Definition of terms

Biological asset are living animals and living plants

Agricultural produce is the harvested product of an entity’s biological assets.

Harvest is the detachment of produce form a biological asset or the cessation of a biological asset’s life
processes.

Examples of biological assets

The following table provides examples of biological asset, agricultural produce and products that are the
results of processing after harvest.

Biological asset Agricultural produce product after harvest

1. Sheep Wool yarn, carpet

Agricultural activity or simply “agriculture”

Agricultural activity is the management by an entity of the biological transformation and harvest of the
biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Examples of agricultural activity

Agricultural activity covers diverse range of activities such as the following:

1. Raising livestock

2. Annual o perennial cropping

3. Cultivating orchards and plantations

4. Floriculture

5. Aquaculture, including fish farming

Biological transformation

Biological transformation comprises the process of growth, degeneration, production and procreation
that cause qualitative or quantitative changes in biological asset.

1. Asset changes through:

b. Degeneration- a decrease in quantity or deterioration in quality of an animal or plant.

c. Procreation- creation of additional living animal or plant.

2. Production of agricultural produce such as latex, tea leaf, wool and milk.

Recognition

An entity shall recognize a biological asset or agricultural produce when:

a. the entity controls the asset as a result of past event.

b. It is probable that future economic benefits associated with the asset will flow to the entity.

c. The fair value or cost of the asset can be measured reliably.

In agricultural activity, control may be evidenced by, for example, legal ownership of cattle and the
branding or otherwise marking of the cattle on acquisition or birth.

Measurement

A biological asset shall be measured on initial recognition and at the end of each reporting period at fair
value less cost of disposal.

Agricultural produce harvested shall be measured at fair value less cost of disposal at the point of
harvest.

Agricultural produce growing on bearer plant is measured at fair value less cost of disposal.

Fair value of biological asset

Fair value is defined as the price that would be received to sell an asset in an orderly transaction
between market participants and the measurement date.

There is a presumption that the fair value can be measured reliably for a biological asset.

However, this presumption can be rebutted only on initial recognition for a biological asset for which
market determined prices are not available or estimates or fair value are determined to be clearly
unreliable.

In such a case, the biological asset shall be measured at cost less accumulated depreciation and any
accumulated impairment loss.

However, once the fair value of such biological asset becomes clearly measurable, the entity shall
measure the biological asset at fair value less cost of disposal.

Fair value of agricultural produce

The fair value of agricultural produce at the point of harvest can always be measured reliably.

The fair value measurement of agricultural produce stops at the point of harvest. After that date, PAS 2
on inventories shall apply.

This means that the inventory shall be measured at the lower of cost and net realizable value after
harvest.

The harvested product is recorded by debiting inventory and crediting gain from change in fair value of
agricultural produce.

Gain or loss

A gain or loss arising on initial recognition of a biological asset at fair value less cost of disposal and any
subsequent changes in fair value less cost of disposal and any subsequent changes in fair value less cost
of disposal shall be included in profit or loss.

A loss may arise on initial recognition of a biological asset because cost of disposal is deducted in
determining fair value less cost of disposal of a biological asset.

A gain may arise on initial recognition of a biological asset, for example, when a calf is born.

A gain or loss on initial recognition of agricultural produce as a result of harvesting which also be
included in profit or loss.

An entity shall disclose the aggregate gain or loss arising on the initial recognition of biological asset and
agricultural produce and from the change in fair value less cost of disposal of biological asset.

Agricultural land

Agricultural land is not deemed biological asset

The requirement of PAS 16 which are applicable to property, plant and equipment apply equally to
agricultural land for purposes of measurement.

Biological assets attached to land

Biological assets are often physically attached to land, for example, trees in a plantation forest.

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, that is, for the biological assets and land as package.

An entity may use information regarding the combined assets to determine the fair value of the
biological assets.
For example, the fair value of the land may be deducted from the fair value of the combined assets to
arrive at the fair value of the trees in the plantation forest.

Bearer plants

The IASB decided that bearer palnts should be accounted for in the same way as property, plant and
equipment because the operation of bearer plants is similar to that of manufacturing.

Bearer palnts are used solely to grow agricultural produce over several periods.

At the end of their productive life, the bearer plants are usully scrapped.

Once bearer plant is mature apart from bearing produce, the biological transformation is no longer
significant in generating future economic benefit.

The only significant future economic benefit it generates comes from the agricultural produce it creates.

Agricultural produce growing on bearer plants

The agricultural produce growing on bearer plants remains within the scope of IAS 41.

In other words, the agricultural poduce as it grows is measured at the end of each reporting period prior
to harvest at fair value less cost of disposal.

The agricultural produce growing on bearer plant is classified as biological asset.

Once harvested, the agricultural produce is measured at fair value less cost of disposal at the point of
harvest.

The fair value less cost cost of disposal at the point of harvest is the deemed cost of inventory.

The harvested products is recorded as inventory and recognized as gain from agricultural produce.

Definition of bearer plant.

A bearer plant is a living palnt that:

a. Is used in the production or supply of agricultural produce.

b. Is expected to bear produce for more than one period.

c. has a remote likelihood of being sold as agricultural produce except for incidental scrap sales.

In other words, a bearer plant is 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.

The incidental scrap sales would not prevent the plant from being a bearer plant.

Example of bearer plants

a. trees that produce fruits are bearer plants while the fruits growing on the trees are
agricultural produce until harvested.

In an oil palm plantation, a coconut tree is the bearer plant and the fruit is the agricultural produce.

When immature, the coconut fruit can be harvested for drinking, known as “buko” juice in the
vernacular.

When mature, the cocunot fruit can be processed to give oil, charcoal from thehard shell an copra from
the dried cocunt flesh.

b. In a vineyard, the grape vines are the bearer plants and the grapes are the agricultural produce.

Not considered bearer plants

a. trees grown to be harvested and sod as log or lumber are not bearer plants.

b. Annual crops which do not bear produce for more than one period and are held solely to be
harvested as agricultural produce for more than period and are held solely to be harvested as
agricultural produce such as corn and rice are not bearer plants.

Plant with dual use

A plan with dual use is reported as biological asset and not as bearer plant.

A plant may have dual use, namely:

a. The palnt is cultivated for bearing agricultural produce

b. The plant itself is being solfd either as living plant or an agricultural produce

for example, rubber trees may be cultivated to grow rubber milk as agricultural produce and at the same
time, may be sold as living plant or cut down at the end of the prouctive life to be sold as lumber or
wood.

In this case, the rubber trees are recognized as biological asset because of the dual use.

However, the rubber trees are recognized as bearer plants when simply cut dow nad sold for scarp upon
maturity.
Judgment required

Determining wether the plant is bearer plant is critical as it drives the subsequent measurement of the
plant.

Judgement is required in determining if the definition of bearer plant is met especially in deciding
whether the sales of plant is met especially in deciding whether the sales of plant itself are incidental
scrap sales.

Measurement- immature bearer plants

Immature bearer plants are similar to item property, plant and equipment being constructed before the
intended use.

The IASB decided that bearer plants before maturity are measured at accumulated cost in the same
manner as self-constructed item of property, plant and equipment/

Accumulation of cost ceases when the bearer plants are in the location and condition necessary
intended for use, meaning, the bearer plants already reach maturity.

Accumulating cost of an immature bearer plant is a new concept.

Entities should be able to track and capture costs incurred for bearer plants during the prematurity
stage.

Measurement – mature bearer plants

There is no specific guidance when a bearer plant reaches maturity.

For example, a grape vine may take many years to produce the right quantity and quality of fruit for a
good wine.

Judgment is required and entities nee accounting policy to determine when bearer plants reach
maturity.

Mature bearer Pants are measured using either cost model or revaluation model.

The carrying amount of bearer plants is depreciated on a systematic basis over the useful life.

The useful life of bearer plants is the number of years bearing agricultural produce.

Bearer animals

Bearer animals, like bearer plants may hold solely for the produce they bear

However, bearer animals have been explicitly excluded from IASB amendment and will continue to be
accounted for under IAS 41.
The reason is the measurement model would become more comlex I applied to bearer animals.

In other wods, bearer animals continue to be reported as biological assets.

animal related recreational activites

managing recreational activites, for example, game parks and zoos, is not agricultural activity.

The reson is that there is no managmement of the transformation of the biological asset but simply
control of the number of animals.

The natural breedinf =g that takes place is not managed activity and is incidental only to the main
activity of providing a recreational facility.

Accordingly, animals related to recreational activities shall be accounted for in accordance with PAS 16
Property palnt and equipment.