BIOLOGICAL ASSETS
.- PAS 41 used in accounting for agricultural activity
Agricultural activity
.-the management by an entity of the biological transformation of biological assets for sale into agricultural produce, or additi
Common features
a. CAPABILITY TO CHANGE- living animals and plants are capable of biological transformation
b. MANAGEMENT OF CHANGE- management facilitates biological transformation by enhancing, or at least stabilizing, conditio
c. MEASUREMENT OF CHANGE- change in quality or quantity brought about by biological transformation or harvest is measure
Biological transformation results in the following types of outcomes:
a. Assets changes through
1. growth
2. degeneration
3. procreation
b. Production of agricultural produce
Biological asset
.-a living animal or plant.
Agricultural produce
.-the harvested product of the entity's biological assets.
Consumable Biological Assets
.-are those that are to be harvested as agricultural produce or sold as biological assets
Bearer Biological Assets
.-are matured biological assets held for more than one financial period capable for bearing consumable biological asset to be h
.-are held for generation of income from sale of produce
Bearer plant asset
.- accounted as PPE under PAS 16 provided it will meet the criteria in the said standard
.-produce growing on bearer plant is a biological asset
Bearer animal asset
.-accounted as biological asset under PAS 41
INITIAL RECOGNITION
.-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 events;
b. it is probable that future economic benefits will flow to the enterprise; and
c. the fair value or cost of the asset can be measured reliably.
INITIAL AND SUBSEQUENT MEASUREMENT
1. Biological asset
.-measured at its fair value less cost of disposal, except when the fair value cannot be measured reliably. Fair value less cost of
Estimated selling price or market price
less: Transport and other necessary cost to bring the asset to a market
Fair Value
less: Cost of Disposal
Commission to brokers and dealers xx
Levies by regulatory agencies and commodity exchanges xx
Transfer taxes and duties xx
Fair value less cost of disposal
2. Agricultural produce
.-Initial recognition- fair value less cost of disposal at the point of harvest
.-Subsequent measurement-measured in accordance with PAS 2 Inventories or another applicable standard
Inability to measure Fair value reliably for Biological asset
Cost xx
Less: Accum. Dep. and Imp. Losses (xx)
Carrying amount xx
Cost incurred after harvest
.-shall be recognized as expense when incurred.
Biological assets attached to land
.- land and biological assets should be accounted seperately. In case there is no available separate market for biological assets
Combined market price xx
Less: FV of the raw land and land improvements (xx)
FV of Biological assests xx
Gains and Losses
A. Initial recognition
.-recognized in P/L in the period in which they arise
Biological assets
.-a loss may arise on initial recogniton, because cost to sell are deducted in determining FV less cost of disposal of a
.-a gain may arise on initial recognition, such as when a calf is born
Agricultural Produce
.-a gain or loss may arise on initial recognition as a result of harvesting
B. Subsequent measurement
.-gains/ losses from changes in fair value less cost of disposal of biological assets shall be included in P/L for the period in whic
.-Change in FV of biological assets is partly Physical change and partly Price change. Separate disclosure is encouraged, but not
1. Due to Physical Change
a. For biological assets existing at the beginning of the year and biological assets acquired during the year
FVLCD @ end of each year using current age
Less: FVLCD @ end of each year using age @beg of the year or at date of acquisition
Gain or (loss) per unit
Multiply: Quantity or number of biological asset
Gain or (loss) due to physical change
b. For biological assets born during the year
FVLCD @ end of each year using current age
Less: FVLCD @ end of each year using age @date of birth
Gain or (loss) per unit
Multiply: Quantity or number of biological asset
Total gain(loss)
Add: FVLCD at the date of birth x quantity
Gain or (loss) due to physical change
2. Due to Price Change
For biological assets existing at the beginning of the year,acquired during the year and born during the year
FVLCD @ end of each year using age @beg of the year or at date of acquisition or birth
Less: FVLCD @ beg of each year using age @beg of the year or at date of acquisition or birth
Gain or (loss) per unit
Multiply: Quantity or number of biological asset
Gain or (loss) due to price change
Illustration
Elephant Comp. has a herd of 15, one-year old animals on January 1, 2018. Three animals were born on July 1, 2018. Fair valu
One-year old animal at Jan. 1, 2018 4,500.00
Newborn animal at July 1, 2018 3,000.00
One-year old animal at Dec. 31, 2018 4,600.00
Newborn animal at December 31, 2018 3,300.00
Two-year old animal at Dec. 31, 2018 5,500.00
0.5 year-old animal at Dec. 31, 2018 3,400.00
Required:
1. Compute the gain or loss due to price change
2. Compute the gain or loss due to physical change
3. Prepare all related journal entries
Solution
Requirement 1 Requirement 3
One-year old animal(4,600-4,500)X15 1,500 1. To record the new born biological as
Newborn Animal(3,300-3,000)x3 900 Biological asset(3,000x3)
Gain due to price change 2,400
2. To record the gain due to physical ch
Requirement 2 Biological asset
Two-year old animal(5,500-4,600)X15 13,500
0.5 year-old animal(3,400-3,300)X3 300 3. To record the gain due to price chan
Total 13,800 Biological asset
Gain on initial recog-newborn(3,000x3) 9,000
Gain due to physical change 22,800
Plant with dual use
.-reported as biological asset and not as a bearer plant
A plant may have dual use, namely:
a. The plant is cultivated for bearing agricultural produce
b. The plant itself is being sold either as a living plant or an agricultural produce
Animal-related recreational activities
.-managing recreational activities, for example, game parks and zoos, is not agricultural activity
.-shall be accounted for in accordance with PAS 16(PPE)
GOVERNMENT GRANTS RELATED TO A BIOLOGICAL ASSET
Category Characteristics
Conditional In case of non-compliance, entire grant will Deferred-entire amount an
be returned as income when conditio
Grant allow portion of it to be retained Deferred and will be amor
according to the time lapsed required perio
Unconditional
Grant has become receivable Income-entire receivab
gricultural produce, or additional biological assets.
r at least stabilizing, conditions necessary for the process to take place
mation or harvest is measured and monitored as a routine management function
mable biological asset to be harvested as agriculture produce
eliably. Fair value less cost of disposal is determined as follows:
xx
(xx)
xx
(xx)
xx
e market for biological assets:
g FV less cost of disposal of a biological asset
in P/L for the period in which it arises
losure is encouraged, but not required.
uired during the year
xx
(xx)
xx
xx
xx
xx
(xx)
xx
xx
xx
xx
xx
d born during the year
xx
(xx)
xx
xx
xx
orn on July 1, 2018. Fair values per unit less costs to sell are summaraized below:
rd the new born biological asset on July 1, 2018
Biological asset(3,000x3) 9,000
Gain on initial recog(physical change) 9,000
rd the gain due to physical change on Dec. 31, 2018
Biological asset 13,800
Gain due to physical change 13,800
rd the gain due to price change on Dec. 31, 2018
Biological asset 2,400
Gain due to price change 2,400
Measurement
Deferred-entire amount and recognized
as income when conditions are met
Deferred and will be amortized over the
required period
Income-entire receivable amount
