PAS 41 AGRICULTURE“”
LEARNING OBJECTIVES:
Differentiate the following: biological assets, bearer plants, agricultural produce and
inventory.
State the initial and subsequent measurement of biological assets and agricultural produce.
Account for government grants that are within the scope of PAS 41.
INTRODUCTION
Agriculture means farming or the process of producing crops and raising livestock.
PAS 41 prescribes the accounting and disclosures for agricultural and related
activity.
PAS 41 applies to the following when they are relate to agricultural activity:
1. Biological assets, except bearer plants
2. Agricultural produce at the point of harvest; and
3. Unconditional government grants related to biological asset measured at its fair value
less costs to sell.
PAS 41 does not apply to the following:
1. Land related to agricultural activity (PAS 16 and PAS 40).
2. Bearer plants (PAS 16). However, PAS 41 applies to the produce on those bearer plants.
3. Government grants related to bearer plants (PAS 20).
4. Intangible assets related to agricultural activity (PAS 38)
PAS 41 applies to agricultural activity at the point of harvest. After the harvest, PAS
2 Inventories or other applicable standard is applied.
BIOLOGICALASSETS
Biological assets are living animals and living plants. It can be either consumable
biological assets or bearer biological assets.
a) Consumable biological assets
Those that are to be harvested as agricultural produce or sold as biological assets.
Examples:
1. Livestock intended for the production of meat
2. Livestock held for sale
3. Fish in farms
4. Crops such as maize and wheat
5. Produce on a bearer plant
6. Trees being grown for lumber
b) Bearer biological assets
Those that are held to produce bear produce. Only the produce is harvested while the
bearer biological asset remains. Examples:
1. Livestock from which milk is produced
2. Fruit trees from which fruit is harvested
Living animals, whether consumable or bearer, are classified as biological assets if
they relate to agricultural activity. However, living plants are classified as biological
assets only if they are consumable. Bearer plants are classified as PPE.
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 period; and
c) Has a remote likelihood of being sold as agricultural produce, except for incidental scrap
sales.
Bearer plants that may be sold as a scrap when no longer used are not necessarily
precluded from being classified as bearer plants.
Items
Applicable Standard
Bearer and consumable animals PAS 41
Consumable plants
PAS 41
Bearer plants PAS 16
Produce growing on bearer plants PAS 41
AGRICULTURAL PRODUCE
Agricultural produce is the harvested produce 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.
For example: Apple Tree
a) Apple tree – bearer plant, accounted under the PAS 16 PPE
b) Apple fruits growing on the tree – biological asset PAS 41
c) Harvested apple – agricultural produce PAS 41
d) Apple pie – subjected to processing PAS 2 Inventories
Type of Asset
Nature of Asset
Biological Asset (PAS 41). However bearer plants are class
Living animal or plant
ified as PPE (PAS 16).
Unprocessed harveste
Agricultural produce (PAS 41)
d product
Processed product Inventory (PAS 2)
The table below shows examples of items that are included and excluded from the
scope of PAS 41:
Bearer
Biological As
Plants Agricultural Produce at the p Products after harvest
sets
(PAS 16 oint of harvest (PAS 41) (PAS 2 Inventories)
(PAS 41)
PPE)
Sheep Wool Yarn, Carpet
Trees in a timb
Felled trees Logs, lumber
er plantation
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 bus
Picked leaves Tea
hes
Grape vi
Picked grapes Wine
nes
Fruit tre
Picked fruit Processed fruit
es
Oil palm
Picked fruit Palm oil
s
Rubber t
Harvested latex Rubber products
rees
AGRICULTURAL ACTIVITY
Agriculture 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. Examples:
a) Raising livestock
b) Forestry
c) Annual or perennial cropping
d) Cultivating orchards and plantations
e) Floriculture
f) Aquaculture (including fish farming)
The following are the common features of agricultural activities:
1. Capability to change
Living animals and plants are capable of biological transformation.
2. Management of change
Management facilitates biological transformation by enhancing, or at least stabilizing,
conditions necessary for the process to takes place. For example, harvesting from unmanaged
resources (such as ocean fishing and deforestation) is not agricultural activity.
3. Measurement of change
The change in quantity or quality brought about by biological transformation or harvest is
measured and monitored as a routine management functions.
Biological Transformation
Comprises the processes of growth, degeneration, production and procreation that cause
qualitative or qualitative changes in a biological assets.
Biological transformation results from the following types of outcome:
a) Asset changes through:
1. Growth
An increase in quantity or improvement in quality of an animal or plant
2. Degeneration
A decrease in quantity or deterioration in quality of an animal or plant
3. Procreation
Creation of additional living animal or plant.
b) Production of agricultural produce
RECOGNITION
A biological asset or agricultural produce is recognized when it meets the asset
recognition criteria, including the reliable measurement of its fair value or cost.
MEASUREMENT
1. Biological Assets
Biological assets are initially and subsequently measured at fair value less cost to
sell (cost of disposal). The gain or loss arising from initial measurement and
subsequent changes in fair value less cost to sell (cost of disposal) are recognized in
profit or loss.
A gain may arise on the initial recognition of a biological asset, for example, when a
calf is born. A loss may arise on the initial recognition of a biological asset because
costs to sell (cost of disposal) are deducted from fair value.
Biological assets whose fair value cannot be reliably determined on initial recognition
are initially measured at cost and subsequently measured at cost less accumulated
depreciation and accumulated impairment losses. Once the fair value becomes
reliably measurable, the biological asset is measured at its fair value less cost to sell
(cost of disposal).
A biological asset that is previously measured at fair value less cost to sell is
continued to be measured at fair value less cost to sell (cost of disposal) until it is
disposed of.
2. Agricultural Produce
Agricultural produce shall be measured always at fair value cost to sell (cost of
disposal) at the point of harvest. The gain or loss arising from the initial
measurement is recognized in profit or loss.
Fair value
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
Cost to sell (Cost of disposal)
the incremental costs directly attributable to the disposal of an asset, excluding finance
costs and income taxes
An entity uses PFRS 13 Fair Value Measurement when measuring the fair value of
biological assets and agricultural produce. Contract prices are not necessarily
relevant when measuring fair value because fair value is not adjusted by the
existence of the contract.
Cost may sometimes approximate fair value, particularly when:
1. little biological transformation has taken place since initial cost incurrence (e.g.,
seedlings planted immediately prior to the end of reporting period or newly acquired
livestock)
2. the impact of the biological transformation on price is not expected to be material (e.g.,
the initial growth in a 30 year pine tree plantation production cycle)
Cash flows on finance costs, taxes, and cost of reestablishing biological assets after
harvest are not considered when measuring fair value.
Cost to sell (cost of disposal) include the following:
1. Commissions to brokers
2. Levies by regulatory agencies and commodity exchanges
3. Transfer duties and duties
Cost to sell do not include transport costs, advertising costs, income taxes and
interest expense.
If the location is a characteristic of the biological asset, the price in the principal (or
most advantageous) market shall be adjusted for the transport costs.
BIOLOGICAL ASSETS ATTACHED TO LAND
Biological assets attached to the land (example, trees in a plantation forest) may not
have a separate market but an active market may exist for the combined assets (i.e.,
biological assets, raw land, and land improvements) as a package. In such case, the
fair value of the raw land and land improvements may be deducted from the fair
value of the combined assets to arrive at the fair value of the biological assets.
GOVERNMENT GRANTS
Only government grants related to biological assets measured at fair value less cost
to sell are accounted for under PAS 41. Those that are related to biological assets
measured at cost less accumulated depreciation and accumulated impairment
losses are accounted for PAS 20 Accounting for Government Grants and Disclosure
of Government Assistance.
Under the PAS 41, if the grant is:
a) Unconditional – the grant is recognized in profit or loss when it becomes receivable
b) Conditional – the grant is recognized in profit or loss when the attached conditions are
met
c) Conditional but the terms of the grant allow part of it to be retained according to the
time that has elapsed – a portion of the grant is recognized in profit or loss as time passes
ENCOURAGED DISCLOSURES
Disclosure of the following information is encouraged but not required:
1. Disclosure of consumable and bearer biological assets.
2. Disclosure of mature and immature biological assets
Mature biological assets
Those that have attained harvestable specifications (for consumable biological assets) or
are able to sustain regular harvests (for bearer biological assets)
3. Disclosure of breakdown of total gain or loss from changes in fair value less cost to sell
during the period of physical change and price change.
Price Change
Difference between prices at the beginning and end of the period without considering
changes in price due to physical growth of biological assets. Age of biological asset at the
end of the period is ignored.
Physical Change
Difference between prices at the end of the period considering the price due to physical
growth. FVLCS at the beginning of the period is ignored
