Agriculture Agricultural Produce Biological Asset Bearer Plant

Accounting for Government, Not-for-Profit Entities and Specialized Industries
Hand-out no. 7 – Agriculture
NATURE AND DEFINITION OF TERMINOLOGIES

1. Agriculture is the art and practice of cultivating the soil, producing crops, and raising livestock (Merriam-
Webster).
2. Agricultural produce is the harvested produce of the entity’s biological assets.
3. A biological asset is a living animal or plant.
4. A bearer plant 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 period; and
(c) Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
 An example of a bearer plant would be a tree intended to bear fruits and only the fruits are harvested
while that tree remains to grow fruits again (i.e., apple tree).
 Bearer plants are classified as property, plant and equipment. However, produce growing
on bearer plants is a biological asset.
5. Biological transformation comprises the processes of growth, degeneration, production, and

procreation that cause qualitative or quantitative changes in a biological asset. It results in the following
types of outcomes:
(a) Asset changes through:
(i) Growth (an increase in quantity or improvement in quality of an animal or plant),
(ii) Degeneration (a decrease in the quantity or deterioration in quality of an animal or plant), or
(iii) Procreation (creation of additional living animals or plants); or
(b) Production of agricultural produce such as latex, tea leaf, wool, and milk.
6. Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance
costs and income taxes. It includes the following:
(a) Broker’s commissions
(b) Levies by regulatory agencies and commodity exchanges
(c) Transfer taxes and duties
7. Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life
processes.
EXAMPLES
Biological Bearer plant Agricultural Products
asset (IAS 16 produce at that are the
(IAS 41, Property, point of result of
Agriculture) plant and harvest (IAS processing
equipment) 41, after harvest
Agriculture) (IAS 2
Inventories)
Sheep Wool Yarn, carpet
Trees in a Felled trees Logs, lumber
timber
plantation
Dairy cattle Milk Cheese
Pig Carcass Sausages,
cured hams
Cotton plants Harvested Thread, cotton
cotton
Sugarcane Harvested cane Sugar
Tobacco plants Picked leaves Cured tobacco
Tea bushes Picked leaves Tea
Grape vines Picked grapes Wine
Fruit trees Picked fruit Processed fruit
Oil palms Picked fruit Palm oil
Rubber trees Harvested latex Rubber
products
RECOGNITION
An entity shall recognize a biological asset or agricultural produce when, and only when:
(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.
MEASUREMENT
 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 except where the fair value cannot be measured reliably.
(IAS 40 par. 12)
 If the fair value cannot be measured reliably, the biological asset shall be measured at its
cost less any accumulated depreciation less any accumulated impairment losses.
BRIAN CHRISTIAN S. VILLALUZ, CPA
LEarning ADvancement Review Center (LEAD)
CPA Reviewer in Advanced Financial Accounting & Reporting (AFAR)
CPA Reviewer in Financial Accounting & Reporting (FAR)
CPA Reviewer in Auditing (Theory & Problems) Page 1 of 2
 Once the fair value of such a biological asset becomes reliably measurable, an entity
shall measure it at its fair value less costs to sell.
 All costs incurred in biological assets that are measured at fair value less cost to sell are recognized in
profit or loss.
 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. (IAS 40 par.
13)
 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. (IAS 40 par. 26)
 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. (IAS 40 par. 28)
FINANCIAL STATEMENT PRESENTATION

 Biological assets is presented under the non-current assets section of the statement of financial position.
Problem 1:
On January 1, 2018, ABC acquired a biological asset at its fair value of P10,000. Necessary costs incurred on the
purchase totaled P2,000. It was estimated that if the biological asset is to be sold currently, costs to sell would amount
to P500.
1. Compute for the initial measurement of biological asset.

2. Prepare the journal entry to record the purchase of the biological asset.
Problem 2:
On August 1,2018, a dairy cattle of ABC gave birth to a calf. The fair value less cost to sell of a newly born calf as of
August 1 is P5,000.
1. Prepare the journal entry to record the birth of the calf.
Problem 3:
Site Company is engaged in raising dairy livestock. The company provided the following information during the current
year:
Carrying amount on January 1 5,000,000

Increase due to purchase 2,000,000
Gain arising from change in fair value less cost of disposal attributable to price change 400,000
Gain arising from change in fair value less cost of disposal attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31?
Problem 4:
At the beginning of the current year, Faisal Company had a herd of ten 2-year old animals. One animal aged 2.5 years
was purchased on July 1 for P108.00, and one animal was born on July 1. No animals were sold or disposed of during
the year.
Fair value less cost of disposal per unit:

2-year old animal on January 1 P100
2.5-year old animal on July 1 108
Newborn animal on July 1 70
2-year old animal on December 31 105
2.5 year old animal on December 31 111
Newborn animal on December 31 72
3-year old animal on December 31 120
0.5-year old animal on December 31 80
1. What is the fair value of the biological assets on December 31?

2. What amount of gain from change in fair value of biological assets should be recognized in the
current year?
3. What is the gain from change in fair value due to price change?
4. What is the gain from change in fair value due to physical change?
-END-
BRIAN CHRISTIAN S. VILLALUZ, CPA

LEarning ADvancement Review Center (LEAD)
CPA Reviewer in Advanced Financial Accounting & Reporting (AFAR)
CPA Reviewer in Financial Accounting & Reporting (FAR)
CPA Reviewer in Auditing (Theory & Problems) Page 2 of 2

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Accounting for Government, Not-for-Profit Entities and Specialized Industries

Hand-out no. 7 – Agriculture

NATURE AND DEFINITION OF TERMINOLOGIES

5. Biological transformation comprises the processes of growth, degeneration, production, and

FINANCIAL STATEMENT PRESENTATION

1. Compute for the initial measurement of biological asset.

1. Prepare the journal entry to record the birth of the calf.

Carrying amount on January 1 5,000,000

What is the carrying amount of the biological asset on December 31?

Fair value less cost of disposal per unit:

1. What is the fair value of the biological assets on December 31?

BRIAN CHRISTIAN S. VILLALUZ, CPA

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