2014 (as adjusted) 7,965,000
Goods available for sale 8,840,000
Less: Cost of goods sold
Sales with profit (9,500,000 x 80%) 7,600,000
Sales without profit 100,000 7,700,000
Inventory, June 30,2014 1,140,000

30. Answer is (A).

Net sales - 2014 7,500,000
Cost of sales:
Beginning inventory 1,260,000
Purchases 6,450,000
Freight in 350,000
Purchase discounts ( 90,000)
Purchase returns (120,000)
Purchase allowances ( 20,000)
Goods available for sale 7,830,000
Ending inventory (2,355,000) 5,475,000
Gross income 2,025,000

31. Answer is (A). Gross profit rate for 2014 (2,025,000/7,500,000) 27%

32. Answer is (B).

Beginning inventory - 2015 2,355,000
Purchases 3,180,000
Freight in 220,000
Purchase discounts ( 45,000)
Purchase returns (40,000)
Purchase allowances (15,000)

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 FINANCIAL ACCOUNTING

Goods available for sale 5,655,000

Cost of sales- 2015 (4,500,000 x 73%) 3,285,000
Ending inventory - 2015 2,370,000

Sales 100%
Cost of sales 73%
Gross profit rate 27%

33. Answer is (C). Cost of goods sold (70% x 3,000,000), 2,100,000

34. Answer is (A).

Finished goods - January 1 1,400,000
Cost of goods manufactured (SQUEEZE) 1,700,000
Goods available for sale 3,100,000
Finished goods-December 31 (1,000,000)
Cost of goods sold 2,100,000
The cost of goods manufactured is "squeezed" by simply working back from the cost of goods
sold.

35. Answer is (A).

Raw materials - January 1 300,000
Purchases 1,000,000
Freight in 100,000 1,100,000
Raw materials available for use 1,400,000
Raw materials - December 31 (600,000)
Raw materials used 800,000
Direct labor 800,000
Manufacturing overhead (50% x 800,000) 400,000
Total manufacturing cost 2,000,000
Goods in process - January 1 1,000,000
Total goods in process 3,000,000
Goods in process - December 31 (SQUEEZE) (1,300,000)
Cost of goods manufactured 1,700,000
The amount of goods in process on December 31,2014 is "squeezed" by simply working back
from the cost of goods manufactured.

36. Answer is (C).

Purchases = 500,000 + 1,600,000 – 400,000 = 1,700,000

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 Inventory – Cost Estimation & Biological Assets

37. Answer is (B).

Sales 440,000 + 2,640,000 – 480,000 2,600,000

38. Answer is (B).

3,200,000
Average gross profit rate = 8,000,000 = 40%

Inventory – January 1 500,000

Purchases (1,600,000 + 500,000 – 400,000) 1,700,000
Goods available for sale 2,200,000
Less: Cost of sales:
Collections 2,640,000
Accounts receivable – 12/31 440,000
Accounts receivable – 1/1 (480,000)
Sales 2,600,000
Cost of sales (2,600,000 x 60%) 1,560,000
Inventory – 12/1 640,000
Less: Goods on consignment (200,000 x 60%) 120,000
Salvage value 20,000 140,000
Fire loss 500,000

39. Answer is (C).

Accounts receivable - April 30 1,040,000
Writeoff 60,000
Collections from customers (440,000 - 20,000) 420,000
Total 1,520,000
Less: Accounts receivable - March 31 920,000
Sales for April 600,000
Sales up to March 31 3,600,000
Total sales 4,200,000

40. Answer is (D).

Accounts payable - April 30 for April shipments 340,000
Payment for April merchandise shipments 80,000
Purchases of April 420,000
Purchases up to March 31 1,680,000
Total purchases up to April 30 2,100,000

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41. Answer is (B).

Inventory - January 1 1,880,000
Purchases 2,100,000
Purchase return ( 20,000)
Goods available for sale 3,960,000
Cost of sales (4,200,000 x 60%) (2,520,000)
Inventory - April 3 0 1,440,000

42. Answer is (A).

Inventory - April 3 0 1,440,000
Goods in transit ( 100,000)
Salvage value of inventory ( 140,000)
Fire loss 1,200,000

43. Answer is (A).

Cost Retail
Available for sale 4,900,000 7,000,000
Markdowns ( 70,000)
Sales (5,530,000)
Inventory - December 31 1,400,000
Conservative cost ratio (4,900/7,000) 70%
Inventory - December 31 at cost 980,000
The approximate lower of average cost or market retail method is the same as the
conservative or conventional retail approach.

44. Answer is (D).

Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markup . 400,000
Goods available for sale 6,000,000 9,600,000
Cost ratio (6,000/9600) = 62.5%
Sales (7,800,000)
Net markdown (600,000)
Ending inventory 1,200,000
Conservative cost (1,200,000 x 62.%) 750,000
Goods available for sale 6,000,000
Less: Ending inventory 750,000
Cost of sales 5,250,000

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 Inventory – Cost Estimation & Biological Assets

45. Answer is (A).

Cost Retail
Inventory – January 1 280,000 700,000
Purchases 2,480,000 5,160,000
Freight in 75,000
Markup 500,000
Markup cancellation . (60,000)
Goods available for sale 2,835,000 6,300,000
Cost rate (2,835,000/6,300,000) = 45%
Markdown (250,000)
Markdown cancellation . 50,000
Goods available for sale – Average 2,835,000 6,100,000
Sales (5,000,000)
Shrinkage (2% x 5,000,000) (100,000)
Inventory – December 31 1,000,000
Conservative cost (1,000,000 x 45%) 450,000

46. Answer is (A).

Cost Retail
Beginning inventory 530,000 900,000
Purchases 6,080,000 8,700,000
Purchase discounts (85,000)
Freight in 105,000
Markups . 600,000
GAS - conservative 6,630,000 10,200,000
Conservative cost ratio(6,630,000 /10,200,000 = 65%)
Markdowns (800,000)
GAS - Average 6,630,000 9,400,000
Sales (8,600,000)
Ending inventory at retail 800,000
Ending inventory at cost (800,000 x 65%) 520,000

47. Answer is (A).

Beginning inventory 180,000
Purchases 6,000,000
Purchase return ( 300,000)
Net markup 900,000
Net markdown ( 140,000)
Goods available for sale at retail 6,640,000

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Less: Sales 3,600,000

Sales return (90,000)
Employee discounts 80,000
Normal shortage 130,000
Abnormal shortage 200,000 3,920,000
Ending inventory at retail 2,720,000

48. Answer is (B).

Cost Retail
Available for sale 4,900,000 7,000,000
Markdown (100,000)
Sales (5,500,000)
Inventory, December 31 1,400,000
Cost rate (4,900,000/6,900,000) = 71%
Average cost (1,400,000 x 71%) 994,000

49. Answer is (B).

Cost Retail
Inventory - January 1 720,000 1,000,000
Purchases 4,080,000 6,300,000
Net markups . 700,000
Available for sale - conservative 4,800,000 8,000,000
Cost ratio (4,800,000/8,000,000) 60%
Net markdowns . (500,000)
Available for sale - average 4,800,000 7,500,000
Cost ratio (4,800,000/7,500,000) 64%
Sales (6,820,000)
Estimated shoplifting losses (80,000)
Inventory - December 31 600,000
Conservative cost (600,000 x 60%) 360,000
Average cost (600,000 x 64%) 384,000
The requirement is the average cost approach.

50. Answer is (B).

Cost Retail
Inventory – January 1 720,000 1,000,000
Purchases 4,080,000 6,300,000
Markup 700,000

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Markdown . (500,000)
Goods available for sale 4,800,000 7,500,000
Cost ratio (4,800/7500) – 64%
Sales (5,900,000)
Normal shrinkage and breakage (100,000)
Inventory at retail 1,500,000
Average cost (1,500,000 x 64%) 960,000

51. Answer is (B).

Cost Retail
Inventory - January 1 190,000 450,000
Purchases 2,990,000 4,350,000
Purchase discounts ( 40,000)
Freight in 150,000
Markups 300,000
Markdowns . ( 400,000)
GAS-Average (cost ratio-70%) 3,290,000 4,700,000
Net sales (4,400,000 - 100,000) (4,300,000)
Ending inventory at retail 400,000
Average cost (400,000 x 70%) 280,000
Note that the sales discount and sales allowance are ignored in determining the net sales
under the retail method.

52. Answer is (C).

Cost Retail
Inventory - January 1 560,000 1,400,000
Purchases 4,960,000 10,320,000
Freight in 150,000
Markup 1,000,000
Markup cancelation . (120,000)
Available for sale - conservative 5,670,000 12,600,000
Cost ratio (5,670 / 12,600) 45%
Markdown (500,000)
Markdown cancelation . 100,000
Available for sale - average 5,670,000 12,200,000
Cost ratio (5,670/12,200) 46%
Sales (10,000,000)
Shrinkage (10,000,000x2.5%) ( 250,000)
Inventory - December 31 1,950,000

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Conservative cost (1,950,000 x 45%) 877,500

Average cost (1,950,000 x 46%) 897,000

53. Answer is (B).

Cost Retail
Inventory - January 1 560,000 1,000,000
Purchases 4,000,000 6,200,000
Markup (5,000 x P100) 500,000
Markup cancelation (1,000 x P100) (100,000)
Goods available - conservative 60% 4,560,000 7,600,000
Markdowns (reduction in retail price) (200,000)
Goods available – average 62% 4,560,000 7,400,000
Net sales (5,400,000)
Inventory - December 31 2,000,000
Conservative cost (60% x 2,000,000) 1,200,000
Average cost (62% x 2,000,000) 1,240,000

54. Answer is (B).

Cost Retail
Inventory - January 1 1,650,000 2,200,000
Net purchases 3,725,000 4,950,000
Departmental transfer - credit (200,000) ( 300,000)
Net markup 150,000
Markdown (500,000-400,000) . ( 100,000)
Goods available for sale (75%) 5,175,000 6,900,000
Sales (4,000,000)
Inventory shortage - sales price ( 100,000)
Employee discounts ( 200,000)
Inventory - December 31 2,600,000
Average cost (2,600,000 x 75%) 1,950,000

55. Answer is (C).

Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markups 400,000
Net markdowns . ( 600,000)
Goods available for sale 6,000,000 9,000,000
Cost ratio (6,000/9,000) 66 2/3%
Sales (7,800,000)

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Ending inventory 1,200,000

Average cost (1,200,000 x 66 2/3%) 800,000

Goods available for sale 6,000,000

Ending inventory (800,000)
Cost of sales 5,200,000

56. Answer is (D).

Cost Retail
Finished goods-January 1 (60% x 240,000) 144,000 240,000
Cost of goods manufactured (squeeze) 1,200,000 2,000,000
Goods available for sale 1,344,000 2,240,000
Finished goods - December 31 (60% x 840,000) ( 504,000) ( 840,000)
Cost of goods sold 840,000 1,400,000
The amount of goods manufactured at retail is determined by simply working back.
Goods manufactured at cost 1,200,000
Cost ratio = Goods manufactured at retail = 2,000,000 = 60%

57. Answer is (D).

Cost Retail
Beginning inventory 600,000 1,500,000
Purchases 3,000,000 5,500,000
Net markups 500,000
Net markdowns . (1,000,000)
Net purchases 3,000,000 5,000,000
Cost ratio (3,000,000/5,000,000) 60%
Goods available for sale 3,600,000 6,500,000
Sales (4,500,000)
Ending inventory 2,000,000
FIFO cost (2,000,000 x 60%) 1,200,000

58. Answer is (D).

Cost Retail
Inventory - January 1 80% 1,200,000 1,500,000
Purchases 4,200,000 5,900,000
Net markups 200,000
Net markdowns . ( 100,000)
Net purchases (4,200/6,000) 70% 4,200,000 6,000,000
Goods available for sale 5,400,000 7,500,000
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Sales (5,500,000)
FIFO inventory- 12/31 (2,000,000 x 70%) 1,400,000 2,000,000

Inventory - January 1 1,200,000 1,500,000

Increase (70% x 500,000) 350,000 500,000
LIFO inventory-12/31 1,550,000 2,000,000

59. Answer is (B).

Cost Retail
Inventory – January 1 1,200,000 1,800,000
Purchases 5,600,000 7,200,000
Freight-in 400,000
Net markup 1,400,000
Net markdown . (600,000)
Net purchases (6,000/8000) = 75% 6,000,000 8,000,000
Goods available for sale 7,200,000 9,800,000
Sales (7,600,000)
Inventory – December 31 2,200,000

FIFO cost (2,200,000 x 75%) 1,650,000

Goods available for sale 7,200,000
Less: inventory – December 31 1,650,000
Cost of goods sold 5,550,000

60. Answer is (A).

Selling price 2,800,000
Production costs to complete (2,000,000)
Transport costs to customer (300,000)
Future selling costs (400,000)
Net realizable value 100,000

61. Answer is (C).

Estimated sales price 4,000,000
Cost to complete (1,200,000)
Net realizable value 2,800,000
FIFO cost (lower than NRV) 2,600,000

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62. Answer is (C).

Estimated sales price 8,000,000
Cost to complete - processing cost (2,400,000)
Net realizable value 5,600,000

FIFO cost 5,200,000

Nee realizable value 5,600,000
LCNRV 5,200,000
The FIFO cost of P5,200,000 is the inventory valuation because it is lower than the net
realizable value.

63. Answer is (C).

Historical cost NRV Value
Markers 240,000 312,000 240,000
Pens 188,000 200,000 188,000
Highlighters 300,000 292,000 292,000
720,000
The measurement at the lower of cost or net realizable value shall be applied on an individual
basis or item by item.

64. Answer is (C).

Estimated selling price 4,050,000
Cost of disposal (200,000)
Net realizable value (lower than cost) 3,850,000

65. Answer is (A).

Cost NRV LCNRV
Skis 2,200,000 2,500,000 2,200,000
Boots 1,700,000 1,500,000 1,500,000
Ski equipment 700,000 800,000 700,000
Ski apparel 400,000 500,000 400,000
5,000,000 5,300,000 4,800,000
Inventories shall be measured at the lower of cost and net realizable value applied by
individual item.

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66. Answer is (A).

Cost NRV Lower
Product X 1,500,000 1,400,000 1,400,000
Product Y 1,800,000 2,300,000 1,800,000
3,200,000

67. Answer is (A).

Inventories shall be measured at the lower of cost and net realizable value applied by
individual item. Net realizable value is the estimated selling price less the estimated cost to
complete and the estimated cost of disposal.
Product X Product Y
Materials and conversion costs 1,500,000 1,800,000
Selling price 2,000,000 3,000,000
Selling costs ( 600,000) ( 700,000)
Net realizable value 1,400,000 2,300,000
Measurement at lower amount 1,400,000 1,800,000

68. Answer is (A).

Cost NRV Lower
Sofas 100,000 102,000 100,000
Dining tables 100,000 90,000 90,000
Beds 450,000 480,000 450,000
Closets 300,000 308,000 300,000
Lounge chairs 125,000 100,000 100,000
Total 1,040,000

69. Answer is (C).

Cost NRV LCNRV
Product 1 800,000 550,000 550,000
Product 2 1,000,000 1,100,000 1,000,000
Product 3 700,000 950,000 700,000
Product 4 500,000 350,000 350,000
2,600,000
Note that under LCNRV, replacement cost and normal profit are not taken into consideration.
Total cost 3,000,000
LCNRV 2,600,000
Required allowance for inventory writedown 400,000
Allowance before adjustment (150,000)
Increase in allowance 250,000

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Loss inventory writedown 250,000

Allowance for inventory writedown 250,000

70. Answer is (B).

Inventory - January 1, at cost 3,000,000
Net purchases 8,000,000
Goods available for sale 11,000,000
Inventory - December 31, at cost (4,000,000)
Cost of goods sold before inventory writedown 7,000,000
Loss on inventory writedown 100,000
Cost of goods sold after inventory writedown 7,100,000
Required allowance - December 31 (4,000,000 - 3,700,000) 300,000
Allowance for inventory writedown - January 1 (3,000,000-2,800,000) 200,000
Loss on inventory writedown 100,000
The amount of any inventory writedown to net realizable value and all losses on inventory
shall be included in cost of goods sold. The amount of any reversal of inventory writedown
shall be deducted from cost of goods sold.

71. Answer is (C).

Physical inventory 2,000,000
Net realizable value 1,700,000
Inventory writedown 300,000

Cost of goods sold per book 4,600,000

Cost of goods incorrectly recorded as sold (100,000)
Inventory losses 120,000
Loss on inventory writedown 300,000
Adjusted cost of goods sold 4,920,000

72. Answer is (B).

September 30 (40,000 x 75) 3,000,000
December 31(10,000 x 80) 800,000
FIFO cost 3,800,000
Net realizable value (50,000 x 72) 3,600,000
Inventory writedown 200,000
Inventory - January 1 at cost 1,200,000
Purchases 9,300,000
Purchase discount ( 400,000)
Goods available for sale 10,100,000

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Inventory - December 31 at cost ( 3,800,000)

Cost of goods sold before inventory writedown 6,300,000
Loss on inventory writedown 200,000
Cost of goods sold after inventory Writedown 6,500,000

73. Answer is (A).

2014 Loss on inventory writedown 600,000
Allowance for inventory writedown 600,000

2015 Allowance for inventory writedown 200,000

Gain on reversal of inventory writedown (600,000-400,000) 200,000

74. Answer is (C).

(a) (b) (c)
Units Unit cost NRV
Category 1:
A 25,000 105 115
B 20,000 85 80
Category 2:
C 40,000 50 40
D 30,000 65 60

(a x b) (a x c)
Total cost NRV LCNRV
Category 1:
A 2,625,000 2,875,000 2,625,000
B 1,700,000 1,600,000 1,600,000
Subtotal 4,325,000 4,475,000
Category 2:
C 2,000,000 1,600,000 1,600,000
D 1,950,000 1,800,000 1,800,000
Subtotal 3,950,000 3,400,000 .
Grand total 8,275,000 7,875,000 7,625,000
LCNRV - by individual item 7,625,000

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75. Answer is (B). LCNRV - by category

Total cost NRV Lower
Category 1 4,325,000 4,475,000 4,325,000
Category 2 3,950,000 3,400,000 3,400,000
7,725,000

76. Answer is (B).

Total cost 8,275,000
Total NRV 7,875,000
LCNRV - by total 7,875,000

77. Answer is (B).

Market value - December 31, 2014 5,000,000
Market value - March 31, 2015 4,900,000
Additional loss on purchase commitment in 2015 100,000

78. Answer is (B). Loss on purchase commitment (50,000 x 3) 150,000

79. Answer is (A).

Remaining contract -1,000 units each year
2015 (1,000 x P100) 100,000
2016 (1,000 x P100) 100,000
Total 200,000
Estimated realizable value (2,000 x P20) 40,000
Loss on purchase commitment 160,000
A loss on inventory write-down should also be recognized on December 31,2014 in the
amount of P200,000 (2,500" units x P80).

80. Answer is (C).

Estimated liability for purchase commitment on 12/31/2014(10,000x40) 400,000
Entry on February 15, 2015
Purchases (10,000x300) 3,000,000
Estimated liability for purchase commitment 400,000
Accounts payable (10,000 x 310) 3,100,000
Gain on purchase commitment 300,000

81. Answer is (C).

Estimated liability for purchase commitment on 12/31/2014 (100,000x15) 1,500,000
To record the actual purchase on March 31,2015:

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Purchases (100,000x55) 5,500,000

Estimated liability for purchase commitment 1,500,000
Accounts payable 5,500,000
Gain on purchase commitment 1,500,000
The gain to be recognized is limited to the loss on purchase commitment previously recorded.

82. Answer is (B). Fair value measurement stops at the point of harvest and PAS 2 on inventory
applies after such date. Accordingly, the coffee beans inventory shall be measured at the
lower of cost and net realizable value on December 31, 2015. The fair value less cost of
disposal of P3,500,000 at the point of harvest is the initial cost of coffee beans inventory for
purposes of applying PAS 2. The net realizable value of P3,200,000 is the measurement on
December 31,2015 because this is lower than the deemed cost of P3,500,000.

83. Answer is (A). Only the freestanding trees shall be classified as biological assets. The land
under trees and roads in forests shall be included in property, plant and equipment.

84. Answer is (B).

Purchase price 5,000,000
Change in fair value due to growth & price changes 350,000
Decrease in fair value due to harvest (50,000)
Carrying cost 5,300,000

85. Answer is (B).

Carrying amount - January 1 5,000,000
Increase due to purchases 2,000,000
Gain from change in fair value due to price change 400,000
Gain from change in fair value due to physical change 600,000
Decrease due to sales (850,000)
Decrease due to harvest ( 200,000)
Carrying amount - December 31 6,950,000

86. Answer is (B).

Acquisition cost - December 31, 2014 .600,000
Increase in fair value on initial recognition 700,000
Change in fair value in 2015 100,000
Decrease in fair value due to harvest ( 90,000)
Carrying amount - December 31, 2015 1,310,000

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87. Answer is (A).

Change in fair value in 2015 100,000
Decrease in fair value due to harvest (90,000)
Net gain from change in fair value in 2015 10,000

88. Answer is (B).

Value of biological asset at acquisition cost on December 31, 2014 6,000,000
Fair valuation surplus on initial recognition at fair value on December 31, 2014 500,000
Change in fair value on December 31, 2015 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest (100,000)
Carrying amount – December 31, 2015 7,300,000

89. Answer is (A).

Change in fair value on December 31, 2015 due to growth and price fluctuation 900,000
Decrease in fair value due to harvest (100,000)
Net gain from the change in fair value 800,000

90. Answer is (A).

Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest ( 250,000)
Net gain from biological asset 2,250,000

91. Answer is (C).

Inventory 400,000
Gain on agricultural produce 400,000

92. Answer is (A).

Change in fair value due to growth and price change 400,000
Decrease in fair value due to harvest (50,000)
Net gain on biological asset 350,000

93. Answer is (B).

Milk harvested during the year but not yet sold 150,000

94. Answer is (B).

Fair value of milk produced 600,000
Gain from change in fair value 50,000
Total income 650,000
Inventories used (140,000)

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Staff costs (120,000)

Depreciation expense ( 15,000)
Other operating expenses (190,000)
Income before income tax 185,000
Income tax expense (55,000)
Net income 130,000

95. Answer is (B).

Dairy livestock - immature 50,000
Dairy livestock - mature 400,000
Fair value of biological assets 450,000

96. Answer is (C).

Fair value of 3-year old animals on Dec. 31 (11 x P120) 1,320
Fair value of 0.5-year old animal on Dec. 31, the newborn (1 x P80) 80
Total fair value - December 31,2014 1,400

97. Answer is (B).

Fair value of 10 animals on January 1 (10 x P100) 1,000
Acquisition cost of one animal on July 1 108
Total carrying amount of biological assets - December 31 1,108
Fair value on December 31,2014 1,400
Carrying amount 1,108
Gain from change in fair value 292

98. Answer is (A).

Gain from change in fair value due to price change:
10 2-year old animals (105-100 = 5x10) 50
1 2.5-year old animal (111-108 = 3 x 1) 3
1 newborn on July 1 (72 - 70 = 2 x 1) 2
Total 55

Gain from change in fair value due to physical change:

10 3-year old animals acquired 1/1/2014 (120-105 = 15 x 10) 150
1 3-year old animal acquired 7/1/2014 (120-111 = 9 x 1) 9
1 0.5-year old born on 7/1/2014 (80-72 = 8 x 1) 8
1 newborn (70 x 1) 70
Total 237
Price change 55

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Physical change 237

Total gain from change in fair value 292

99. Answer is (D).

15 Horses (2 years old) 1,350,000
10 Dairy cattle (3 years old) 580,000
8 Carabaos (3.5 years old) 290,000
20 Hogs (4 years old) 600,000
4 Dairy cattle (1.5 years old) 200,000
6 Carabaos (1 year old) 140,000
Carrying amount – December 31 3,160,000

100. Answer is (C).

Fair value – December 31, (same age) 2,800,000
Carrying amount (2,100,000 + 250,000) 2,350,000
Price change 450,000

101. Answer is (A).

Fair value – December 31 (different age) 3,160,000
Fair value – December 31 (same age) 2,800,000
Physical change 360,000

102. Answer is (C).

Cows which are 2 years old on 1/1/2014 (2,100 x 4,000) 8,400,000
Heifers purchased which are 1 year old on 1/1/2014 (300x3,000) 900,000
Total fair value - January 1, 2014 9,300,000

103. Answer is (A).

Heifers purchased which are 1 year old on July 1, 2014 (750 x 3,000) 2,250,000

104. Answer is (B).

Cows which are 3 years old on 12/31/2014 (2,100x5,000) 10,500,000
Heifers which are 2 years old on 12/31/2014 ( 300x4,500) 1,350,000
Heifers which are 1.5 years old on 12/31/2014 ( 750x3,600) 2,700,000
Total fair value - December 31, 2014 14,550,000

105. Answer is (A).

Fair value - December 31, 2014 14,550,000
Fair value - January 1, 2014 (9,300,000)

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Fair value - July 1, 2014 (2,250,000)

Increase in fair value 3,000,000

106. Answer is (C).

Increase due to price change:
2,100 x (4,500-4,000) 1,050,000
300 x (3,200-3,000) 60,000
750 x (3,200-3,000) 150,000 1,260,000
Increase due to physical change:
2,100 x (5,000-4,500) 1,050,000
300 x (4,500-3,200) 390,000
750 x (3,600-3,200) 300,000 1,740,000
Total increase in fair value 3,000,000

Answer Explanations & Solutions Page 84