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    Biological Assets and Liabilities

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    Melchie Repospolo
    This document defines key terms related to accounting for biological assets and agricultural activities. It discusses biological assets, agricultural produce, and bearer plants. Biological assets are living animals or plants, agricultural produce is the harvested output of biological assets, and bearer plants are living plants used for more than one period of agricultural production. The document also provides an overview of accounting standards for biological assets, agricultural produce, and liabilities.

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    Biological Assets and Liabilities

    Uploaded by

    Melchie Repospolo
    85 views3 pages
    This document defines key terms related to accounting for biological assets and agricultural activities. It discusses biological assets, agricultural produce, and bearer plants. Biological assets are living animals or plants, agricultural produce is the harvested output of biological assets, and bearer plants are living plants used for more than one period of agricultural production. The document also provides an overview of accounting standards for biological assets, agricultural produce, and liabilities.

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    This document defines key terms related to accounting for biological assets and agricultural activities. It discusses biological assets, agricultural produce, and bearer plants. Biological assets are living animals or plants, agricultural produce is the harvested output of biological assets, and bearer plants are living plants used for more than one period of agricultural production. The document also provides an overview of accounting standards for biological assets, agricultural produce, and liabilities.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    85 views3 pages

    Biological Assets and Liabilities

    Uploaded by

    Melchie Repospolo
    This document defines key terms related to accounting for biological assets and agricultural activities. It discusses biological assets, agricultural produce, and bearer plants. Biological assets are living animals or plants, agricultural produce is the harvested output of biological assets, and bearer plants are living plants used for more than one period of agricultural production. The document also provides an overview of accounting standards for biological assets, agricultural produce, and liabilities.

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    of 3

    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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    BM1706

    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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    BM1706

    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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