AGRICULTURE
DEFINITION OF TERMS
TERMS
DEFINITION
Agricultural Activity
Management by an entity of the biological
transformation and harvest of biological assets for sale or
for conversion into agricultural products 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.
Harvest
The detachment of produce from a biological asset or the
cessation of a biological asset’s life process
Biological Asset
A living animal or plant
Scope of PAS/ IAS 41
PAS/IAS 41 shall be applied to account for the following when they are related to agricultural activity:
a. biological assets;
b. agricultural produce at the point of harvest; and
o Agricultural Produce - The harvested product of the entity’s biological assets.
c. government grants
PAS/IAS 41 does not apply to:
a. land related to agricultural activity; and
b. intangible assets related to agricultural activity.
PAS/IAS 41 is applied to agricultural produce, which is the harvested product of the entity’s biological assets, only at the
point of harvest. Thereafter, PAS/IAS 2 (Inventories) or another applicable Standard is applied.
In a similar manner, PAS.IAS 41 does not deal with the processing of agricultural produce after harvest. For example, the
processing of grapes into wine by a vintner who has grown the grapes.
Biological Assets
Sheep
Plants
Pigs
Vines
Dairy Cattle
Fruit Trees
Bushes
Agricultural Produce
Wool
Cotton
Harvested Cane
Carcass
Grapes
Milk
Picked Fruits
Leaf
Processed Products after Harvest
Yarn, carpet
Thread, clothing
Sugar
Sausage, cured hams
Wine
Cheese
Processed Fruits
Tea, Cured Tobacco
Recognition and Measurement
An entity shall recognize a biological asset or agricultural produce when and only when:
a. the entity controls the asset as a result of past event;
b. it is probable that future economic benefits associated with the asset flow to the entity; and
c. the fair value cost of the asset can be measured reliably.
A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value less
cost to sell, except when the fair value cannot be measured reliably.
Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less cost to sell at the
point of harvest. Such measurement is the cost at the date when applying PAS/IAS 2 – Inventories or another applicable
standard.
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.
Cost to sell
 the incremental costs directly attributable to the disposal of an asset, excluding finance cost and income tax.
Gains or Losses
A gain or loss on initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less
costs to sell of a biological asset shall be included in profit or loss for the period in which it arises.
A gain may arise on initial recognition of a biological asset, such as when a calf is born. A loss may arise on initial recognition
of a biological asset, because costs to sell are deducted in determining the fair value less cost to sell of a biological asset.
A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell shall be included in profit
or loss for the period in which it arises.
A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.
Inability to Measure Fair Value Reliably
In such a case, that biological asset shall be measured at its cost less any accumulated depreciation and any accumulated
impairment losses. Once the fair value of such biological asset becomes reliably measurable, an entity shall measure it at
its fair value less cost to sell.
Government Grant
An unconditional government grant related to a biological asset measured at its fair value less cost to sell shall be
recognized in profit and loss when, and only when, the government grant becomes receivable.
If government grant related to biological asset measured at its fair value less cost to sell is conditional, an entity shall
recognize the government grant in profit and loss when, and only when the conditions attaching to the government
grant are met.
DISCLOSURE
An entity shall present a reconciliation of changes in the carrying amount of biological assets between the beginning and
the end of the current period. The reconciliation shall include:
a. the gain or loss arising from changes in fair values less cost to sell;
b. increases due to purchases;
c. decreases attributable to sales and biological assets classified as held for sale (or included in the disposal
group that is classified as held for sale) in accordance with PFRRS 5.
d. decrease due to harvest;
e. increases resulting from business combinations;
f. other changes.
Carrying amount
 the amount at which an asset is recognized in the statement of financial position.
The fair value less cost to sell of a biological asset can change due to both physical change and price changes in the
market.
If during the current period, an entity measures biological assets at their cost less any accumulated depreciation and any
accumulated impairment losses, an entity shall disclose any gain or loss recognized on disposal of such biological assets
and the reconciliation required shall disclose the amounts related to such biological assets separately. The reconciliation
shall include the following amounts in profit and loss related to those biological assets:
a. impairment losses;
b. reversal of impairment losses; and
c. depreciation.
PROBLEM SOLVING
Problem 1:
Joan Company provided the following data:
Value of biological asset at acquisition cost on December 31, 2019
600,000
Fair value surplus on initial recognition at fair value on December 31, 2019
700,000
Change in fair value to December 31, 2020 due to growth and price fluctuation
100,000
Decrease in fair value due to harvest
90,000
Required:
1.What is the carrying amount of the biological asset on December 31, 2020?
2. What is the gain from change in fair value of biological asset that should be shown in the 2020 income statement?
Answers:
1. Carrying amount
Value of biological asset at acquisition cost
600,000
Fair value surplus
700,000
Change in fair value
100,000
Decrease in fair value
(90,000)
CARRYING AMOUNT
1,310,000
2. Net gain
Change in fair value
100,000
Decrease in fair value
(90,000)
GAIN FROM CHANGE
10,000
Problem 2
Honey Company has a herd of ten 2-year old animals on January 1, 2020. One animal aged 2.5 years was purchased
on July 1, 2020 for P1,080, and one animal was born on July 1, 2020. No animals were sold or disposed of during
the year. The fair value less cost to sell per unit is as follows:
2-year old animal on January 1
1,000
2.5-year old animal on July 1
1,080
New born animal on July 1
700
2-year old animal on December 31
1,050
2.5-year old animal on December 31
1,110
Newborn animal on December 31
720
3-year old animal on December 31
1,200
0.5-yearr old animal on December 31
80
Required:
1. What is the fair value of the biological assets on December 31, 2020?
2. What is the gain from change in fair value of biological assets to be recognized in 2020?
3. What is the gain from change in fair value due to price change?
Answers:
1.)
FV of 3-year old animals on December 31 (11 x 1,200)
FV of 0.5 year old animal on December 31 (1 x 800)
2.)
3.)
13,200
800
Total fair value – December 31,2020
14,000
FV of 10 animals on January 1 (10 x 1,000)
Acquisition cost of one animal on July 1
Total carrying amount of biological assets – December 31
10,000
1,080
11,080
Fair value on December 31, 2020
Carrying amount
Gain from change in fair value
14,000
(11,080)
2,920
Gain from change in fair value to price change:
10 2-year old animals (1050 -1,000 = 50 x 10)
500
1 2.5 old animal (1,110 – 1080 = 30 x 1)
30
1 newborn on July 1 (720 – 700 = 20 x 1)
20
Total
550