BM1706

BIOLOGICAL ASSETS AND LIABILITIES

Definition of Biological Assets, Agricultural Produce, and Bearer Plants
IAS 41 Agriculture prescribes the accounting treatment and associated disclosure to account for the following
when they are related to agricultural activities (International Financial Reporting Standards, 2001):
a) biological assets, except for bearer plants;
b) agricultural produce at the point of harvest; and
c) government grants.

A biological asset is a living animal or plant while an agricultural produce is the harvested product of the
entity’s biological assets. A bearer plant, on the other hand, 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 (1) period; and
c) the likelihood of being sold as agricultural produce is remote, except for incidental scrap sales.

Agricultural Activity
Agricultural activity covers a diverse range of activities such as raising livestock, forestry, annual or perennial
cropping, cultivating orchards and plantations, floriculture, and aquaculture (including fish farming). The
following are certain common features that exist within this diversity (International Financial Reporting
Standards, 2001):
a) Capability to change - This means living animals and plants are capable of biological transformation;
b) Management of change – The management facilitates biological transformation by enhancing, or at
least stabilizing, conditions necessary for the process to take place (e.g., nutrient levels, moisture,
temperature, fertility, and light). Such management distinguishes agricultural activity from other
activities. For example, harvesting from unmanaged sources (such as ocean fishing and deforestation),
is not an agricultural activity; and
c) Measurement of change - The change in quality (e.g., genetic merit, density, ripeness, fat cover, protein
content, and fiber strength) or quantity (e.g., progeny, weight, cubic meters, fiber length or diameter,
and number of buds) brought about by biological transformation or harvest is measured and monitored
as a routine management function.
Biological transformation results in the following types of outcomes (International Financial Reporting
Standards, 2001):
a) Asset changes through
• growth (an increase in quantity or improvement in the quality of an animal or plant),
• degeneration (a decrease in the quantity or deterioration in the quality of an animal or plant), or
• procreation (creation of additional living animals or plants)
b) production of agricultural produce such as latex, tea leaf, wool, and milk
Accounting for Biological Assets
An entity shall recognize a biological asset or agricultural produce, when and only when (International Financial
Reporting Standards, 2001):
a) the entity controls the asset as a result of past events;
b) it is probable that future economic benefits associated with the asset will flow to the entity; and
c) the fair value or cost of the asset can be measured reliably.
A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value
less costs to sell where the fair value cannot be measured reliably.
A gain or loss arising on initial recognition of a biological asset at fair value less costs to sell and from a
change in fair value less costs to sell of a biological asset shall be included in profit or loss for the period in
which it arises.

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Agricultural Produce
Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs
to sell at the point of harvest. Such measurement is the cost at that date when applying IAS 2 Inventories or
other applicable standards.
A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell shall be
included in profit or loss for the period in which it arises.

The table below shows the examples of biological assets, agricultural produce, and products that are the result
of processing after harvest (International Financial Reporting Standards, 2001):

Biological asset Agricultural produce Products that are the result of

processing after harvest
Sheep Wool Yarn, carpet
Trees in a timber plantation Felled trees Logs, lumber
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 bushes Picked leaves Tea
Grapevines Picked grapes Wine
Fruit trees Picked fruits Processed fruit
Oil palms Picked fruits Palm oil
Rubber trees Harvested latex Rubber products
Overview of Liabilities
Liabilities are a future outflow of economic benefits that arise from past transactions or events made by the
company to the other entities.
Liabilities are usually reported and divided into two (2) categories:
• Current liabilities - These are expected to be settled within a year, which include accounts payable,
salaries payable, taxes, and other short-term payables.
• Long-term liabilities - These cannot be settled within a year or the normal operating cycle of the
business, which include bonds, notes payable, long-term leases, and pension obligations.

Liabilities with uncertain value or timing are called provisions. Provisions can be distinguished from other
liabilities such as trade payables and accruals because of the uncertainty in the timing or amount of the future
expenditure required in the settlement. By contrast:
• Trade payables are liabilities to pay for goods or services that have been received or supplied and
have been invoiced or formally agreed with the supplier; and
• Accruals are liabilities to pay for goods or services that have been received or supplied but have not
been paid, invoiced, or formally agreed with the supplier, including amounts due to employees (e.g.,
amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate the amount
or timing of accruals, the uncertainty is generally much less than for provisions. Accruals are often
reported as part of the trade and other payables, whereas provisions are reported separately.

A provision shall be recognized when (International Financial Reporting Standards, 2001):

a. An entity has a present obligation (legal or constructive) as a result of a past event;
b. It is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation; and
c. A reliable estimate can be made of the amount of the obligation.

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If these conditions are not met, no provision shall be recognized.

References
International Financial Reporting Standards. (2001). IAS 41 Agriculture. Retrieved on February 19, 2019, from
https://www.ifrs.org/issued-standards/list-of-standards/ias-41-agriculture
International Financial Reporting Standards. (2001). IAS 37 Provisions, Contingent Liabilities and Contingent
Assets. Retrieved on February 19, 2019, from https://www.ifrs.org/issued-standards/list-of-
standards/ias-37-provisions-contingent-liabilities-and-contingent-assets

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