Biological Assets
Intermediate Accounting 3
ISO 9001:2015 Certified
Biological Assets
OBJECTIVE AND SCOPE
ISO 9001:2015 Certified
Objective of PAS 41
• Prescribe the accounting treatment and disclosures related to
agricultural activity.
ISO 9001:2015 Certified
Scope of PAS 41
• PAS 41 applies to the following:
Biological assets
Agriculture produce
Government grants related to biological assets
• The following are not covered by PAS 41:
Land, or right-of-use asset on leased land, used for agricultural activity
Bearer plant, as well as government grants for bearer plants
Intangible asset related to agricultural activities
ISO 9001:2015 Certified
Key terms used in PAS 41
Biological asset
A living animal or plant.
Agricultural produce
• Harvested produce of the entity’s biological assets (fruit, flower,
asset itself, offspring).
Harvest
• Detachment of produce from a biological asset or the cessassion
of a biological asset’s life processes.
ISO 9001:2015 Certified
Key terms used in PAS 41
Agricultural activity (Farming/Pagsasaka)
• Management of the biological transformation and harvest of biological
assets for sale or for conversion into agricultural produce or into additional
biological assets.
Features of agricultural activity:
• Capability to change - Living animals and plants are capable of biological
transformation.
• Management of change - Management facilitates biological transformation
by enhancing, or at least stabilising, conditions necessary for the process to
take place.
• Measurement of change - The change in quality or quantity brought about
by biological transformation or harvest is measured and monitored as a
ISO 9001:2015 Certified
routine management function.
Key terms used in PAS 41
Bearer plant
• A living plant that:
is used in the production or supply of agricultural produce;
is expected to bear produce for more than one period; and
has a remote likelihood of being sold as agricultural produce, except for scrap
sales.
• The following are not bearer plants:
plant to be harvested as agricultural produce
plants cultivated to product agricultural produce and be harvested as
agricultural produce
annual crops
ISO 9001:2015 Certified
Key terms used in PAS 41
Biological transformation
• the processes of growth, degeneration, production, and
procreation that cause qualitative or quantitative changes in a
biological asset.
• Biological transformation results in the following types of
outcomes:
asset changes through (i) growth, (ii) degeneration, or (iii) procreation; or
production of agricultural produce.
ISO 9001:2015 Certified
Biological Assets
RECOGNITION AND MEASUREMENT
ISO 9001:2015 Certified
Recognition of biological assets
and agricultural produce
• An entity shall recognise 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; and
the fair value or cost of the asset can be measured reliably
ISO 9001:2015 Certified
Measurement of biological
assets
• Biological assets shall be measure on initial recognition and at
the end of the reporting period at its fair value less cost to
sell, unless the entity is unable to measure fair value reliably.
ISO 9001:2015 Certified
Measurement of agricultural
produce
• Initial measurement: Agricultural produce shall be measure at
its fair value less cost to sell at the point of harvest.
• Subsequent measurement: After harvest, agricultural produce
will be measure based on the provisions of PAS 2 or another
applicable standard.
Lower of cost or net realizable value
Fair value less cost to sell at initial recognition is the deemed cost.
ISO 9001:2015 Certified
Changes in fair value less cost
to sell
• Gain or losses on initial and subsequent recognition of
biological assets at fair value less cost to sell shall be included
in profit or loss.
• Gain arising from initial recognition of agricultural produce at
fair value less costs to sell shall be included in profit or loss.
ISO 9001:2015 Certified
Cost incurred in agricultural
activities
• PAS 41 does not prescribe the treatment for costs incurred in
agricultural activities. As such, management shall use its judgment
in developing their own policies in recording costs incurred in
agricultural activities.
• An entity may opt to recognize these costs directly in profit or loss
(cost of production), or capitalize these costs in biological asset,
which later on will be recognized ar fair value less cost of disposal.
• In developing accounting policies for cost of agricultural activities,
the entity shall refer to the hierarchy prescribed by PAS 8.
ISO 9001:2015 Certified
Biological assets acquired
through government grants
• An unconditional government grant related to a biological asset
measured at its fair value less costs to sell shall be recognised
in profit or loss when, and only when, the government grant
becomes receivable.
• If a government grant related to a biological asset measured at
its fair value less costs to sell is conditional, including when a
government grant requires an entity not to engage in specified
agricultural activity, an entity shall recognise the government
grant in profit or loss when, and only when, the conditions
attaching to the government grant are met.
ISO 9001:2015 Certified
Inability to measure fair value
• There is a presumption that fair value can be measured reliably for a
biological asset. However, that presumption can be rebutted only on
initial recognition for a biological asset.
• In case fair value is unavailable, the biological asset shall be measured
at its cost less any accumulated depreciation and any accumulated
impairment losses.
• When the fair value of such a biological asset becomes reliably
measurable, an entity shall measure it at its fair value less costs to sell.
• Once a non-current biological asset meets the criteria to be classified
as held for sale (or is included in a disposal group that is classified as
held for sale) in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations, it is presumed that fair value can be
measured reliably. ISO 9001:2015 Certified
Bearer plants and animals
• Bearer plants are classified as part of property, plant and
equipment
Immature bearer are considered self-constructed assets still under construction.
• Bearer animal are considered biological assets
Animals for recreational purposes are not biological assets
ISO 9001:2015 Certified
Biological Assetss
DISCLOSURE REQUIREMENTS
ISO 9001:2015 Certified
Required disclosures
• The aggregate gain or loss arising during the current period on initial
recognition of biological assets and agricultural produce and from the
change in fair value less costs to sell of biological assets.
• Description of each group of biological assets.
• Nature of activity of each group of biological assets.
• Physical quantities of each group of biological assets and output of
agricultural produce.
• Existence and carrying value of biological assets whose title is
ISO 9001:2015 Certified
restricted.
Required disclosures
• Amount of commitments for the development or acquisition of
biological assets
• Financial risk management strategies on agricultural activity.
• Reconciliation of changes in the carrying value of biological
assets between the beginning and end of the period:
Increase due to (a) purchase or (b) acquired in a business combination.
Decrease due to (b) harvest, or (b) sale or classification as held for sale.
Changes in fair value less cost to sell.
Other changes
ISO 9001:2015 Certified
Inability to measure fair value
• Description of the biological assets;
• Explanation of why fair value cannot be measured reliably;
• Range of estimates within which fair value is highly likely to lie;
• Depreciation method used;
• Useful lives or the depreciation rates used;
• Gross carrying amount and the accumulated depreciation and
accumulated impairment losses at the beginning and end of the period
Impairment losses
Reversal of impairment losses
Depreciation
• In case entity become able to measure fair value:
Description of the biological assets;
Explanation of why fair value has become reliably measurable;
Effect of the change. ISO 9001:2015 Certified
Biological assets acquired
through government grants
• Nature and extent of government grants recognised in the
financial statements
• Unfulfilled conditions and other contingencies attaching to
government grants
• Significant decreases expected in the level of government
grants.
ISO 9001:2015 Certified
Encouraged disclosure
• Quantified description of biological assets
• Consumable biological assets and bearer biological assets
• Mature and immature biological assets
• Fair value gain or loss resulting from:
Physical change - increase in changes in the fair value of biological asset,
assuming there were no price change.
Price change - changes in the fair value of biological asset, assuming there were
no physical change.
Previous fair value Current fair Current fair
at previous age value at previous value at current
age age
Price change Physical change
Note: Gain on initial recognition of biological asset is part of physical ISO 9001:2015 Certified
change.
Problem 15-5
Legend Dairy produced milk for local ice cream producers. On Janaury 1,
2024, the entity began operations by purchasing milking cows for
P2,000,000. The entity provided the following information to the milking
cows:
• Carrying amount at January 1 - P2,000,000
• Increase in fair value due to growth and price change - P400,000
• Decrease in fair value due to harvest - P50,000
• Newborn calf at year-end at fair value - P200,000
• Milk harvested during the year but not yet sold - P250,000
Required: Prepare the journal entries in 2024.
ISO 9001:2015 Certified
Problem 15-5
• Acquisition at January 1
Account title Debit Credit
Biological asset P2,000,00
0
Cash P2,000,000
• Increase in fair value due to growth and price change of P400,000
Account title Debit Credit
Biological asset P400,000
Gain on biological assrts P400,000
• Decrease in fair value due to harvest - P50,000
Account title Debit Credit
Loss on biological assets P50,000
Biological asset P50,000
ISO 9001:2015 Certified
Problem 15-5
• Newborn calf at year-end at fair value of P200,000
Account title Debit Credit
Biological asset P200,000
Gain on biological assets P200,000
• Milk harvested during the year but not yet sold of P250,000
Account title Debit Credit
Inventory P250,000
Gain on agricultural P250,000
produce
ISO 9001:2015 Certified
Problem 15-6
On January 1, 2024, Honey Company purchased ten 2-year old animals for P10,000 each.
One animal aged 2.5 years was purchased on July 1, 2024 for P10,800, and one animal was
born on July 1, 2024. No animals were sold or disposed off during 2024. Fair values less cost
of disposal are as follows:
• 2-year old animal on January 1 - P10,000
• 2-year old animal on December 31 - P10,500
• 2.5-year old animal on July 1 - P10,800
• 2.5-year old animal on December 31 - P11,100
• Newborn animal on July 1 - P7,000
• Newborn animal on December 31 - P7,200
• 3-year old animal on December 31 - P12,000
• 0.5-year old animal on December 31 - P8,000
Required:
1. Prepare the journal entries in 2024
ISO 9001:2015 Certified
2. Determine the gain attributable to price change and physical change
Problem 15-6
Journal entries
• Purchase of biological assets on January 1
Account title Debit Credit
Biological asset (10 x P100,000
P10,000)
Cash P100,000
• Purchase of biological assets on July 1
Account title Debit Credit
Biological asset (1 x P10,800
P10,800)
Cash P10,800
• New born calf on January 1
Account title Debit Credit
Biological asset (1 x P7,000) P7,000
Gain on biological assets P7,000
ISO 9001:2015 Certified
Problem 15-6
Journal entries
• Change in fair value
Account title Debit Credit
Biological asset P22,200
Gain on biological assets P22,200
• Computation of fair value gain
Particulars Amount
Fair value at the end of the year
3 year-old animals (11 x P12,000) P132,000
0.5 year-old animal (1 x P8,000) 8,000
Total fair value at the end of the year P140,000
Carrying value of biological assets (117,800)
Gain on fair value at the end of the 22,200
year ISO 9001:2015 Certified
Problem 15-6
Fair value gain due to price change
Current price Price
Previous Previous price Total price
Date acquired Quantity at previous change per
age at previous age change
age animal
January 1, 2 years old 10 P10,500 P10,000 P500 P5,000
2024
July 1, 2024 2.5 years old 1 P11,100 P10,800 P300 P300
July 1, 2024 New born 1 P7,200 P7,000 P200 P200
Total fair value gain due to price change P5,500
Fair value gain due to physical change
Physical
sssssssDate Current Quantit Current price Crreunt price Physical
Previous age change per
acquired age y at current age at previous age change
animal
January 1, 3 years old 2 years old 10 P12,000 P10,500 P1,500 P15,000
2024
July 1, 2024 3 years old 2.5 years old 1 P12,000 P11,100 P900 P900
July 1, 2024 0.50 year New born 1 P8,000 P7,200 P800 P800
old
ISO 9001:2015 Certified
Sub-total P16,700
Fair value gain at birth 7,000
