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
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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
Agricultural activity
Biological
transformation
Harvest
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The harvested produce of the entity’s biological assets
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.
Comprises the processes of growth, degeneration, production, and
procreation that cause qualitative or quantitative changes in a biological
asset
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
Requirements for
recognition
1.
2.
3.
Measurement of
biological assets
Measurement of
agricultural
produce
Gains and losses
the entity controls the asset as a result of past events;
it is probable that future economic benefits associated with the asset will flow to the
entity; and
the fair value or cost of the asset can be measured reliably.
•
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Initial – fair value less costs to sell
Subsequent – fair value less costs to sell
When fair value cannot be measured reliably – cost less any accumulated depreciation
and any accumulated impairment losses
•
•
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Initial – fair value less costs to sell at the point of harvest
Subsequent – lower of cost or net realizable value (PAS 2)
Point-of-sale costs include brokers’ and dealers’ commissions, any levies by regulatory
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
•
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
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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 straightpiecemeal 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
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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.
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Description of the nature of an enterprise's activities with each group of biological assets and nonfinancial 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