PAS 41
Pas 41 shall be applied to account for the following when
they relate to agricultural activity.
Biological assets
Agricultural produce
Government grant related to a biological asset
PAS 41 is applied only to agricultural produce at the
point of harvest. Thereafter, PAS 2 on inventories shall
be applied
PAS 41 does not deal with the processing of agricultural
produce after harvest.
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Biological assets are “living animals”.
Agricultural produce is the harvested product of an
entity’s biological assets.
Harvest is the detachment of produce from a
biological asset or the cessation of a biological
asset’s life processes.
Biological Asset Agricultural Produce Product After
Harvest
Sheep Wool Yarn, Carpet
Trees in plantation Felled trees Logs, lumber
forest
Plant Harvested Cane Sugar
Dairy Cattle Milk Cheese
Pigs Carcass Cured Ham
PAS 41 : Biological Assets and Agricultural Produce
PAS 2 : Products After Harvest
❑ An amendment to IAS 41 Biological Assets
relating to bearer plants has been issued.
❑ Summary of the amendments : PAS 41 and PAS
16 Property, Plant and Equipment (PAS 16)
define a bearer plant as a living plant that:
✓Is used in the production or supply of agricultural
produce
✓Is expected to bear produce for more than one period
✓Has a remote likelihood of being sold as agricultural
produce, except for incidental scrap sales
❑ Wherean item is a bearer plant, the plant and its
produce will have different accounting
treatments:
❖Bearer plants: A bearer plant should be accounted for as
property, plant and equipment in accordance with PAS
16. Companies will now be required to measure bearer
plants initially at cost and will thereafter have an option
to apply either the cost or the revaluation model.
❖Agricultural Produce: The produce growing on the bearer
plants will be a biological asset measured at fair value in
accordance with PAS 41.
This 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 of Agricultural Activity
❑ Raising livestock
❑ Annual or perennial cropping
❑ Cultivating orchards and plantations
❑ Floriculture
❑ Aquaculture, including fish farming
❑ Capability to change
✓ Capable of biological transformation
❑ Management of Change
✓ To facilitate the biological transformation by enhancing or
at least stabilizing conditions necessary for the process to
take place.
❑ Measurement of Change
✓ The change in quality or quantity brought about by
biological transformation or harvest measured and
monitored as a routine management function.
Biological transformation comprises the
processes of growth, degeneration, production
and procreation that cause qualitative or
quantitative change in a biological asset.
Biological transformation results from the following types of
outcome:
❑ Asset changes through:
◦ Growth – an increase in quantity or improvement in quality of an animal.
◦ Degeneration – a decrease in quantity or deterioration in quality of an
animal.
◦ Procreation – creation of additional living animal.
❑ Production of agricultural produce such as wool and milk.
❑ Managing recreational activities, for example,
game parks and zoos, is not agricultural
activity. There is no management of the
transformation of the biological asset but
simply control of the number of animals.
❑ Animals related to recreational activities shall
be accounted for in accordance with PAS 16,
Property Plant and Equipment.
Columbia Company provided the following
information about asset in a forest plantation:
Freestanding trees 5,000,000
Land under trees 900,000
Roads in forest 500,000
Animals related to recreational activities 2,000,000
Rubber trees and grape vines 1,500,000
What total amount should be reported as biological
assets?
Africa Company purchased 2,000 llamas at the
beginning of current year. These llamas will be
sheared semiannually and their wool old to specialty
clothing manufacturers. The llamas were purchased
for P5,000,000. During the current year, the change
in 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 at year
end?
An entity shall recognize a biological asset or
agricultural produce when:
▪ The entity controls the asset as a result of
past events.
▪ It is probable that future economic
benefits associated with the asset will flow
to the entity.
▪ The fair value or cost of the asset can be
measured reliably.
o A biological asset shall be measured on initial recognition and at
the end of each reporting period at fair value less cost of disposal.
o Agricultural produce shall be measured at fair value less cost or
disposal at the point of harvest.
Cost of disposal
• “Cost of disposal” are the incremental costs directly attributable to
the disposal of an asset.
• In other words, cost of disposal are necessary for a sale to occur
but that would not otherwise arise, such as commissions to
brokers and dealers, levies by regulatory agencies and commodity
exchanges, and transfer taxes and duties. It does not include
transport costs, finance costs, and income taxes.
In general, the standard assumes that fair value is
measurable.
This rebuttable presumption may be overcome for
biological assets only if the market-determined prices
are not available or fair value estimates are unreliable at
the time of initial recognition.
As a default measurement method, the asset would be
measured at cost (amortized if relevant) and would also
be tested for impairment.
Once the fair value of such a biological asset becomes
clearly measurable, the entity shall measure the
biological asset at fair value less costs of disposal.
An entity shall measure agricultural produce at
the point of harvest at fair value less costs of
disposal.
The fair value of agricultural produce at the point
of harvest can always be measured reliably.
The fair value measurement of agricultural
produce stops at the point of harvest. After that
date, PAS 2 shall apply of which inventories shall
be measured at the lower of cost and net
realizable value after harvest.
Under PFRS 13, fair value is defined as 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.
PFRS 13, paragraph 72, enumerates the fair value hierarchy or
best evidence of fair value as follows:
1. Level 1 inputs are the quoted prices in an active market for
identical assets.
2. Level 2 inputs are inputs that are observable either directly or
indirectly. Level 2 inputs include quoted prices for similar
assets in an active market and quoted prices for identical or
similar assets in a market that is not active.
3. Level 3 inputs are unobservable inputs for the assets.
Unobservable inputs are usually developed by the entity using
the best available information from the entity’s own data.
Agricultural land is land where biological assets are
attached. Agricultural land is not covered by PAS 41
and therefore not to be classified as biological assets.
Agricultural land shall be recognized and measured
in accordance with PAS 16, Property and Equipment.
The biological assets attached to the land may have
no separate market, but on the combined asset (both
for land and biological assets)
The entity should separate the value of the land from
the value of the combined assets in order to arrive at
the fair value of the biological assets.
Unconditional government grant related to a
biological asset that has been measured at fair
value less cost of disposal shall be recognized as
income when the grant becomes receivable.
If a government grant at fair value less disposal
cost is conditional, the grant shall be recognized
as income when the conditions attaching to the
grant are met.
If the biological asset is measured at cost less
depreciation and impairment, PAS 20,
Government Grant, shall apply.
Any gain or loss arising on initial recognition of a biological asset at fair
value less costs of disposal and any subsequent changes in fair value
less costs of disposal shall be included in profit or loss.
A loss may arise on initial recognition of a biological asset because costs
of disposal are deducted in determining fair value less costs of disposal.
A gain may arise on initial recognition of a biological asset, for example,
when a calf is born.
A gain or loss may arise on initial recognition of agricultural produce as
a result of harvesting which shall also be included in profit or loss.
An entity shall disclose the aggregate gain or loss arising on the initial
recognition of biological assets and agricultural produce and from the
change in fair value less costs of disposal of biological assets.
At the beginning of current year, an entity purchased 100 cows which are 3 years old for
P15,000 each for the purpose of producing milk for the local community. On July 1, the
cows gave birth to 20 calves.
The active market provided for the fair value less cost of disposal of the biological
assets as follows:
Newborn calf on July 1 4,000
Newborn calf on December 31 5,000
½ year old calf on December 31 7,000
3 years old cow on December 31 18,000
4 years old cow on December 31 24,000
JOURNAL ENTRIES
1. To record acquisition of 100 cows at P15,000 each for a total of
P1,500,000.
Biological Assets 1,500,000
Cash 1,500,000
At the beginning of current year, an entity purchased 100 cows which are 3 years old for
P15,000 each for the purpose of producing milk for the local community. On July 1, the
cows gave birth to 20 calves.
The active market provided for the fair value less cost of disposal of the biological
assets as follows:
Newborn calf on July 1 4,000
Newborn calf on December 31 5,000
½ year old calf on December 31 7,000
3 years old cow on December 31 18,000
4 years old cow on December 31 24,000
JOURNAL ENTRIES
2. To record the birth of 20 calves with a fair value of P4,000 each or a
total of P80,000
Biological Assets 80,000
Gain from change in FV 80,000
At the beginning of current year, an entity purchased 100 cows which are 3 years old for
Cows which are now 4 years old (100 x P24,000) 2,400,000
P15,000 each for the purpose of producing milk for the local community. On July 1, the
Claves which are now 1/2 year old (20 x P7,000)
cows gave birth to 20 calves. 140,000
Total fair value - December 31 2,540,000
Carrying amount of biological assets (1.5M + 80,000) 1,580,000
The active market provided
Change forin the fair value less cost of disposal of the biological
fair value 960,000
assets as follows:
Newborn calf on July 1 4,000
Newborn calf on December 31 5,000
½ year old calf on December 31 7,000
3 years old cow on December 31 18,000
4 years old cow on December 31 24,000
JOURNAL ENTRIES
3. To record the change in fair value of the cows and calves on
December 31 :
Biological Assets 960,000
Gain from change in FV 960,000
Year-end statement of financial position :
Biological Asset shall be presented as a “separate
line item” at fair value of P2,540,000 and
classified as noncurrent asset
Income statement : Gain from change in fair
value of P1,040,000 (80,000 on July 1 and
P960,000 on December 31)
Separating the change in fair value between the portion attributable to price change and
the portion attributable to physical change is encouraged but not required by PAS 41.
The change in fair value of P1,040,000 can be separated into price change and physical
change as follows:
Fair value of 3 years old cow on December 31 18,000
Acquisition cost of 3 years old cow 15,000
Price change 3,000
Fair value of 4 years old cow on December 31 24,000
Fair value of 3 years old cow on December 31 18,000
Physical Change 6,000
Fair value of newborn calf on December 31 5,000
Fair value of newborn calf on July 1 4,000
Price change 1,000
Fair value of 1/2 year old calf on December 31 7,000
Fair value of newborn calf on December 31 5,000
Physical change 2,000
4 years old cows
Price change (100 x 3,000) 300,000
Physical change (100 x 6,000) 600,000
1/2 year old calves
Price change (20 x 1,000) 20,000
Physical change (20 x 2,000) 40,000
Physical change at birth (20 x 4,000) 80,000
Total change in fair value 1,040,000
SUMMARY :
Price change :
4 years old cows 300,000
1/2 year old calves 20,000 320,000
Physical change:
4 years old cows 600,000
1/2 year old calves 40,000
At birth 80,000 720,000
Total change in fair value 1,040,000
An entity produced milk for sale to local and national ice cream producers. The
entity began operations at the beginning of current year by purchasing 500 milk
cows for P8,000,000. The entity had the following information available at year-
end relating to the cows:
Carrying amount of milking cows, January 1 8,000,000
Change in fair value due to growth and price change 900,000
Decrease in fair value due to harvest 200,000
Milk harvested during the year but not sold 400,000
JOURNAL ENTRIES
To record the acquisition of milking cows:
Biological Assets 8,000,000
Cash 8,000,000
An entity produced milk for sale to local and national ice cream producers. The
entity began operations at the beginning of current year by purchasing 500 milk
cows for P8,000,000. The entity had the following information available at year-
end relating to the cows:
Carrying amount of milking cows, January 1 8,000,000
Change in fair value due to growth and price change 900,000
Decrease in fair value due to harvest 200,000
Milk harvested during the year but not sold 400,000
JOURNAL ENTRIES
To record the net gain from the change in fair value of biological
assets:
Biological Assets 700,000
Gain from change in FV 700,000
Change in fair value due to growth and price change 900,000
Decrease in fair value due to harvest -200,000
Net gain - biological assets 700,000
An entity produced milk for sale to local and national ice cream producers. The
entity began operations at the beginning of current year by purchasing 500 milk
cows for P8,000,000. The entity had the following information available at year-
end relating to the cows:
Carrying amount of milking cows, January 1 8,000,000
Change in fair value due to growth and price change 900,000
Decrease in fair value due to harvest 200,000
Milk harvested during the year but not sold 400,000
JOURNAL ENTRIES
To record the gain from change in fair value of agricultural produce:
Milk inventory 400,000
Gain from change in FV 400,000
The Company, which is engaged in agricultural activity started operations on December 31,
2016 and on this day, it purchased 100 immature calves and 100 mature cows for sale. Then
onwards, the Company only purchases immature calves and these calves mature after 1 year.
The mature cows are then sold to third party buyers and sometimes, these cows bear calves.
Assume that the purchase and birth of calves as well as the sale of mature cows transpire
every end of the year.
Pertinent FV less cost to dispose is as The following are the movements of the
follows: Company’s biological assets and agricultural
produce:
Required : Prepare a reconciliation of
biological assets and journal entries.
