Intermediate Accounting

PAS 41: Agriculture

PAS 41 shall be applied for the following: FAIR VALUE (PFRS 13):
a. Biological Assets  the price that would be received to sell an asset or paid
b. Agricultural Produce to transfer a liability in an orderly transaction between
c. Government grant related to a Biological Asset market participants at the measurement date.

FAIR VALUE HEIRARCHY:

Elements of “Agriculture”
LEVEL 1: Quoted Prices in an Active Market for Identical Assets
a. Capability to Change – Capable of Biological Transformation  Observable inputs which the entity can access at the
e.g. Living Animals and Plants measurement date

b. Management of the Transformation – facilitate the Biological LEVEL 2: Inputs that are Observable either Directly or Indirectly
transformation by enhancing or at least stabilizing conditions  Quoted Prices for Similar Assets in an Active Market
necessary for the process to take place, e.g. nutrient levels, feeds,  Quoted Prices for Identical/Similar Assets in an
temperature, fertility, and light. Inactive Market

c. Measurement of Change – The change in quality or quantity LEVEL 3: Inputs that are Unobservable for the Asset
brought about by the Biological Transformation or harvest is
 Information usually developed by entity using the best
measured and monitored as a routine management function.
info available from the entity’s own data. e.g. Present
Value of Future Cash Flows from the Assets
Accounted for
Items Accounted for as: in accordance
with: Fair Value Measurement Assumes that the Transaction to sell the
Consumable plants PAS 41: Asset takes place either:
and animals (e.g. Sheep, Biological Assets Agriculture (a) in the Principal Market for the Asset; or
Dairy Cattle, Pigs, crops, (b) in the absence of a principal market, in the most
trees for lumber)
PAS 41: advantageous market for the Asset.
Bearer Animals Biological Assets Agriculture
Bearer Plants used Property, Plant, and PAS 16: PPE
solely to grow Equipment
produce over several Note: Cost of Disposal is the incremental cost directly attributable to
period (Fruit trees, the disposal of the asset.
Grape vines)*
 Commissions to Broker and Dealer
Produce growing on Biological Assets PAS 41:
bearer plants (not yet Agriculture  Levy by regulatory agency and commodity exchange
harvested/detached)  Transfer tax and duty
Agricultural Produce Agricultural Produce PAS 41: Under the basis for conclusion on PAS 41, Cost of Disposal excludes
AT THE POINT of Agriculture
transaction costs like:
Harvest
Agricultural Produce Inventory unless they PAS 2:  Transport Cost
AFTER Harvest qualify as another asset Inventories  Finance Cost
Dogs used to secure Property, Plant, and PAS 16: PPE  Income Tax
farm (Working Equipment
Transaction Costs are not characteristics of an asset; rather, they are
Animals)
Zoo Animals specific to a transaction.
*Note: For short-term bearer plants e.g. Tomato Vines = Biological Asset
Note: The Quoted Price serves only as the Basis of Fair Value so any
PAS 41: MEASUREMENT OF BIOLOGICAL ASSET transaction costs are deducted from the Quoted Price to get the Fair
Value of the biological asset.
 Measured on initial recognition and at the end of each
This also means that if Fair Value is given in the problem, assume
reporting period at its Fair Value Less Costs of Disposal
that any transaction costs were already considered before getting the
(FVLCD)
Fair Value of the Asset so you need to deduct only the costs of
 Agricultural Produce harvested from an Entity’s Biological
disposal, because costs like transportation costs were already
Assets shall be measured also at PAS 41 or at its Fair
reflected in the Fair value.
Value less Costs of Disposal/Sell

PAS 2: Inventories
Illustration 1:
 Agricultural Produce AFTER Harvest = Accounted for as
The following pertains to Czar Company’s Biological Assets:
Inventory or depending on what the entity would do with it. Price of the Asset in the Principal Market 18T
 Initial Measurement of Inventory = The Fair Value Less Price of the Asset in a Different Market 19T
Costs to Sell of the Agricultural Produce at the Point of Selling Price in a binding contract to sell 20T
Harvest Estimated commissions to brokers 1,800
Estimated transport and other costs
necessary to get asset to the Market 1,200
 Solution: 2yo animal on Jan 1 10,000
Price of the Asset in the Principal Market 18T Newborn animal at Jul 1 7,000
Estimated transport and other costs 2.5yo animal on Jul 1 10,800
necessary to get asset to the Market (1,200)
New born animal on Dec 31 7,200
FAIRVALUE 16,800
Est. commissions to brokers (COD) (1,800) 0.5yo animal on Dec 31 8,000
Biological Assets 15,000 2yo animal on Dec 31 10,500
2.5yo animal on Dec 31 11,100
3yo animal on Dec 31 12,000
Illustration 2:
Compute for the following:
The following pertains to Czar Company’s Biological Assets:
Fair Value based on Quoted Price
1. CA of Biological Assets as of Dec. 31
in an active market for Similar asset 5,100
Fair Value based on Quoted Price in 2. Increase in FV-CTS of biological assets in the current
an active market for Identical asset 5,000 period due to price changes
Fair Value based on unobservable
inputs for the asset 4,900
Selling Price in a binding contract to sell 5,200 3. Increase in FV-CTS of biological assets in the current
Estimated commissions to brokers and dealers 500 period due to physical changes
Estimated transport and other costs
necessary to get asset to the market 300

Solution:
Fair Value based on Quoted Price in
an active market for Identical asset 5,000
Estimated commissions to brokers and dealers (500)
Biological Assets 4,500

Gains and Losses on Biological Assets and Agri Produce

 Shall be included in Profit or Loss for the Period in
which they Arise

 Gain on Initial Recognition of a Biological Asset

 Loss on Initial Recognition of a Biological Asset
(Costs to Sell > FV) In FVLCD
 Gain or Loss from change in Fair Value of a Bio Asset
 Gain or Loss on initial recognition of Agricultural
Produce as a result of harvesting

PRICE Changes Vs. PHYSICAL Changes

Price Change = Same Age, Different Dates

 The Change in the quoted price during the initial

measurement is compared to the measurement at year end

Physical Change = Same Date, Different Age

 The Change in quoted price by comparing the “supposed”

Value of the asset at year-end if it was acquired at that date
and then compare that to the actual value considering its
actual age.

Illustration 3:

You noted the following in connection with your audit of

Ysmael’s biological assets.

A herd of 17 2-year-old animals was held at Jan 1 of the current

period. On July 1, two animals aged 2.5 years was purchased for
10,800 and one animal was born. No animals were sold or
disposed of during the period. Per unit fair values less costs to sell
were as follows: