Far Eastern University

Institute of Accounts. Business and Finance

Department of Accountancy and Internal Auditing

INTERMEDIATE ACCOUNTING 1
BIOLOGICAL ASSETS
DO-IT-YOURSELF EXERCISES (PROBLEMS)

TABLE OF CONTENTS

Problem 2.4-1Computation of Biological Asset Related Account balances

Problem 2.4-2 Journal Entries and Reconciliation of Balances Related to Biological Assets
Problem 2.4-3 Journal Entries and Reconciliation of Balances Related to Biological Assets
Problem 2.4-4 Journal Entries and Reconciliation of Balances Related to Biological Assets

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.4-1
Computation of Biological Asset Related Accounts Balances

ABC Farms has these balances in its financial records:

a. Carrying value of biological assets (FV less cost to sell), at December 31, 2019, P2,800,000.
b. Biological assets purchased during 2020, at cost P3,200,000.
c. Fair valuation loss on initial recognition at fair value less cost to sell, P150,000.
d. Increase in fair value due to biological transformation and price fluctuations during the period, P2,000,000.

Required:
1. Determine the amount at which biological assets would be presented in the statement of financial position at
December 31, 2020.
2. Indicate the accounts and amounts that will be shown on the statement of comprehensive income relating to the
above.

SOLUTION:
Requirement 1 – Biological Asset balance in the SFP at December 31, 2020

Carrying value of biological assets at December 31, 2019 2,800,000

Cost of biological assets purchased during 2020 3,200,000
Fair valuation loss on initial recognition (150,000)
Change in fair value due to biological transformation and price fluctuations 2,000,000
Decrease in fair value due to harvest (1,000,000)
Biological Assets in the SFP at December 31, 2020 6,850,000

Requirement 2 – Accounts and amounts to be shown in the Statement of Comprehensive Income

Loss on initial recognition at FV less cost to sell 150,000

Decrease in fair value due to harvest 1,000,000

Increase in fair value less cost to sell 2,000,000

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.4-2
Journal Entries and Reconciliation of Balances Related to Biological Assets

Ranchero Corporation produces milk on its farms located in Southern Mindanao. At December 31, 2019, the herds of
cows are as follows:

 2,000 cows (3 years old) all purchased in prior years

 1,000 heifers (1.5 years old when purchased on June 30, 2019)
 500 heifers (2 years old) purchased on December 31, 2019

No animals were born or sold during the year 2020.

The unit values less estimated cost to sell of the animals were as follows:

At December 31, 2019:

1-year old P 25,000
1.5-year old 29,000
2-year old 35,000
3-year old 44,000

At June 30, 2020:

1-year old 26,500
1.5-year old 30,000

At December 31, 2020:

2-year old 37,500
3-year old 47,000
4-year old 55,000

REQUIRED:
(a) Prepare a schedule showing the reconciliation of beginning balances to ending balance of biological assets and
the changes during the period due to purchase and change in fair value.
(b) Compute for the change in fair value less cost to sell of the biological asset due to:
(1) price change and
(2) physical change
(c) Reconcile the ending balance computed in (a) above with the fair value less cost to sell of the animals at
December 31, 2020.
(d) Give the entries for 2020 to record the foregoing information.

SOLUTION:
Requirement 1 Reconciliation of beginning and ending balances and changes in prices

Balance of biological assets at December 31, 2019:

3 years old = 2,000 x P 44,000 88,000,000
2 years old = 1,500 x P 35,000 52,500,000 140,500,000
Increase in fair value:
2,000 x (P 55,000 – P 44,000) 22,000,000
1,500 x (P 47,000 – P 35,000) 18,000,000 40,000,000
Balance at December 31, 2020 (at FV less cost to sell) 180,500,000

Requirement 2A – Computation of change in FV less CTS due to price change

3-year old cows = 2,000 x (P 47,000 – P 44,000) 6,000,000

2-year old heifers = 1,500,000 x (P 37,500 – P 35,000) 3,750,000
Increase in FV due to pricel change 9,750,000

Requirement 2B – Computation of change in FV less CTS due to physical change

4-year old cows = 2,000 x (P 55,000 – P 47,000) 16,000,000

3-year old cows = 1,500,000 x (P 47,000 – P 37,500) 14,250,000
Increase in FV due to physical change 30,250,000

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

Requirement 3 -
Reconciliation of the ending balance computed in (a) with the fair value less cost to sell of the animals at 12/31/2020

FV less cost to sell at December 31, 2020:

4-year old cows = 2,000 x P 55,000 110,000,000
3-year old cows = 1,500 x P 47,000 70,500,000
FV less cost to sell at December 31, 2020 180,500,000

Requirement 4 – Journal Entries for 2020

Entry at year-end:
Biological Assets 40,000,000
Gain – Increase in FV less CTS due to price Change 9,750,000
Gain – Increase in FV less CTS to Physical Change 30,250,000

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.4-3
Journal Entries and Reconciliation of Balances Related to Biological Assets

A herd of ten 2-year old animals was held at January 1, 2020. One animal (aged 2.5 years old), was purchased on
July 1, 2020 for Pl0,800 and one animal was born on July 1, 2019. Two 3-year old animals were sold at December
31, 2020 for P13,500 each, the company incurring Pl,500 on the sale of each.

Per unit fair values less estimated cost to sell were as follows:

At January 1, 2020:
2-year old animal P 10,000

At July 1, 2020:
Newborn animal 7,000
2.5-year old animal 10,800

December 31, 2020:

Newborn animal 7,200
0.5 old animal 8,000
2-year old animal 10,500
2.50-year old animal 11,100
3-year old animal 12,000

REQUIRED:
(a) Compute for changes in fair value less cost to sell attributable to price change and physical change.
(b) Prepare entries for the foregoing.
(c) Prepare a schedule reconciling the beginning balances with the ending balances and showing the changes
during the period due to purchase, change in fair value and sale of biological assets.
(d) Reconcile the ending balances computed in (c) with the fair value less estimated cost to sell of the biological
assets held by the entity at December 31, 2020.

SOLUTION:
Requirement 1 – Computation of changes in fair value less cost to sell attributable to price change and physical
change.

Computation Amount
PRICE CHANGE:
2-year old animals on January 1, 2020 10 x (P 10,500 – P 10,000) 5,000
2.5-year old animal on July 1 1 x (P 11,100 – P 10,800) 300
Animal born on July 1 1 x (P 7,200 – P 7,000) 200
Change in FV less CTS due to Price Change 5,500

PHYSICAL CHANGE
3-year old animal on 12/31 10 x (P 12,000 – P 10,500) 15,000
3-year old animal on 12/31 1 x (P 12,000 – P 11,100) 900
Born on July 1 – upon birth 7,000
Born in July 1 - on December 31 P 8,000 – P 7,200 800
Change in FV less CTS due to physical change 23,700

Requirement 2 – Journal Entries

Date Account Names Debit Credit

2020
Jul. 1 Biological Assets 10,800
Cash 10,800
Purchased one animal.

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

1 Biological Assets 7,000

Increase in FV less CTS due to Physical Change 7,000

Dec. 31 Biological Assets 22,200

Increase in FV less CTS due to Price Change 5,500
Increase in FV less CTS due to Physical Change 16,700
(P 23,700 – P 1,500)

31 Cash [2 x (P 13,500 – P 1,500)] 24,000

Biological assets 24,000

Requirement 3 –
Reconciliation of the beginning balances with the ending balances and showing the changes during the period due to
purchase, change in fair value and sale of biological assets.

Balance, January 1, 2020 (10 animals x P 10,000) 100,000

Purchase 10,800
Change in FV less CTS due to Price Change 5,500
Change in FV less CTS due to Physical Change
(including the birth of one animal) 23,700
Sales at FV less CTS (24,000)
Balance, December 31, 2020 116,000

Requirement 4 -
Reconciliation of the ending balances computed in (c) with the fair value less estimated cost to sell of the biological
assets held by the entity at December 31, 2020.

The balance at December 31, 2020 is composed of the following:

1) 3-year old animals (9 animals x P 12,000) 108,000
2) 1-year old animal (1 animal x P 8,000) 8,000
Total 116,000

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