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06 Biological Assets - Revised
BS Accountancy (University of Eastern Philippines)
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Page 1 of 7 | FAR Handouts No. 06
BIOLOGICAL ASSETS
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
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SCOPE OF PAS 41
Inclusions
PAS 41, applies to the following WHEN THEY RELATE TO AGRICULTURAL ACTIVITY:
(1)
Biological assets; except bearer plants
(2)
Agricultural produce at the point of harvest
(3)
Unconditional government grants related to biological assets
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KARIM G. ABITAGO, CPA
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Exclusions
PAS 41 DOES NOT apply to the following:
(1)
Land related to agricultural activity (PAS 16)
(2)
Bearer plants (PAS 16) NOTE: PAS 41 applies on the agricultural produce of bearer plants.
(3)
Government grants related to bearer plants (PAS 20)
(4)
Intangible assets related to agricultural activity (PAS 38)
AGRICULTURE - 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.
Features of agriculture
The common features of agricultural activity are as follows:
(a)
Capability to change
(b)
Management of change
(c)
Measurement of change
Capability to change
Living animals and plants are capable of biological transformation.
Biological transformation results from the following types of outcome:
1.
Asset changes through:
(a)
Growth - an increase in quantity or improvement in quality of an animal or plant.
(b)
Degeneration - a decrease in quantity or deterioration in quality of an animal or plant.
(c)
Procreation - creation of additional living animal or plant.
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(3)
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DEFINITION OF TERMS
(1)
BIOLOGICAL ASSETS - are living animals and living plants.
Biological assets are classified into:
As to consumption
(a)
Consumable biological assets – those that are to be harvested as agricultural produce or sold as biological
assets.
(b)
Bearer biological assets – those that are held to bear produce. Only the agricultural produce is harvested
while the biological asset remains.
As to maturity
(a)
Mature biological assets - are those that have attained harvestable specifications (for consumable biological
assets) or are able to sustain regular harvests (for bearer biological assets).
(b)
Immature biological assets - are those that DO NOT attained harvestable specifications (for consumable
biological assets) or are able to sustain regular harvests (for bearer biological assets).
(2)
AGRICULTURAL PRODUCE – is the harvested produce of the entity’s biological assets.
NOTE: Agricultural produce refers to those that are in their NATURAL STATE and are NOT YET processed.
PROCESSED agricultural produce are treated as INVENTORIES.
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Page 2 of 7 | FAR Handouts No. 06
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
2.
Production of agricultural produce such as latex, tea leaf, wool and milk.
Management of change
The agricultural activity must be "managed" to facilitate biological transformation by enhancing or at least stabilizing
conditions necessary for the process to take place.
NOTE: Management of change distinguishes agricultural activity from other activities.
Not Agriculture
Ocean Fishing
Deforestation
Hunting in the Forest
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Agriculture
Raising Livestock
Forestry
Annual or Perennial Cropping
Cultivating Orchards and Plantation
Aquaculture and Floriculture
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Measurement of change
The change in quality or quantity brought about by biological transformation or harvest is measured and monitored
as a routine management function.
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The table below shows examples of items that are excluded and included from the scope of PAS 41
AGRICULTURAL
PRODUCTS AFTER
BIOLOGICAL ASSET BEARER PLANTS
PRODUCE AT THE POINT
FURTHER PROCESSING
(PAS 41)
(PAS 16)
OF HARVEST
(PAS 2)
(PAS 41)
Sheep
Wool
Yarn, Carpet
Trees in 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
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BEARER PLANTS – 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 and
(c)
has a remote likelihood of being sold as agricultural produce except for incidental scrap sales.
NOTES:
•
Agricultural produce growing on bearer plants remains within the scope of PAS 41.
•
A plant with dual use is reported as BIOLOGICAL ASSET and not as bearer plant. A plant may have a dual
use, namely:
(a)
The plant is cultivated for bearing agricultural produce.
(b)
The plant itself is being sold either as living plant or an agricultural produce.
•
Biological assets are often physically attached to land which usually do not have a separate market. On the
other hand, an active market may exist for the combined assets which is used in determining the fair value of
the biological assets (i.e. the fair value of the land may be deducted from the fair value of the combined
assets to arrive at the fair value of the trees in the plantation forest).
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(4)
RECOGNITION
An entity shall recognize a biological asset or an agricultural produce when:
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Page 3 of 7 | FAR Handouts No. 06
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
(a)
(b)
(c)
The entity controls the asset as a result of past event.
It is probable that future economic benefits associated with the asset will flow to the entity.
The fair value or cost of the asset can be measured reliably.
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MEASUREMENT
BIOLOGICAL ASSETS
Initial Measurement – Fair Value less Costs to Sell / Carrying Amount / Cost
Subsequent Measurement – Fair Value less Costs to Sell
NOTE:
(1)
There is a rebuttable presumption that ON INITIAL RECOGNITION the fair value cannot be measured reliably. This
presumption is not applicable on subsequent measurement since once fair value becomes reliably measured, the
biological asset is continued to be measured at fair value less costs to sell until disposal.
(2)
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 at the measurement date. An entity must use PFRS 13 Fair Value Measurement when
measuring the fair value of biological assets and agricultural produce.
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PFRS 13, paragraph 72, enumerates the fair value hierarchy or best evidence of fair value as follows:
1.
Level 1 inputs are the quoted prices in an active market for identical assets. An active market is a market in
which transactions for the asset or liability take place with sufficient regularity and volume to provide pricing
information on an on-going basis. A principal market is the market with the greatest volume and level of
activity for the asset or liability.
2.
Level 2 inputs are observable inputs either directly or indirectly. Level 2 inputs include quoted prices for
similar assets in an active market and quoted prices for identical or similar assets in an inactive market.
3.
Level 3 inputs are unobservable inputs for the asset usually developed by the entity using the best available
information from the entitys own data.
An example is the financial forecast of expected cash inflows from the asset.
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(4)
If there are 2 or more active markets, use the price in the principal market or if none the price in the most
advantageous market between the active markets under consideration.
Cost to Sell or Cost of disposal is the incremental cost directly attributable to the disposal of an asset.
Inclusion
Exclusion
Commission to brokers
Transport cost
Levies by regulatory agencies
Income taxes
Transfer taxes and duties
Interest expense
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(3)
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AGRICULTURAL PRODUCE
Initial Measurement – Fair Value less costs to sell
Subsequent Measurement – PAS 2 or other applicable standards
NOTE: In all cases, an entity shall measure agricultural produce at the point of harvest at fair value less cost of disposal.
The initial measurement will be the deemed cost for subsequent accounting using PAS 2 or other applicable standards.
GAINS AND LOSSES
ON INITIAL RECOGNITION
Gains and losses on initial recognition of biological assets and agricultural produce is presented in profit or loss.
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Initial recognition of biological assets
Gain on initial recognition arises when the total cash outlay for the biological asset is less than fair value less cost to sell.
On the other hand, loss on initial recognition arises when the total cash outlay for the biological asset is more than fair
value less cost to sell
Initial recognition of agricultural produce
Usually gain arises on initial recognition of agricultural produce unless it was harvested from a consumable biological
asset then loss on initial recognition may arise.
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Page 4 of 7 | FAR Handouts No. 06
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
ON CHANGES IN FAIR VALUE
Gains and losses on changes in fair value of biological assets are presented in profit or loss. These gains and losses
could be broke down into due to price change and due to physical change.
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Due to price change pertains to the difference between prices at the beginning and the end of the period without
considering changes in price due to physical growth of biological assets. The assumption is: SAME AGE (BEGINNING
AGE); DIFFERENT DATE
FORMULA: (PRICE END, BEG. AGE – PRICE BEG, BEG. AGE) x QUANTITY
Due to physical change pertains to the difference between prices at the end of the period considering changes in price
due to physical growth. FVCLS at the beginning of the period is ignored. The assumption is: DIFFERENT AGE; SAME
DATE (YEAR-END).
FORMULA: (PRICE END, END AGE – PRICE END, BEG. AGE) X QUANTITY + FVCLS OF NEWBORN
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WHEN TO RECOGNIZE INCOME?
When the grants becomes receivable
When the attached conditions are met
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Under PAS 41, if the government grant is:
NATURE OF CONDITION
Unconditional
Conditional
Conditional but terms of the grant allow part
of it be retained according to the time that
has elapsed
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ON GOVERNMENT GRANT
NOTE: Only government grants related to biological assets are accounted under PAS 41, government grants of PPE are
accounted under PAS 20. All income from government grants are presented in profit or loss.
Income as time passes using straight-line method
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PRESENTATION AND DISCLOSURE
PRESENTATION
Biological assets – normally NON-CURRENT ASSETS.
Agricultural produce – after the point of harvest, normally presented as INVENTORIES under CURRENT ASSETS unless
other standards apply.
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ENCOURAGED DISCLOSURES
(1)
Disclosure of consumable and bearer biological assets
(2)
Disclosure of mature and immature biological assets
(3)
Disclosure of breakdown of total gain or loss from changes in FVLCTS during the period attributable to price
change and physical change.
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Page 5 of 7 | FAR Handouts No. 06
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
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DISCUSSION EXERCISES
STRAIGHT PROBLEMS
1.
The following information pertains to the agricultural activity of ZIMBABWE CORP. for the year ended December
31, 2021:
Fruit trees
300,000
Picked fruit
100,000
Animals related to recreational activities
350,000
Dairy cattle
200,000
Bottled milk
120,000
Lumber and logs
180,000
Land used in agricultural activity
600,000
Coffee plants
170,000
Harvested coffee beans
60,000
Peanut plants
160,000
Plants with dual use
450,000
Wooden furniture
130,000
Oil palms
200,000
Palm oil
70,000
Sheep
90,000
Wool
40,000
Pigs
150,000
Carcasses
85,000
Cured ham
70,000
Maize plants
175,000
Trees in lumber plantation
420,000
Roads to gain access in the lumber plantation
550,000
REQUIREMENTS: Determine the total amount of the following:
(a)
Biological assets under PAS 41
(c)
Property, Plant and Equipment under PAS 16
(b)
Agricultural produce under PAS 41
(d)
Inventory under PAS 2
The following information is available for the biological assets of ZAMBIA CORP. on the acquisition date, January 1,
2021:
ACTIVE MARKET 1
ACTIVE MARKET 2
Market price
P1,000
P1,100
Commissions to brokers
60
40
Transfer taxes
40
30
Transport costs
80
100
REQUIREMENTS:
(a)
If “ACTIVE MARKET 1” is the principal market, how much should the biological assets initially measured?
(b)
If neither of the markets is considered as principal market for the biological asset, what amount of biological
asset be recognized in the financial statements?
3.
UGANDA CORP. is engaged producing milk which are later sold to various ice cream manufacturers. Information
regarding activities relating to its milking cows during the current year is as follows:
Carrying amount on January 1
500,000
Increase due to purchases
330,000
Gain arising from change in fair value less cost of disposal attributable to price change
80,000
Gain arising from change in fair value less cost of disposal attributable to physical change 100,000
Decrease due to sales
125,000
Decrease due to harvest
30,000
Milk harvested during the year but not yet sold
88,000
REQUIREMENT: What is the carrying amount of the biological asset on December 31?
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2.
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Page 6 of 7 | FAR Handouts No. 06
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
4.
TUNISIA INC. has the following information regarding its biological assets and agricultural produce for the current
year 2021:
On January 1, 2021, TUNISIA acquired five pigs at its fair value of P25,000. Other necessary costs incurred in
relation to the purchase transaction is P5,000. It was estimated that if the asset is to be sold currently, costs to
dispose amounted to P2,500.
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On September 11, 2021, one of the pigs gave birth to four piglets with a fair value less cost to sell as of that date of
P1,500 each. Costs incurred to induce procreation such as costs of artificial insemination, costs of labor and
caesarean birth totalled P600 each piglet.
On November 15, 2021, the entity slaughtered 2 pigs incurring total slaughter costs of P1,800. The quoted price of
each carcass is P12,500 and the costs to sell are estimated at P500 per carcass.
5.
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Each pig and piglet has a fair value less cost to sell on December 31, 2021 of P6,800 e and P2,300, respectively.
REQUIREMENTS: (a) What amount should be reported as biological asset on December 31, 2021; (b) What is the
net amount to be presented in profit or loss in relation to the above transactions for the year 2021?
On January 1, 2021, TOGO INC. was granted by the national government grant of P400,000 to aid TOGO in
financing the domestication of ostriches. The ostriches are managed to produce eggs that are sold to the
community.
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On October 1, 2021, TOGO was granted a by a foreign government a grant of P600,000 to aid the company in
cotton plants. The grant requires TOGO to farm only within the city limits for 6 years. If any conditions is breached,
TOGO must return the grant taking into consideration the portion retained based on passage of time.
REQUIREMENT: What is the total income from government grant to be recognized by TOGO INC. for the year
2021?
On January 1, 2021, the biological assets of TANZANIA CORP. consists of ten 2-year old animals with fair value
less costs to sell of P10,000 each for a total of P100,000.
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P7,000
10,800
7,200
8,000
10,500
11,100
12,000
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Transactions during the year include:
•
One animal aged 2.5 years was purchased on July 1, 2021 for P10,800.
•
One animal was born on July 1, 2021.
•
No animals were sold or disposed of during the period.
Per unit fair values less costs to sell are as follows:
July 1, 2021
New-born animal
2.5 years old animal
December 31, 2021
New-born animal
0.5 year old animal
2 year old animal
2.5 year old animal
3 year old animal
REQUIREMENTS: Compute for the following:
(b)
Change in FV-CTS due to price change
(c)
Change in FV-CTS due to physical change
MULTIPLE CHOICE (THEORIES)
1.
Determine which of the following is outside the scope of PAS 41 assuming all are related to agriculture.
I.
Land where the consumable plants are growing.
II.
Government grant related to bearer animals.
A.
I only
C.
Both I and II
B.
II only
D.
Neither I nor II
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Page 7 of 7 | FAR Handouts No. 06
KARIM G. ABITAGO, CPA
BIOLOGICAL ASSETS
2.
Which of the following best defines agriculture?
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.
Comprises the processes of growth, degeneration, production and procreation that cause qualitative or
quantitative changes in a biological asset.
C.
Is the detachment of produce from a biological asset or the cessation of a biological assets life processes.
D.
Is the harvested product of the entitys biological assets.
E.
All of the choices
3.
Agricultural activity includes which of the following:
I.
Fishing in the open seas
A.
I only
B.
II only
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Logging on forest or plantation
Both I and II
Neither I nor II
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Evaluate whether the following statements are true or false in relation to PAS 41, Agriculture
I.
All animals related to agricultural activity is within the scope of PAS 41.
II.
It is presumed that the fair value of an agricultural activity can always be measured reliably.
III.
Biological assets may be initially and subsequently measured at cost.
A.
B.
C.
D.
Statement I
False
True
True
False
Statement II
False
False
True
True
Statement III
True
False
False
True
--- END OF HANDOUTS ---
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4.
II.
C.
D.
Effectiveness. Efficiency. Convenience
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