PAS 40-Biological Assets
and Agricultural Produce
Key definitions

Agricultural activity 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.

Biological asset is a living animal or plant.

Group of biological assets is an aggregation of similar living animals or plants.

Agricultural produce is the harvested product of the entity’s biological assets.

Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.

Examples of biological assets, agricultural produce, and products that are the result of processing after harvest:
Biological assets
Sheep
Trees in a
plantation forest
Plants
Agricultural
produce
Wool
Dairy cattle
Pigs
Felled trees
Cotton
Harvested cane
Milk
Carcass
Bushes
Leaf
Vines
Fruit trees
Grapes
Picked fruit
Products that are
the result of
processing after
harvest
Yarn, carpet
Logs, Lumber
Thread, clothing
Sugar
Cheese
Sausages, cured
hams
Tea, cured
tobacco
Wine
Processed fruit
Recognition
An



entity should recognize a biological asset or agriculture produce when, and only when:
the entity controls the asset as a result of past events;
it is probable that future economic benefits will flow to the entity; and
the fair value or cost of the asset can be measured reliably.
Measurement
Biological assets should be measured on initial recognition and at subsequent reporting dates at fair value less costs to
sell, unless fair value cannot be reliably measured.
The gain on initial recognition of biological assets at fair value, and changes in fair value of biological assets during a
period, are reported in profit or loss.
Agricultural produce should be measured at fair value less costs to sell at the point of harvest.
produce is a marketable commodity, there is no 'measurement reliability' exception for produce.
Because harvested
A gain on initial recognition of agricultural produce at fair value should be included in profit or loss for the period in which
it arises.
All costs related to biological assets that are measured at fair value are recognized as expenses when incurred, other
than costs to purchase biological assets.
Fair value is the amount to receive for selling an asset, or amount paid for liability settled, between market participants
in an active market.
Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance costs and
income taxes.
An active market is a market where all the following conditions exist:
(a) the items traded within the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.
How to determine fair value?
If an active market exists
Quoted market price in that market
If an active market does not exist
a) the most recent market transaction price, provided that there has not been a significant change in economic
circumstances between the date of that transaction and the end of the reporting period;
b) market prices for similar assets with adjustment to reflect differences; and
c) sector benchmarks such as the value of an orchard expressed per export tray, bushel, or hectare, and the value of
cattle expressed per kilogram of meat.
If market-determined prices or values are not available
Present value of expected net cash flows from the asset discounted at a current market-determined rate
In limited circumstances
Cost is an indicator of fair value, where little biological transformation has taken place or the impact of biological
transformation on price is not expected to be material
The fair value of an asset is based on its present location and condition. As a result, for example, the fair value of cattle
at a farm is the price for the cattle in the relevant market less the transport and other costs of getting the cattle to that
market.
The fair value of a biological asset is based on current quoted market prices and is not adjusted to reflect the actual price
in a binding sale contract that provides for delivery at a future date.
1.
2.
Agricultural activity is
a. 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.
b. The
processes
of
growth,
degeneration,
production, and procreation that cause qualitative
or quantitative changes in a biological asset.
c. The detachment of produce from a biological asset
or the cessation of a biological asset’s life
processes.
d. The original and planned investigation undertaken
with the prospect of gaining new scientific or
technical knowledge and understanding.
Biological transformation results in which of the
following outcomes?
I.
Growth (an increase in quantity or improvement
in quality of an animal or plant)
II. Degeneration (a decrease in the quantity or
deterioration in quality of an animal or plant)
III. Procreation (creation of additional living animals
or plants)
IV. Production of agricultural produce.
a.
b.
I, II, III and IV
I, II and III only
6.
Which of the following is an agricultural activity?
a. Ocean fishing
b. Deforestation
c. Forestry
d. All of the above
4.
Biological asset is
a. A living animal or plant
b. A harvested produce from a living animal or plant
c. An identifiable non-monetary asset without
physical substance
d. Tangible item that is held for use in the production
or supply of goods or services, for rental to others,
or for administrative purposes; and is expected to
be used during more than one period.
An entity provides security services to local
businesses. The security services take the form of the
physical presence of guard dogs and their handlers,
Which of the following is an inappropriate combination
of a biological asset and its agricultural produce?
a.
b.
c.
d.
Biological assets
Sheep
Dairy cattle
Pigs
Trees in a timber
plantation
Agricultural produce
Wool
Milk
Carcass
Logs
7.
Bearer plant is 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.
c. Has a remote likelihood of being sold as
agricultural produce, except for incidental scrap
sales.
d. All of the above.
8.
Which statement is incorrect regarding ‘bearer plants’?
a. Tea bushes, grape vines, oil palms and rubber
trees usually meet the definition of a bearer plant.
b. Bearer plants are within the scope of PAS 16.
c. The produce growing on bearer plants, for
example, tea leaves, grapes, oil palm fruit and
latex, is within the scope of PAS 41.
d. Incidental scrap sales would prevent the plant from
satisfying the definition of a bearer plant.
9.
Which of the following are 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.
d. None of the above.
c. I and II only
d. I only
3.
5.
who are employees of the entity, at the clients’
premises. The dogs should be classified as
a. Biological assets
b. Inventories
c. Investment properties
d. Property, plant and equipment
10. An entity in agribusiness produces cacao to sell to
chocolate factories. Its statement of financial position
at 31 December 2016 presents: two tractors
(P500,000 each), three computers (P20,000 each) and
software (P50,000) to manage the cultivation of cacao
on its farmland, which is planted with cacao-bearing
trees (estimated value, P10 million).
The entity’s
assets also included pods of recently harvested cacao
(estimated value, P2 million). How much should be
classified as biological assets?
a. P13 million
c. P10 million
b. P12million
d. Nil
SME TM
11. An entity on adoption of PAS 41 has reclassified certain
assets as biological assets. The total value of the
entity’s forest assets is P200 million comprising:
freestanding trees; land under trees valued at P20
million; and roads in forests valued at P10 million.
How much should be classified as biological assets?
a. P200 million
c. P190 million
b. P170 million
d. Nil
12. Which statement is incorrect regarding measurement
of biological assets and agricultural produce?
a. Biological assets should be measured on initial
recognition and at subsequent reporting dates at
fair value less costs to sell, unless fair value cannot
be reliably measured.
b. The gain on initial recognition of biological assets
at fair value, and changes in fair value of biological
assets during a period, are reported in profit or
loss.
c. All costs related to biological assets that are
measured at fair value are recognized as expenses
when incurred, other than costs to purchase
biological assets.
d. Agricultural produce should be measured at fair
value less costs to sell at the point of harvest,
unless fair value cannot be reliably measured.
13. In accordance with PFRS 13, fair value of an asset is
a. The price that would be received to sell an asset in
an orderly transaction between market participants
at the measurement date.
b. The amount for which an asset could be exchanged
between knowledgeable, willing parties in an arm’s
length transaction.
c. The estimated selling price in the ordinary course
of business less the estimated costs of completion
and the estimated costs necessary to make the
sale.
d. The incremental cost directly attributable to the
disposal of an asset, excluding finance cost and
income tax.
14. Which statement is incorrect regarding fair value of an
asset in accordance with PFRS 13?
a. Fair value is a market-based measurement, not an
entity-specific measurement.
b. An entity shall take into account the characteristics
of the asset, such as the condition and location of
the asset, if market participants would take those
characteristics into account when pricing the asset
at the measurement date.
c. A fair value measurement assumes that the
transaction to sell the asset takes place either in
the principal market for the asset or in the absence
of a principal market, in the most advantageous
market for the asset.
d. The price in the principal (or most advantageous)
market used to measure the fair value of the asset
shall be adjusted for transaction costs.
15. Which statement is incorrect regarding fair value of an
asset at initial recognition in accordance with PFRS 13?
a. When an asset is acquired in an exchange
transaction, the transaction price is the price paid
to acquire the asset (an entry price).
b. The fair value of the asset is the price that would
be received to sell the asset (an exit price).
c. In many cases the transaction price will equal the
fair value (eg that might be the case when on the
transaction date the transaction to buy an asset
takes place in the market in which the asset would
be sold).
d. If the transaction price differs from fair value, the
entity shall not recognize the resulting gain or loss.
16. To increase consistency and comparability in fair value
measurements and related disclosures, PFRS 13
establishes a fair value hierarchy that categorizes into
three levels the inputs to valuation techniques used to
measure fair value. Which of the following provides
the most reliable evidence of fair value?
a. Quoted prices in active markets for identical assets
that the entity can access at the measurement
date.
b. Quoted prices for similar assets in active markets.
c. Quoted prices for identical or similar assets in
markets that are not active.
d. Inputs other than quoted prices that are
observable for the asset.
17. Which of the following provides the least reliable
evidence of fair value?
a. Quoted prices in active markets for identical assets
that the entity can access at the measurement
date.
b. Quoted prices for identical or similar assets in
markets that are not active.
c. Inputs other than quoted prices that are
observable for the asset.
d. Unobservable inputs for the asset.
18. The following pertains to Smile Company’s biological
assets:
Price of the asset in the market
Estimated commissions to brokers and
dealers
Estimated transport and other costs
necessary to get asset to the market
Selling price in a binding contract to sell
P5,000
500
300
5,200
The entity’s biological assets should be valued at
a. P4,700
c. P4,400
b. P4,500
d. P4,200
19. The following pertains to the biological assets owned
by ABC Farms, Inc.:
Carrying amount at January 1
Purchases
Gain arising from changes in fair value
less costs to sell attributable to
physical changes
Gain arising from changes in fair value
less costs to sell attributable to
price changes
Sales
P459,570
26,250
15,350
24,580
100,700
The carrying amount of the biological assets on
December 31 is
a. P425,050
c. P525,750
b. P499,500
d. P451,300
20. The following pertains to the biological assets owned
by Ngitngit Farms, Inc.:
Carrying amount, January 1
Carrying amount, December 31
Purchases
Sales
P 800,000
1,080,000
230,000
110,000
The amount to be recognized in the current period
profit or loss related to these biological assets is
a. P280,000
c. P 50,000
b. P390,000
d. P160,000
Use the following information for next four questions.
A herd of 10 2 year old animals was held at January 1 of
the current period. On July 1, one animal aged 2.5 years
was purchased for 108 and one animal was born. No
animals were sold or disposed of during the period. Perunit fair values less costs to sell were as follows:
2 - year old animal on January 1
Newborn animal at July 1
2.5 - year old animal on July 1
New born animal on December 31
0.5 - year old animal on December 31
2 - year old animal on December 31
2.5 - year old animal on December 31
3 - year old animal on December 31
21. The carrying amount
December 31 is
a. P1,292
b. P1,400
of
biological
100
70
108
72
80
105
111
120
assets
The net amount to be recognized in 2016 profit is
a. P1,198,000
c. P593,000
b. P1,193,000
d. P563,000
SME TM
26. At the end of the reporting period, a tomato grower’s
vines are six months old and bearing fully developed
ripe tomatoes. The accumulated cost of the fruitbearing vines is P12,500 and their fair value is
P100,000. It is expected to cost the entity P5,000 to
sell the tomato crop at market. Once the tomatoes
have been harvested the then-worthless vines will be
abandoned. At the end of the reporting period:
a. The entity measures the tomatoes at P82,500, the
tomato vines at P12,500 and recognizes a gain of
P82,500 for the increase in fair value.
b. The entity measures the tomato-bearing vines at
P95,000 and recognizes a gain of P82,500 for the
increase in fair value.
c. The entity measures the tomato-bearing vines at
P100,000 and recognizes a gain of P87,500 for the
increase in fair value.
d. The entity measures the tomatoes at P95,000, the
tomato vines at P0 and recognizes a gain of
P82,500 for the increase in fair value.
Use the following information for next two questions.
as
of
c. P1,338
d. P1,320
22. The increase in fair value of biological assets in the
current period due to price change is
a. P 55
c. P 53
b. P222
d. P212
23. The increase in fair value of biological assets in the
current period due to physical change is
a. P 70
c. P237
b. P229
d. P167
24. Where there is a production cycle of more than one
year, PAS 41 requires separate disclosure of the
a. Physical change only.
b. Price change only.
c. Both a and b.
d. Neither a nor b.
25. An entity cultivates cattle for the fresh meat industry.
It slaughters its cattle and butchers the meat into cuts
before selling them to its meat wholesaler customers.
The entity’s statement of financial position at 31
December 2015 reported cattle at their fair value less
costs to sell of P1,000,000.
At 31 December 2016, when the fair value less costs
to sell of the entity’s herd is P1,500,000, the entity
slaughtered 40 per cent of its herd (10 cattle) incurring
slaughter costs of P5,000. The quoted price of a
carcass is P70,000 and the costs to sell are estimated
at P200 per carcass.
On 31 December 2016 the entity also incurs P30,000
direct costs in processing the carcasses into meat cuts
ready for sale to its customers.
At the end of the reporting period (31 December 2015) a
tomato grower’s vines are bearing developed ripe
tomatoes. On 31 December 2015, the fair value less costs
to sell of the vines with the soon-to-be harvested tomatoes
attached is measured at P24,000. The initial cost of the
vines was P5,500 and the cost of growing them during
2015 (planting, irrigation and fertilization) was P7,250.
The entity harvested its tomatoes on 3 January 2016. The
cost of harvesting the tomatoes is P1,000. The quoted
price per kilogram of tomatoes is P50 and costs to sell are
estimated at 1 per cent of quoted price. The entity
harvests 500 kilograms of tomatoes.
The life of a tomato vine is about 6 months. After harvest,
the vine has come to the end of its life and its fair value is
negligible.
27. The fair value adjustment gain to be recognized in
2015 profit or loss is
a. P18,500
c. P10,250
b. P11,250
d. Nil
28. The fair value adjustment gain on initial recognition of
agricultural produce to be recognized in 2016 profit or
loss is
a. P24,750
c. P750
b. P23,750
d. Nil