TOA-04

THEORY OF ACCOUNTS
BIOLOGICAL ASSETS

PAS 41: applied to account for the following when they relate to agricultural activity:
1. Biological assets – living animals and living plants
2. Agricultural produce (at the point of harvest only; processing after harvest is covered by PAS 2) – harvested
product of the biological asset
 Harvest – detachment of produce from a biological asset or the cessation of a biological asset’s life
processes
3. Government grant related to a biological asset

Agricultural activity / agriculture – 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: raising livestock, annual or perennial cropping, cultivating orchards or plantations,
floriculture, aquaculture
 Common features of agricultural activity:
i. Capability to change – living animals and plants are capable of biological transformation
ii. Management of change – to facilitate biological transformation by enhancing or at least
stabilizing conditions necessary for the process to take place
iii. Measurement of change – measurement and monitoring of the change in quality or quantity
brought about by biological transformation or harvest

Biological transformation – comprised of the processes of growth, degeneration, production and procreation that cause
qualitative or quantitative changes in a biological asset. Biological transformation results from the following types of
outcome:
a. Asset changes through:
i. Growth – a increase in quantity or improvement in quality of an animal or plant
ii. Degeneration – a decrease in quantity or deterioration in quality of an animal or plant
iii. Procreation – creation of additional living animal or plant
b. Production of agricultural produce such as latex, tea leaf, wool and milk

Recognition Principle for Biological Asset or Agricultural Produce:

1. The entity controls the asset as a result of a past event
2. It is probable that future economic benefits associated with the asset will flow to the entity
3. The fair value or cost of the asset can be measured reliably

Measurement of Biological Asset and Agricultural Produce

Biological asset: initial recognition and at each reporting period: at fair value less cost of disposal
Agricultural produce:
a. Agricultural produce as it grows – at fair value less cost of disposal with changes recognized in P&L as the
produce grows; presented as biological asset
b. Harvested produce – at fair value less cost of disposal at point of harvest; the harvested product becomes an
inventory and shall be subsequently measured at the LCNRV

Fair Value Measurement of Biological Asset and Agricultural Produce

 If on initial recognition of biological asset, market-determined prices are not available or estimates of fair value
are determined to be unreliable, the biological asset shall be measured at cost less accumulated depreciation
and any accumulated impairment loss. Once the fair value of such biological asset becomes clearly measurable,
the biological asset shall be measured at fair value less cost of disposal.
 The fair value of an agricultural produce at the point of harvest can always be measured reliably. The fair value
measurement of agricultural produce shall stop at the time of harvest. Subsequent to harvest date, the
harvested product becomes an inventory and shall be measured subsequently at the lower of cost and net
realizable value.

Ways of Measuring Fair Value:

1. Quoted in an active market – An active market is a market where all the following conditions exist:
a. The items traded within the market are homogeneous, meaning similar or identical in nature or form.
b. Willing buyers and sellers can normally be found at any time.
c. Prices are available to the public.
2. Most recent market transaction price
3. Market price for similar asset with adjustment to reflect any differences
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4. Sector benchmark, such as value of a farmland per hectare, or value of cattle per kilogram
5. Present value of expected net cash flows from the asset

Gain or loss from changes in fair value – included in profit or loss

Treatment of government grant related to:

1. Biological asset measured at fair value less cost to sell
a. Unconditional government grant – recognized in profit or loss when the grant becomes receivable
b. Conditional government grant – recognized in profit or loss only when the conditions attaching to the
grant are met
2. Biological asset measured at cost less any accumulated depreciation and any accumulated impairment losses –
PAS 20 (government grants) is applied – government grant is recognized as income over the periods and in
proportion to the depreciation of the related asset

Bearer Plant – expected to bear produce for more than one period; used in production or supply of agricultural produce
 Previously – PAS 41
 Currently – PAS 16
Examples of bearer plants:
 Trees that produce fruits
 The grape vines in a vineyard
NOT considered bearer plants:
o Trees grown to be harvested and sold as log or lumber
o Annual crops which do not bear produce for more than one period and are held solely to be harvested as
agricultural produce such as corn and rice

A plant with dual use – reported as Biological Asset and NOT as Bearer Plant
 The plant that is cultivated for bearing agricultural produce
 The plant itself is being sold either as a living plant or an agricultural produce

Bearer Animals – held solely for the produce that they bear; continue to be reported as Biological Assets under PAS 41.

Animals related to recreational activities shall be accounted for in accordance with PAS 16.

MULTIPLE CHOICE:

1. Biological assets are measured at

a. Cost
b. Lower of cost or net realizable value
c. Net realizable value
d. Fair value less cost to sell

2. Agricultural produce is measured at

a. Fair value
b. Fair value less costs to sell at the point of harvest
c. Net realizable
d. Net realizable value less normal profit margin

3. Agricultural activity includes all of the following, except

a. Raising livestock
b. Perennial cropping
c. Aquaculture
d. Ocean fishing

4. Biological transformation results from asset changes through all of the following, except
a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce

5. When the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured
at
a. Cost
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b. Cost less accumulated depreciation
c. Cost less accumulated depreciation and accumulated impairment losses
d. Net realizable value

6. Mature bearer plant is measured using

a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Either cost model or fair value model

7. Which of the following is unlikely to be used in fair value measurement?

a. Quoted price in a market
b. The most recent market transaction price
c. The present value of the expected net cash flows from the asset
d. External independent valuation

8. Land that is related to agricultural activity is measured

a. At fair value.
b. In accordance with PAS 16 or PAS 40.
c. At fair value in combination with the biological asset that is being grown on the land.
d. At the resale value separate from the biological asset that is being grown on the land.

9. An unconditional government grant related to a biological asset that has been measured at fair value less cost to
sell shall be recognized as
a. Income when the grant becomes receivable.
b. A deferred credit when the grant becomes receivable.
c. Income when the grant application has been submitted.
d. A deferred credit when the grant has been approved.

10. All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial
statements, except
a. The entity controls the asset as a result of past event.
b. It is probable that future economic benefits relating to the asset will flow to the entity.
c. An active market for the asset exists.
d. The fair value or cost of the asset can be measured reliably.