Assignment No.

BIOLOGICAL ASSETS

Problem 1
An entity produces milk for local ice cream producers. The entity began operations at the beginning of current year by
purchasing milking cows for P5,000,000. The entity provided the following information at year-end relating to the
milking cows:

Carrying amount – beginning of year 5,000,000

Increase in fair value due to growth and price change 2,000,000
Decrease in fair value due to harvest 250,000
Newborn calf at year-end at fair value 400,000
Milk harvested during the year but not yet sold 850,000

REQUIRED:
1. What amount of gain on biological asset should be reported in the current year?
2. What amount of gain on agricultural produce should be recognized in the current year?
3. What is the carrying amount of the biological asset at year-end?

Problem 2
On January 01, 2023, an entity has a herd of 100 2-year old animals. Ten animals aged 2.5 years were purchased on
July 1, 2021 for P11,000 each. Ten animals were born on July 01, 2023. No animals were sold or disposed of during
the year. The fair values less cost of disposal per unit were:

2-year old animal on January 1 10,000

2.5-year old animal on July 1 11,000
New born animal on July 1 8,000
2-year old animal on December 31 11,500
2.5-year old animal on December 31 12,000
Newborn animal on December 31 8,500
3-year old animal on December 31 15,000
0.5-year old animal on December 31 10,000

REQUIRED:
1. What amount should be reported as biological assets on December 31, 2023?
2. What is the total gain from change in fair value of biological asset?
3. What is the gain from biological asset attributable to price change?
4. What is the gain from biological asset attributable to physical change?

PROPERTY, PLANT AND EQUIPMENT

Problem 1
Assume the following independent cases:

I. At the beginning of the year, a check was issued for P400,000 as payment for a piece of land and the
buyer assumed the liability for unpaid taxes in arrears in previous year, P10,000 and those assessed for
the current year, P9,000.
II. A company issued 14,000 ordinary shares (P50 par) with a market value of P60 per share (based upon
recent sale of 100 shares) for the land. The land was recently appraised at P800,000 by independent and
professional appraisers.
III. A company rejected an offer to purchase the land for P8,000,000 cash two years ago. Instead, the
company issued P100,000 ordinary shares for the land (market value of the ordinary share, P78 each
based on several recent large transactions and normal weekly stock trading volume).
IV. A company purchased land by signing a note with the seller, requiring down payment of P100,000,
payment of P120,000 one year from purchase, and P80,000 three years from purchase. The note is non-
interest bearing, but the going rate of similar notes is 10%. (NOTE: Round off the present value factor
to 2 decimal places)

REQUIRED: How much is the cost of LAND acquired in I, II, III and IV, respectively?
Problem 2
I. The following were incurred for the purchase of equipment on January 01, 2023:

List price of equipment (Trade discount is 20% and cash discount available
₱350,000
is 5% not taken)
Freight costs 2,000
Insurance cost while in transit 1,750
Fees paid to consultants for the installation of the equipment 3,200
Maintenance cost of equipment during its first month of operation 1,500
Insurance paid on equipment during the first month of operation 700
Decommissioning cost at face value 50,000

The equipment has an estimated useful life of 5 years. The average borrowing rate of the company on January
15, 2023 is 9%. (NOTE: Round off the present value factor to 4 decimal places)

II. On January 31, 2023, an entity purchased land and building at a single cost of P12,500,000. On this date,
it was determined that the land and building had a fair value of P7,500,000 and P2,500,000, respectively.
The entity also incurred legal fees for purchase contract and recording ownership of land and building of
P250,000, and title guarantee insurance P150,000. The entity immediately demolished the building to
make way for construction of a new building to be used as owner-occupied with a total contract price and
other directly attributable cost (excluding demolition cost) to the new building amounted to P9,500,000.
The entity also incurred demolition cost of P155,000.

III. On January 01, 2023, a new machine was acquired by paying down payment of P500,000 and issuing an
interest bearing 10%, notes of P1,200,000 due on payable in three equal annual installments with the first
payment due on December 31, 2023. The prevailing rate of interest for this type of note is 9%.

IV. On February 01, 2023, furniture and fixtures with a fair value of P5,500,000 were acquired in exchange
for P1,000,000 and 20,000 ordinary shares. The shares have a par value of P200 per share and a fair
market value of P250 per share. The shares are actively traded in a capital market.

V. On March 31, 2023, Manila City Government donated land and a large warehouse with an appraised value
of P6,000,000 if the Company will fund the project of the local government unit. The fair market value of
the property on December 31, 2023 is P6,400,000.

REQUIRED: Determine the cost of Property, Plant and Equipment (per line item) acquired for the following
abovementioned independent assumption.

Problem 3
On January 01, 2023, Sweet Potato Incorporated purchased a machine with an invoice price of P250,000. Other costs
incurred by the company for this machine are: freight – P5,000 and installation cost of P12,000. It is estimated that
the machine is to be used for seven years and the scrap value is P27,000. The present value of the dismantling cost
for the machine after the useful life is P10,000.

Moreover, the estimated number of hours that the machine will be used is 54,000 and the estimated number of units
it could produce is 2,000,000. For 2023, the machine was used for 7,700 hours and for 2024, it was used for 6,800
hours. On the other hand, the machine produced 230,000 units in 2023 and 300,000 units in 2024.

REQUIRED: Using the below depreciation methods, how much is the depreciation expense, accumulated
depreciation and carrying amount for 2023 and 2024?
➢ Straight line method
➢ Double declining balance method
➢ 150% declining balance method
➢ Sum-of-the years digit method
➢ Units of output method

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