Financial Accounting and Reporting

Examples:
AGRICULTURAL ACTIVITIES AND
BIOLOGICAL ASSETS 1. Raising livestock
2. Annual or perennial cropping
Overview of the Handouts: 3. Cultivating orchards or plantations
4. Floriculture
1. Biological Assets 5. Aquaculture, including fish farming
2. Agricultural Produce
3. Government grant related to a FEATURES of Agricultural Activity
biological
1. Capability to change – living animals
DEFINITION OF TERMS and plants are capable of biological
transformation.
Biological Assets – living animals and 2. Management of change – agricultural
living plants. activity must be managed to facilitate
the biological transformation by
Agricultural Produce – harvested product enhancing or at least stabilizing
of an entity’s biological assets. conditions necessary for the process to
take place.
Harvest – detachment of produce from a 3. Measurement of change – change in
biological asset or the cessation of a quality or quantity is measured and
biological asset’s life processes. monitored as a routine management
PAS 41 – Agriculture function.

Biological Transformation – comprises

 Applied to agricultural produce at the
the processes of growth, degeneration,
point of harvest.
production and procreation that cause
 Does NOT deal with the processing of
qualitative or quantitative changes in a
agricultural produce after harvest. biological asset.
PAS 2 – Inventories
1. Asset changes through:
a. Growth – increase in quantity or
 Applied in processing of agricultural
produce improvement in quality of an
animal or plant.
EXAMPLES of Biological Assets b. Degeneration – decrease in
quantity or deterioration in quality
Biological Agricultural Product of an animal or plant.
Asset Produce after c. Procreation – creation of
Harvest additional living animal or plant.
Yarn, 2. Production of agricultural produce
1. Sheep Wool
carpet
2. Sugarcane Harvested RECOGNITION
Sugar
plants cane
1. Controls the asset as a result of past
3. Dairy event
Milk Cheese
cattle 2. Probable that future economic
benefits associated with the asset
Agricultural Activity – management by an will flow to the entity
entity of the biological transformation and 3. Can be measured reliably
harvest of biological assets for sale or for
conversion into agricultural produce or into MEASUREMENT
additional biological assets.

Contributors: Afalla, P., Alesin, F., Contador, C., Punzalan, A.


 Biological Asset – measured on initial
recognition and at the end of each
reporting period at fair value less cost
of disposal.
 Agricultural Produce – measured at fair
value less cost of disposal at the
point of harvest.
Cost of Disposal – incremental cost
directly attributable to the disposal of an
asset. It excludes transport cost, finance
cost and income tax.
FAIR VALUE in Biological Assets
1. Quoted price in active market
a. Items traded are homogenous
b. Buyers and sellers are found at
any time
c. Price are available to public
2. Recent market transaction price
3. Market price for similar asset with
adjustments
4. Sector benchmark (quantity pricing)
5. Present value of expected net cash
flows
GAIN and LOSS
 A 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 gain or loss may arise on initial
recognition of a agricultural produce as
a result of harvesting shall also be
included in profit or loss.
Agricultural land – not deemed a biological
asset. It is applicable to PAS 16 entitled
Property, Plant and Equipment.
Biological assets attached to land – there
may be no separate market for biological
assets that are attached to the land but an
active market may exist for the combined
assets.
GOVERNMENT GRANT
Contributors: Afalla, P., Alesin, F., Contador, C., Punzalan, A.
Financial Accounting and Reporting
1. If the biological asset is measured at fair
value less cost of disposal, any
government grant available for such
biological asset will be accounted for as
follows:
 If the government grant is
unconditional, it shall be recognized
as income when the grant becomes
receivable.
 If a government grant is conditional,
the grant shall be recognized as income
only when the conditions attaching to
the grant are met.
2. If a government grant relates to a
biological asset is measured at cost less
any accumulated depreciation and any
accumulated impairment losses, PAS 20
on government grant is applied.
Bearer plant – a living plant that is used
solely to grow agricultural produce over the
productive life.
 At the end of productive life, the bearer
plant is usually scrapped.
 Example:
a. Trees that produce fruits are bearer
plants while the fruits growing on the
trees are agricultural produce until
harvested.
 Not considered as bearer plants
a. Trees grown to be harvested and
sold as log or lumber.
b. Annual crops which do not bear
produce or more than one period
and are held solely to be harvested
as agricultural produce.
Amendment for bearer plants
 Prior to IASB amendment, bearer plants
are considered biological assets
included within the scope of IAS 41 and
are measured at fair value less cost of
disposal.
 Bearer plants should now be accounted
for in the same way as property, plant
and equipment in IAS 16 because the
operation of bearer plants is similar to
that of manufacturing.
Agricultural produce growing on bearer
plants
 Financial Accounting and Reporting

 The agricultural produce is measured at
the end of each reporting period prior to
harvest at fair value less cost of
disposal.
 Classified as biological asset
 Once harvested, the agricultural
produce is measure at fair value less
cost of disposal at the point of harvest.
 The fair value less cost of disposal at
the point of harvest is the deemed cost
of inventory.
Separating bearer plant from agricultural
produce
Bearer animals – may be held solely for
the produce that they bear. It will continue to
be accounted for under IAS 41.
Animal-related recreational activities
 Managing recreational activities is NOT
an agricultural activity.
 It shall be accounted for in accordance
with PAS 16, Property, Plant and
Equipment.
Pro-forma Entries
1. Acquisition of biological assets

1. Before amendment Biological Assets XXX

 Considered to be one single
biological asset account
presented as either current or
noncurrent based on the asset’s
useful life
2. After amendment
 Reported as two separate assets
with different measurement model.
 Bearer plants are presented as
noncurrent assets.
 Agricultural produce is usually
presented as current assets unless
it takes more than one year to
mature.
MEASUREMENT
1. Immature bearer plants
 Similar to an item of property, plant
and equipment
 Bearer plants before maturity are
measured at accumulated cost
2. Mature bearer plants
 Measured using either the cost
model or revaluation model
 The carrying amount of bearer
plants is depreciated on
systematic basis over the useful life.
Plant with dual use – reported as
biological asset and not as bearer plant.
Cash/Accounts Payable XXX
2. Birth of Biological assets & increase
in FV
Biological Assets XXX
Gain from change in FV XXX
3. Decrease in fair value
Loss from change in FV XXX
Biological Assets XXX
 Separating the change in fair value
between the portion attributable to price
change and the portion attributable to
physical change in encouraged but not
required by PAS 41.
SAMPLE PROBLEM #1
On January 1, Query Company has a herd of 10
2-year old animals. One animal aged 2.5 years
was purchased on July 1 for 108, and one animal
was born on July 1.
a
No animals were sold or disposed of during the
year. The active market provided the following fair
value less cost of disposal:

A plant may have a dual use, namely: 2 – year old animal on January 1 100
a. The plant is cultivated for bearing 2.5 – year old animal on July 1 108
agricultural produce. New born animal on July 1 70
b. The plant itself is being sold either as 2 – year old animal on December 31 105
a living plant or an agricultural 2.5 – year old animal on December 31 111
produce. New born animal on December 31 72
3 – year old animal on December 31 120
0.5 – year old animal on December 31 80

Contributors: Afalla, P., Alesin, F., Contador, C., Punzalan, A.

 Financial Accounting and Reporting

Required: SAMPLE PROBLEM #2

1. Prepare journal entries for the current year to Savvy Company is engaged in raising dairy
recognize the transactions relating to the livestock. The entity provided the following
biological asset. information regarding activities relating to the
2. Determine the price change and physical dairy livestock during the current year:
change in fair value.
Carrying amount on January 1 5,000,000
Solution: Increase due to purchase 2,000,000
Requirement 1 Gain arising from change in FV less
1. To record the purchase of one animal aged cost of disposal attributable to price 400,000
2.5 years on July 1. change
Biological Assets 108 Gain arising from change in FV less
Cash 108 cost of disposal attributable to 600,000
2. To record the birth of one animal on July 1 physical change
with fair value of P70. Decrease due to sales 850,000
Biological Assets 70
Decrease due to harvest 200,000
Gain on Biological Assets 70
3. To record the change in fair value.
Required:
Biological Assets 222
1. Determine the carrying amount of the
Gain on Biological Assets 222
biological asset on December 31.
FV of 10 animals on Jan. 1 (10 x P100) 1,000
Solution:
Newborn animal at July 1 at FV 70
Acquisition cost of one animal on July 1 108
Carrying amount – January 1 5,000,000
Book value of Biological Assets – Dec. 31 1,178
Increase due to purchase 2,000,000
Gain from change in FV due to
FV of 3-year old animals on Dec.31(11x120)1,320
Price change 400,000
FV of 0.5-year old animal – Dec.31 80
Gain from change in FV due to
Total Fair Value 1,400
Physical change 600,000
Book Value of Biological Assets – Dec.31 (1,178)
Decrease due to sales (850,000)
Increase in Fair Value 222
Decrease due to harvest (200,000)
Carrying amount – December 31 6,950,000
Requirement 2
References:
Increase in FV due to price change
10 2-year old animals (105 – 100 = 5x10) 50 Financial Accounting Vol. 1 2017 edition by
1 2.5-year old animal (111 – 108 = 3x1) 3 Valix
1 newborn on July 1 (72 – 70 = 2 x 1) 2
CPAR Lecture Notes
Increase due to price changes 55

Increase in FV due to physical change

10 3-year old animals acquired January 1
(120 – 105 = 15 x 10) 150
1 3-year old animal acquired July 1
(120 – 111 = 9 x 1) 9
1 0.5-year old born on July 1
(80 – 72 = 8 x 1) 8
1 newborn (70 x 1) 70
Increase due to physical change 237

Price change 55
Physical Change 237
Total increase in Fair Value 292
Contributors: Afalla, P., Alesin, F., Contador, C., Punzalan, A.