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CBMA- Module- Biological Assets
Accounting (De La Salle Lipa)
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PAS 41- AGRICULTURE
LEARNING OBJECTIVES
1. Describe the nature of biological assets, bearer plants and agricultural produce.
2. Measure biological assets upon initial recognition and subsequent recognition
3. Measurement of agricultural produce
4. Disclosure requirement
PAS 41 prescribes accounting treatment and the related financial reporting related to agricultural activity. This is
applied on biological assets and their biological transformation and to agricultural produce at the point of harvest
only.
Biological assets are living plants or animals which can be described as boars, goats, chickens, forest plantation, and
fruit trees.
Agricultural produce is the harvested product of the entity’s biological assets. This can be exampled by milk from
dairy cattle, harvested fruits from its trees.
Scope
•
Biological assets – living plant or animal (except bearer plants)
•
Agricultural produce – point of harvest
•
Excludes:
–
Land related to agricultural activity
–
Intangible assets related to agricultural activity
–
Biological assets held for provision or supply of services
Bearer Plants
•
A bearer plant is a living plant that:
o
Is used in the production or supply of agricultural produce:
o
Is expected to bear produce for more than one period: and
o
Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
Bearer plants are accounted for in accordance with PAS16.
EXAMPLES:
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De La Salle Araneta University
Salvador
Araneta Campus, Victoneta Ave., Malabon City
Agricultural Activity
•
Management of biological transformation & harvest of biological assets
•
Diverse activities
•
–
Capability to change
–
Management of change
–
Measurement of change
Biological transformation results in asset changes or production of agricultural produce
Recognition
•
Recognize biological asset or agricultural produce when:
–
Entity controls asset as result of past event
–
Probable future economic benefits/service potential will flow to entity
–
Fair value or cost can be measured reliably
Measurement at Initial Recognition
•
Measured at fair value less costs to sell
•
If non-exchange transaction, same
•
Agricultural produce harvested from biological assets measured at fair value less costs to sell at point of
harvest
•
Grouping according to attributes allowed
Subsequent Measurement
•
Measured at Fair Value less Costs to Sell at each reporting date
•
Agricultural Produce - Fair Value less Costs to Sell at point of harvest
•
Gains or losses – Recognized in Surplus or Deficit for the period in which they arise
Disclosure
•
Gain/loss on initial recognition
•
Consumable/bearer biological assets
•
Biological assets held for sale and those held for distribution at no/nominal charge
•
Nature of activities & estimates of physical quantities
•
Reconciliation
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De La Salle Araneta University
Salvador
Araneta Campus, Victoneta Ave., Malabon City
PAS 41- AGRICULTURE- applies to agricultural produce only at the point of harvest. Subsequently the
agricultural produce shall be measured in accordance with PAS 2.
1.
Blue Company had the following items in 2020 related to its biological assets (sheep and cattle):
Acquisition cost of biological assets - January 1, 2020
Fair value surplus on initial recognition
at fair value on January 1, 2020
Cost to sell of biological assets on acquisition date
Increase in fair value due to price and physical change
Increase in fair value due to new born biological asset
Decrease in fair value due to harvest
Wool and milk harvested during the year but still
on hand at year-end
P1,000,000
200,000
50,000
120,000
20,000
40,000
200,000
Q1. What amount should be reported for biological asset on December 31, 2020 Statement of financial
position?
a. P1,050,000
b. P1,300,000
c. P1,250,000
d. P1,290,000
Q2. What amount should be reported as net gain (loss) on biological asset on 2020 Income statement?
a. P100,000
b. P50,000
c. (P100,000)
d. (P150,000)
2.
Farmville Inc. purchased a plantation forest for P10,000,000. There were no separate fair market value for the
trees but the fair market value of the land and land improvements amounted to P3,000,000. What is the
amount of biological asset?
a. P10,000,000
b. P3,000,000
c. P7,000,000
d. P13,000,000
3.
On January 1, 2020, Black Company purchased 100 horses at an auction price of P5,000,000. Black incurred
P150,000 auction fee and transportation cost necessary to bring the horses to the farm amounted to
P100,000. Black would have to incur similar transportation cost if it was to sell the horses in an auction. The
biological assets should be initially recognized at
a. P5,000,000
b. P4,750,000
c. P4,850,000
d. P4,900,000
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De La Salle Araneta University
4.
Salvador
Araneta Campus, Victoneta Ave., Malabon City
On January 1, 2020, Black Forest Company purchased 50 cows which are 2 years old for P20,000 each for its
dairy milk farm. On August 1, 2021, the cows gave birth to 5 calves. There were no animals sold, died or
additional purchases during 2020 and 2021.
The fair values of the biological assets in the active market are as follows:
New born
5 months old
2 years old
3 years old
4 years old
01/01/20
P–
–
20,000
33,000
35,000
12/31/20
P–
–
21,000
30,000
38,000
08/01/21
P5,000
5,500
22,000
28,000
40,000
12/31/21
P4,500
6,000
24,000
32,000
39,000
Cost to sell for each biological asset is 5% of fair value.
Q1. What amount should Black Forest report the biological assets in the December 31, 2020 Statement of
financial position?
a. P1,567,500
b. P1,425,000
c. P1,520,000
d. P1,500,000
Q2. What amount of net gain (loss) should be reported in the 2021 income statement?
a. P555,000
b. P427,500
c. P406,000
d. P456,000
Q3. What amount of gain (loss) in 2021 is attributable to price & physical change, respectively?
a. P92,625 and P363,375
b. P92,625 and P339,625
c. P42,625 and P339,625
d. P42,625 and P363,375
Q5. What amount should Black Forest report the biological assets in the December 31, 2021 Statement of
financial position?
a. P1,881,000
b. P1,852,500
c. P1,950,000
d. P1,980,000
5.
On October 1, 2020, Hatori Company, a manufacturer of expensive branded wines harvested grapes and
were ready for production. Hatori reports its inventory at expected exit value. As of December 31, 2020,
grapes not yet issued to production had the following data:
Cost
Fair value less cost to sell
Net realizable value
October 1, 2020
P1,200,000
1,000,000
980,000
December 31, 2020
P1,200,000
1,100,000
1,250,000
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De La Salle Araneta University
Salvador
Araneta Campus, Victoneta Ave., Malabon City
The grapes inventory should be reported in the December 31, 2020 balance sheet at
a. P1,200,000
b. P1,000,000
c. P1,100,000
d. P1,250,000
Problem A (IFRS)
Indolent Company provided the following data for 2019:
Value of biological asset at acquisition cost on
January 1, 2019
Fair valuation surplus on initial recognition at fair
value on January 1, 2019
Change in fair value on December 31, 2019 due to
growth and price fluctuation
Decrease in fair value due to harvest
Decrease due to sale of biological asset
600,000
700,000
100,000
90,000
400,000
Required:
1. Prepare journal entries for 2019.
2. Determine the carrying amount of the biological asset on December 31, 2019.
Problem B (IFRS)
Query Company has a herd of 10 2-year old animals on January 1, 2019. One animal aged 2.5 years
was purchased on July 1, 2019 for P108, and one animal was born on July 1, 2019. No animals were sold
or disposed of during the year. The active market provided the following fair value less cost of disposal:
2 – year old animal on January 1
2.5 – year old animal on July 1
New born animal on July 1
2 – year old animal on December 31
2.5 – year old animal on December 31
New born animal on December 31
3 – year old animal on December 31
0.5 year old animal on December 31
100
108
70
105
111
72
120
80
Required:
1. Prepare journal entries for the current year to recognize the transactions relating to the biological
asset.
2. Determine the price change and physical change in fair value.
Problem C (IFRS)
Farmland Company produces milk on its farms. The entity produces 20% of the community’s milk that
is consumed. Farmland Company owns 5 farms and has a stock of 2,100 cows and 1,050 heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000
kilograms of milk. However, on December 31, 2019 the entity is currently holding 50,000 kilograms of
milk in powder. On December 31, 2019, the biological assets are:
Purchased on or before January 1, 2019
Purchased on January 1, 2019
Purchased on July 1, 2019
(3 years old)
(2 years old)
(1.5 years old)
2,100
300
cows
heifers
750
heifers
No animals were born or sold during the current year. The unit fair value less cost of disposal is as
follows:
January 1, 2019:
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De La Salle Araneta University
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Araneta Campus, Victoneta Ave., Malabon City
1- Years old
2- Years old
3,000
4,000
July 1, 2019:
1- Year old
December 31, 2019:
1- Year old
2- Year old
1.5- Year old
3- Year old
3,000
3,200
4,500
3,600
5,000
The entity has problems during the year. Contaminated milk was sold to customers. As a result, milk
consumption has gone down. The entity’s business is spread over different parts of the country.
There are 600 cows and 200 heifers in the Batangas farm and all these animals had been purchased on
January 1, 2019.
Required:
1. Determine the fair value of the biological assets on January 1, 2019.
2. Determine the fair value of the biological assets purchased on July 1, 2019.
3. Determine the fair value of the biological assets on December 31, 2019.
4. Determine the change in fair value and indicate the price change and physical change.
5. Explain the measurement of the milk inventory on December 31, 2019.
Problem D (IFRS)
Forester Company has reclassified certain assets as biological assets. The total value of the forest
assets is P6,000,000 which comprises P5,100,000 freestanding trees, P600,000 land under trees and
P300,000 roads in forest. What amount should be reported as biological assets?
a. 5,100,000
b. 5,700,000
c. 5,400,000
d. 6,000,000
Problem E (IAA)
Africa Company purchased 2,000 llamas on January 1, 2019. These llamas will be sheared semiannually
and their wool sold to specialty clothing manufacturers. The llamas were purchased for P5,000,000.
During the current year, the change fair value due to growth and price changes is P350,000, the wool
harvested but not yet sold is valued at net realizable value of P100,000, and the decrease in fair value
due to harvest is P50,000. What is the carrying amount of the biological asset on December 31, 2019?
a. 5,300,000
b. 5,400,000
c. 5,400,000
d. 5,100,000
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