MODULE 26 AGRICULTURE
LEARNING OBJECTIVES:
1. Differentiate the following: biological assets, bearer plants, agricultural produce and
inventory.
2. State the initial and subsequent measurement of biological assets and agricultural
produce.
3. State the accounting for government grants that are within the scope of PAS 41.
OVERVIEW
PAS 41 Agriculture sets out the accounting for agricultural activity – the transformation of biolog-
ical assets (living plants and animals) into agricultural produce (harvested product of the entity's
biological assets). The standard generally requires biological assets to be measured at fair
value less costs to sell.
Acquiring new knowledge
Asynchronous - links to more information: www.farhatlectures.com; http://www.ifrsbox.com
A synchronous discussion for this lesson will be scheduled on October 6, 2020 (Tuesday 9:00
– 10:00 AM)
Objective
The objective of PAS 41 is to establish standards of accounting for agricultural activity – the
management of the biological transformation of biological assets (living plants and animals) into
agricultural produce (harvested product of the entity's biological assets).
PAS 41 applies to the following when they relate to agricultural activity:
a. Biological assets, except bearer plants;
b. Agricultural produce at point of harvest; and
c. Unconditional government grants related to a biological asset measured at fair value
less cost to sell.
Biological asset – is a “living animal or plant.” (PAS 41.5)
“Bio” means life, therefore, dead animals, dead plants and other non-living things cannot qualify
as biological assets.
Types of biological assets:
1. Consumable biological assets – “those that are to be harvested as agricultural
produce or sold as biological assets.” (PAS 41.44)
Examples:
a. Livestock intended for the production of meat
b. Livestock held for sale
c. Fish in farms
d. Crops such as maize and wheat
e. Produce on bearer plants
f. Trees being grown for lumber.
BIO ASSET - YUNG MISMONG BIO ASSET HINAHARVEST
2. Bearer biological assets – those that are held to bear produce. Only the
produce is harvested while bearer biological asset remains.
Examples:
a. Livestock from which milk is produced
b. Fruit trees from which fruit is harvested (PAS 41.44)
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 plant are classified as PPE.
e.g. mango trees, yung tumutubo na mangoes yung hinaharvest mo
THE MANGO TREE AS A BEARER PLANT - CLASSIFIED AS PPE
MANGOES - ANG HINAHARVEST
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 one period; and
c. Has remote likelihood of being sold as agricultural produce, except for incidental scrap
sales. (PAS 41.5)
d. Plants that are to be harvested as agricultural produce are not bearer plants. For
example, a tree that is intended to be cut down and used as lumber is consumable plant,
and therefore classified as biological asset.
e. A tree that is intended to bear fruits and only the fruits are harvested while the tree
remains is a bearer plant, and therefore classified as PPE.
f. Bearer plants may be sold as scrap when no longer used are not necessarily precluded
from being classified as bearer plants.
Agricultural produce – is “the harvested produce of the entity’s biological assets.” (PAS 41.5)
Harvest is “the detachment of produce from a biological assets or cessation of biological asset’s
life processes.” (PAS 41.5)
Agricultural produce refers to those that are in their natural state and are not yet processed.
Those processed are treated as inventory.
PAS 41.5C states that “Produce growing on bearer plants is a biological assets.” However, in
many cases, it is impractical to account for fruits growing on trees before they are harvested.
Many companies, therefore, start to apply PAS 41 on the fruits only at the point of harvest. This
is also true for produce of animals, e.g., milk is accounted for only after it is squeezed from the
cow’s breast.
Agricultural activity is “ the management of an entity of the biological transformation and
harvest of biological assets for sale or for conversion into agricultural produce or into additional
biological assets.” (PAS 41.5)
Examples of agricultural activities include: raising livestock, forestry, annual or perennial
cropping, cultivating orchards and plantation, floriculture, and aquaculture (including fish
farming). (PAS 41.5)
The following are common features of agricultural activities:
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, conditions necessary for the process to take place. For
example, harvesting from unmanaged sources (such as ocean fishing and deforestation) is
not agricultural activity; and
c. 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.
Biological transformation – comprises of the following processes that cause qualitative or
quantitative changes in biological asset:
1. Assets changes through:
a. Growth – an increase in quantity or improvement in quality of an animal or plant.
b. Procreation - is the creation of additional living animals or plants.
c. Degeneration – is a decrease in the quantity or deterioration in quality of an animal or plant.
2. Production of agricultural produce.
Initial recognition
An entity recognises a biological asset or agriculture produce only when the entity controls the
asset as a result of past events, it is probable that future economic benefits will flow to the
entity, and the fair value or cost of the asset can be measured reliably.
PRODUCE = MGA ITLOG;
INITIALLY MEASURED AT FV-CTS
Measurement
Biological assets within the scope of PAS 41 are measured on initial recognition and at
subsequent reporting dates at fair value less estimated costs to sell, unless fair value
cannot be reliably measured. [PAS 41.12]
Agricultural produce is measured at fair value less estimated costs to sell at the point of
harvest. [PAS 41.13] Because harvested produce is a marketable commodity, there is no 'mea-
surement reliability' exception for produce.
The gain on initial recognition of biological assets at fair value less costs to sell, and
changes in fair value less costs to sell of biological assets during a period, are included in
profit or loss. [PAS 41.26]
A gain on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair value
less costs to sell are included in profit or loss for the period in which it arises. [PAS 41.28]
All costs related to biological assets that are measured at fair value are recognised as
expenses when incurred, other than costs to purchase biological assets.
PAS 41 presumes that fair value can be reliably measured for most biological assets. However,
that presumption can be rebutted for a biological asset that, at the time it is initially recognised,
does not have a quoted market price in an active market and for which alternative fair value
measurements are determined to be clearly unreliable. In such a case, the asset is measured at
cost less accumulated depreciation and impairment losses. But the entity must still measure all
of its other biological assets at fair value less costs to sell. If circumstances change and fair
value becomes reliably measurable, a switch to fair value less costs to sell is required.
[PAS 41.30]
Other accounting issues
The change in fair value of biological assets is part physical change (growth, etc.) and part unit
price change. Separate disclosure of the two components is encouraged, not required. [PAS
41.51]
LUPA - PPE
PUNO - BIO ASSET
Agricultural produce is measured at fair value less costs to sell at harvest, and this measure-
ment is considered the cost of the produce at that time (for the purposes of PAS 2 Inventories or
any other applicable standard). [PAS 41.13]
Agricultural land is accounted for under PAS 16 Property, Plant and Equipment. However, bio-
logical assets (other than bearer plants) that are physically attached to land are measured as bi-
ological assets separate from the land. In some cases, the determination of the fair value less
costs to sell of the biological asset can be based on the fair value of the combined asset (land,
improvements and biological assets). [PAS 41.25]
Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for
under PAS 38 Intangible Assets.
Government grants
Unconditional government grants received in respect of biological assets measured at fair
value less costs to sell are recognised in profit or loss when the grant becomes receivable.
[PAS 41.34]
If such a grant is conditional (including where the grant requires an entity not to engage in
certain agricultural activity), the entity recognises the grant in profit or loss only when the
conditions have been met. [PAS 41.35]
CONDITION - ONLY WHEN NAGRANT NA
Disclosure
Disclosure requirements in PAS 41 include:
o aggregate gain or loss from the initial recognition of biological assets and agricultural
produce and the change in fair value less costs to sell during the period* [PAS 41.40]
o description of an entity's biological assets, by broad group [PAS 41.41]
o description of the nature of an entity's activities with each group of biological assets and
non-financial measures or estimates of physical quantities of output during the period
and assets on hand at the end of the period [PAS 41.46]
o information about biological assets whose title is restricted or that are pledged as
security [PAS 41.49]
o commitments for development or acquisition of biological assets [PAS 41.49]
o financial risk management strategies [PAS 41.49]
o reconciliation of changes in the carrying amount of biological assets, showing separately
changes in value, purchases, sales, harvesting, business combinations, and foreign
exchange differences* [PAS 41.50]
Disclosure of a quantified description of each group of biological assets, distinguishing between
consumable and bearer assets or between mature and immature assets, is encouraged but not
required. [PAS 41.43]
If fair value cannot be measured reliably, additional required disclosures include:
description of the assets
an explanation of why fair value cannot be reliably measured
if possible, a range within which fair value is highly likely to lie
depreciation method
useful lives or depreciation rates
gross carrying amount and the accumulated depreciation, beginning and ending.
If the fair value of biological assets previously measured at cost subsequently becomes
available, certain additional disclosures are required. [PAS 41.56]
Disclosures relating to government grants include the nature and extent of grants, unfulfilled
conditions, and significant decreases expected in the level of grants.
MODULE 26 Post-test
BIOLOGICAL ASSETS
PROF. U.C. VALLADOLID
Multiple Choice
Identify the choice that best completes the statement or answers the question.
All answers shall be submitted on or before October 9, 2020 (Friday)
1. Biological assets are
a. Living animals only
b. Living plants only
c. Both living animals and living plants
d. Neither living animals nor living plants
2. It 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 asset.
a. Agricultural activity
b. Biological activity
c. Economic activity
d. Development activity
3. Biological assets are measured at
a. Cost
b. Lower of cost or net realizable value
c. Net realizable value
d. Fair value less costs to sell
4. Agricultural produce is measured at
a. Fair value
b. Fair value less costs to sell at the point of harvest
c. Net realizable value
d. Net realizable value less normal profit margin
5. It is harvested product of the entity’s biological assets.
a. Agriculture
b. Agricultural produce
c. Harvest
d. Product
6. Biological transformation
I. Comprises the processes of growth, degeneration, production and procreation that cause
qualitative or quantitative changes in a biological asset.
II. Is the detachment of produce from a biological asset or the cessation of a biological asset’s
life processes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
7. Agricultural activity includes all of the following, except
a. Raising livestock
b. Perennial cropping
c. Aquaculture
d. Ocean fishing-BAHALA YUNG DAGAT DUN
8. Biological transformation results from asset changes through all of the following, except
a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce
9. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income shall be
accounted for in which of the following?
a. No income shall reported annually until first harvest and sale in 30 years.
b. Income shall be measured annually and reported using a fair value approach that
recognizes and measures biological growth.
c. The eventual sale proceeds shall be estimated and matched to the profit and loss account
over the 30-year period.
d. The plantation forest shall be valued every 5 years and the increase in value shall be
recognized as component of other comprehensive income.
10. When the fair value of the biological asset cannot be determined reliably, the biological asset shall be
measured at
a. Cost
b. Cost less accumulated depreciation
c. Cost less accumulated depreciation and accumulated impairment losses
d. Net realizable value
11. Which of the following costs should not be included in costs to sell?
a. Commissions to brokers and dealers
b. Levies by regulatory agencies
c. Transfer taxes and duties
d. Finance costs and income taxes
12. A gain or loss arising on the initial recognition of a biological asset from a change in the fair value less costs
to sell of a biological asset shall be included in
a. The profit or loss for the period
b. Other comprehensive income
c. A separate revaluation reserve
d. A capital reserve within equity
13. When agricultural produce is harvested, the harvest shall be accounted for by using PAS 2, Inventories, or
another applicable PFRS. For the purpose of that standard, cost at the date of harvest is deemed to be
a. The fair value less costs to sell at the point of harvest.
b. The historical cost of the harvest.
c. The historical cost less accumulated impairment losses.
d. Market value.
14. Land that is related to agricultural activity is valued
a. At fair value
b. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment
Property
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
LAND ATTACHED TO A BIO ASSET - PPE/ INVEST PROP DEPENDING ON THE
TREATMENT/VALUATION OF THE OWNER
15. An unconditional government grant related to a biological asset that has been measured at fair value less
costs 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.
16. If a government grant related to a biological asset is conditional on certain events, the grant shall be
recognized as
a. Income when the conditions attaching to the grant are met
b. Income when the grant has been approved
c. A deferred credit when the conditions attached to the government grant are met
d. A deferred credit when the grant is approved
ONLY RECOGNIZE THE GRANT WHEN THE CONDITIONS ARE MET
17. Where there is a production cycle of more than one year for a biological asset, PAS 41 encourages
separate disclosure of the
a. Physical change only
b. Price change only
c. Total change in value
d. Physical change and price change [GAIN FROM FV]
ENCOURAGED BUT NOT MANDATORY
18. An entity owns a number of herds of cattle. Where should changes in the fair value of a herd of cattle be
recognized in the financial statements?
a. In profit or loss only
b. In other comprehensive income only
c. In profit or loss or other comprehensive income
d. In the statement of cash flows only
19. According to PAS 41, all of the following would be classified as biological assets, except?
a. Dairy cattle
b. Chickens
c. Eggs - PRODUCE
d. Trees
20. Which of the following would be classified as agricultural produce?
a. Tree
b. Bush
c. Butter - IF PROCESSED NA INTO A FINISHED PRODUCT, THEN INVENTORY NA SIYA
d. Apple - HINARVEST = PRODUCE [ RAW; WALANG GINANWA/ DETACHMENT FROM
BIO ASSET]
