Government Accounting

&
Accounting for non-profit organizations

by: ZEUS VERNON B. MILLAN

 Chapter 8
Agriculture

Learning Objectives
1. Differentiate between the following:
biological assets, agricultural produce and
inventory.
2. State the initial and subsequent
measurements of biological assets and
agricultural produce.

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 Agriculture
• means farming or the process of producing
crops and raising livestock.

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 Agricultural Activity
• is the management by an entity of the biological
transformation and harvest of biological assets for sale,
including exchange or non-exchange transactions, or for
conversion into agricultural produce, or into additional
biological assets.
• e.g.: raising livestock, forestry, annual or perennial
cropping, cultivating orchards and plantations, floriculture,
and aquaculture (including fish farming).
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Common Features of agricultural activities

a. Capability to change – living animals and plants

are capable of biological transformation.
b. Management of change – enhances or at least
stabilizes conditions necessary for the process to
take place.
*Harvesting from unmanaged sources (such as
fishing and deforestation) is not agricultural
activity.
c. Measurement of change – change in quantity or
quality brought about by biological
transformation or harvest is measured and
monitored as a routine management functions.
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 Biological Transformation

• Comprises the following processes that cause

qualitative or quantitative changes in a biological
asset:
I. Asset changes through:
a. Growth – is an increase in quantity or
improvement in quality of an animal or plant.
b. Procreation – is the creation of additional living
animals or plants.
c. Degeneration – is a decrease in the quantity or
deterioration in quality of an animal or plant.

II. Production of agricultural produce.

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 Definitions

• Biological Asset – is a living animal or plant.

• Agricultural Produce – is the harvested

product of the entity’s biological assets.

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Biological assets Agricultural Inventory
produce
Trees in a Felled trees Logs, Lumber
plantation forest
Plants Harvested palay/ Rice/Sugar
cane
Corn Corn Starch
Cotton Clothing
Dairy cattle Milk Cheese
Sheep Wool Yarn, Carpet
Pigs Carcass Ham
Bushes Leaf Tea
Vines Grapes Wine
Fruit trees Picked fruit Processed fruit
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 Measurement
• Biological assets
– Initial measurement
Fair Value – Cost to Sell
Subsequent measurement

– Gain or loss arising from measurement are recognized in surplus or deficit.

Biological assets whose fair value cannot be reliably determined on initial

recognition are:
1. initially measured at cost
2. subsequently measured at cost less accumulated
depreciation and accumulated impairment losses

• Agricultural produce - initially measured at fair value less costs to sell at the
point of harvest. Gain arising from the initial measurement is recognized in
surplus or deficit.
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 Cost to Sell
- are the incremental costs directly
attributable to the disposal of an asset,
excluding finance costs and income taxes

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 Determination of Fair value
Quoted price in an active market xx
Less: Transport costs (xx)
Fair value xx

 If there are more than one active markets,

the entity shall use the price in the market
expected to be used.

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 Active Market
- is a market in which ALL the following
conditions exist:
a. the items traded in the market are
homogeneous.
b. willing buyers and sellers are normally be
found at anytime; and
c. prices are available to the public.

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Determination of Fair value (continuation)

 If there is no active market, the entity shall

estimate the market price based on one of
the following:
– Most recent market transaction price
– Market prices for similar assets with
adjustment to reflect differences
– Sector benchmarks
– Present value of expected net cash flows
from the asset.

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 Contract prices are irrelevant when determining fair value.
 Transport costs refer to all costs necessary in getting the
asset to the market for the sale.

b. The determination of fair value may be facilitated by

grouping biological assets or agricultural produce according
to significant attributes, e.g. by age or quality

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d. Biological assets attached to land (e.g. trees in a plantation
forest) may not have a separate market but an active market
may exist for the combined assets (i.e., biological assets, raw
land, and land improvements) as a package. In such as case,
the fair value of the raw land and land improvements may be
deducted from the fair value of the combined assets to
arrive at the fair value of the biological assets.

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e. A biological asset that is previously measured at fair value
less cost to sell shall be measured at fair value less cost to
sell until it is disposed.

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 Disclosures
The following are the peculiar disclosures related to
agriculture:

a. The aggregate gain or loss on initial recognition of

biological assets and agricultural produce and from the
change in fair value less cost to sell of biological assets.

b. Consumable and bearer biological assets and

biological assets held for sale and held for distribution
at no charge or for a nominal charge.

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Consumable Biological Assets – are those that are to be harvested as
agricultural produce or to be sold or distributed as biological assets.
Examples: livestock intended for production of meat, annual crops like
maize and rice, and trees being grown for lumber.

Bearer Biological Assets – are those that are self-generating and are
used repeatedly for more than one year.
Examples: dairy cattle held for production of milk, fruit trees, and trees
from which firewood is harvested while the tree remains.

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c. Mature and immature biological assets
Mature Biological Assets – are those that have attained harvestable
specifications or are able to sustain regular harvests.

d. The amount of change in fair value less costs to sell due to physical
changes and due to price changes.

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GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Mi
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GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Mi
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GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Mi
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GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Mi
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GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Mi
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 APPLICATION OF CONCEPTS

PROBLEM 8-3: FOR CLASSROOM DISCUSSION

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OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 END

GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Millan