Biological Assets
(IAS 41)
by Sarah M. Balisacan, CPA
Terminologies
Biological assets Agricultural produce Products that are the
Living plants and Harvested product of a result of processing
animals biological asset after harvest
Ex. Ex. Ex.
Sheep
Wool
Jacket
IAS 41 IAS 41 at the point of harvest IAS 2 Inventories
Measured at fair Measured at FV less cost to sell Measured at LCNRV
value less cost to sell
IAS 2 after harvest
Measured at LCNRV
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Agricultural Activity
✢ Only biological assets involved in
agricultural activity are accounted for under
IAS 41
✢ Agricultural activity is the management of the
biological transformation of biological assets
for
1) Sale or
2) Conversion into agricultural produce, or
3) Production of additional biological assets.
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Examples
Agricultural activity is not limited to agricultural farmers!
Animal Pharmaceutical Diary producers Jewelry producers
Breederss companies grow bacteria and produce their own pearls
carefully select grow their own cultures as by inserting foreign
animal plants in order to ingredients to objects into the soft
pairings. produce drugs. yoghurt. bodies of oysters.
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Bearer Plants
✢ Bearer plants are living plants that:
• Are used solely in the production or supply
of agricultural produce
• Are expected to bear produce for more than
one year
• Has a remote likelihood of being sold as
agricultural produce, except for incidental
scrap
✢ Examples: grape vines, coconut trees, mango trees
✢ Accounted for under IAS 16 PPE not IAS 41
✢ Bearer plants exclude annual crops, plants with dual
use and bearer animals which are covered by IAS 41.
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Exclusions from IAS 41 Biological Assets
Agricultural Plants and Animals in Working Recreational Bearer
Land animals Pet Stores Animals Animals Plants
(IAS 16 PPE) not managed (IAS 16 - PPE) e.g., guard dogs e.g., zoo animals e.g., grape
e.g., fish in the (IAS 16 - PPE) (IAS 16 - PPE) vines, mango
open ocean trees
(Not Recognized) (IAS 16 - PPE)
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Initial Recognition
IAS 41 sets three (3) recognition criteria
for biological asset or agricultural
produce:
✢ Control of an asset by the entity as a
result of past events
✢ Probable future economic benefits will
flow to the entity; and
✢ Fair value or cost of the asset can be
measured reliably.
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Measurement
Biological assets • Fair value is defined as the price
that would be received to sell an asset
On initial recognition and each
or paid to transfer a liability in an
reporting period end, biological orderly transaction between market
assets are measured at fair value less participants at the measurement
cost to sell. date.
• Cost to sell are the incremental
Agricultural produce costs directly attributable to the
Agricultural produce is measured disposal of an asset. e.g. commissions,
levies, transfer taxes and duties. This
at fair value less costs to sell at point
excludes transport costs, finance
of harvest. costs and income taxes.
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Fair Value Measurement (IFRS 13)
Fair value Hierarchy
✢ Level 1 Quoted prices for identical assets in
active markets
✢ Level 2
• Quoted prices of similar assets in an
active market
• Quoted prices of identical or similar
assets in markets that are not active
• Other observable inputs
✢ Level 3 Unobservable inputs using the best
information available.
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Fair Value Assumption
✢ IAS 41 generally assumes that fair value is measurable.
✢ This is rebuttable only on the initial recognition of biological assets
whose fair value cannot be reliably measured. The biological assets
are recorded at cost less accumulated depreciation and impairment.
✢ When FV becomes reliably measurable, the biological assets are
measured at FV less cost to sell. It is assumed that fair value is
reliably measurable thereafter (no “going back”).
✢ On the other hand, the fair value of agricultural produce is assumed
to be always determinable. It may never be measured at cost due to
unavailability of fair value.
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Fair Value Illustration
A biological asset is sold in two different active markets at
different prices. Market A is the principal market whereas Market
B is the most advantageous. At what amount should the biological
asset be measured?
Mkt. A Mkt. B
Price that would be received P26 P25
Transaction costs in the market (3) (1)
Costs to transport the asset in the market (2) (2)
Net amount that would be received P21 P22
Mkt. A
Price P26
Less: Transport costs (2)
Fair value P24
Less: Cost to sell (3)
Fair value less cost to sell P21
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Gain and/or Loss on Initial Recognition
Loss is recognized because cost Gain is recognized on initial Gain and/or loss is recognized
to sell is deducted in recognition, e.g. when a calf is on initial recognition of
determining FV less cost to sell. born. agricultural produce.
Biological asset xxx Biological asset xxx Inventory xxx
Loss on initial recognition xxx Gain from change in FV xxx Gain from change in FV xxx
Cash xxx
Loss from change in FV xxx
Biological asset xxx
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Financial Statement Presentation
✢ Biological assets shall be presented as
a separate line item in the statement
of financial position
✢ Classified as non-current assets
✢ Separating the change in fair value
into price change and physical change
are encouraged but not required.
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Price Change and Physical Change
FV less cost to sell
An entity acquired a newborn
piglet “Biring” on April 1. Biring Newborn Piglet on Apr. 1 P1,600
grew into a health pig and gave
birth to a new piglet “Ella” on Newborn Piglet on Dec. 31 P2,000 P12,400
December 31. Adult Pig on Dec. 31 P12,000
Piglet Piglet Piglet on Pig on Piglet on
on Apr. 1 on Dec. 31 Dec. 31 Dec. 31 Nothing Dec. 31
P1,600 P2,000 P2,000 P12,000 P0 P2,000
Biring’s Price Change Biring’s Physical Change Ella’s Physical Change
P400 P10,000 P2,000 14
Thank you!
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