Biological Assets

Learning Objectives:
1. To define biological asset, agricultural produce and agricultural activity.
2. To know the recognition and measurement of biological asset and agricultural produce.
3. To understand the recognition of bearer plants as property, plant and equipment.
4. To understand the recognition of bearer animals.

Definition
Biological assets – are living animals and living plants (related to the agricultural activity of the
company). IAS 41 Agriculture – applicable standard
Agricultural produce- is the harvested product of an entity’s biological assets. (IAS 41 at the
point of harvest).
Harvest- is the detachment of produce from a biological asset or the cessation of a biological
asset’s life processes. IAS 2 Inventories - after harvest

Examples of biological assets

Biological Asset (IAS 41) Agricultural Produce (IAS 41) Product after harvest (IAS 2)
1. Sheep Wool Yarn, carpet
2. Trees in plantation forest Felled trees Logs, lumber
3. Sugarcane plant Harvested cane Sugar
4. Dairy cattle Milk Cheese
5. Pigs Carcass Sausage, cured ham
6. Tobacco plant Picked leaves Cured tobacco

Agricultural activity or simply “agriculture”-is the management by an entity of the biological

transformation and harvest of biological assets for sale or for conversion into agricultural
produce or into additional biological assets.

Examples of Agricultural activity

1. Raising livestock
2. Annual or perennial cropping
3. Cultivating orchards and plantations
4. Floriculture
5. Aquaculture, including fish farming

Biological transformation- comprises the processes of growth, degeneration, production and

procreation that cause qualitative or quantitative changes in a biological asset.
1. Asset changes through:
a. Growth – an increase in quantity or improvement in quality of an animal or plant.
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. 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.
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.

Measurement
A biological asset shall be measured on initial recognition and at the end of each reporting
period at fair value less cost to sell or cost of disposal. Cost to sell – incremental cost directly
attributable to the disposal of the asset. Ex. commissions, transfer taxes or import duties.
Transport cost (freight out), finance cost (interest) and income taxes are outright expenses.
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.

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 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 may arise on initial recognition of agricultural produce as a result of harvesting
which shall also be included in the 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 a biological asset. PAS 16 on property, plant and equipment
and PAS 40 on investment property apply equally to agricultural land for purposes of
measurement.

Biological assets attached to land

An entity may use information regarding the combined assets to determine the fair value of the
biological asset. 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. (FV of
combined asset – FV of the land = FV of the biological asset)

Fair value of biological asset

Fair value- is the price that would be received to sell an asset in an orderly transaction between
market participants at the measurement date. Once the fair market value of a biological asset
becomes clearly measurable, the entity shall measure the biological asset at fair value less cost
of disposal.

Fair value of agricultural produce

In all cases, an entity shall measure agricultural produce at the point of harvest at fair value less
cost of disposal.
The fair value measurement of agricultural produce stops at the point of harvest. After that
date, the agricultural produce shall be accounted for as inventory (PAS 2) and measured at
lower of cost and net realizable value after harvest.

The fair value less cost of disposal at the point of harvest is the deemed cost of inventory. The
harvested product is recorded as inventory and recognized as gain from agricultural produce.

Agricultural produce growing on bearer plants (IAS/PAS 41)

Agricultural produce growing on bearer plant is classified as biological asset. The agricultural
produce as it grows is measured at the end of each reporting period prior to harvest at fair
value less cost of disposal.

Bearer plants
Bearer plants – 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. (IAS 16 PPE) subject
to depreciation when they mature.
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.
c. Has a remote likelihood of being sold as agricultural produce, except for incidental scrap
sales.
A bearer plant is used solely to grow agricultural produce over the productive life, usually
several periods. At the end of productive life, the bearer plant is usually scrapped.

Examples 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 (buko juice). When mature, the coconut fruit can be processed to
produce oil, charcoal from the hard shell and copra from the dried coconut 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 sold as log or lumber are not bearer plants.
b. Annual crops which do not bear produce for more than one period and are held closely to be
harvested as agricultural produce such as corn and rice are not bearer plants.

Plant with dual use

A plant with dual use is reported as biological asset and not as bearer plant. A plant may have a
dual use, namely:
a. The plant is cultivated for bearing agricultural produce
b. The plant itself is being sold either as a living plant or an agricultural produce.
Examples: rubber trees is 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 productive 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 down and
sold for scrap upon maturity. Judgment is required in determining whether a plant is a bearer
plant. This is critical for the subsequent measurement of the plant. Judgment is required in
determining if the definition of bearer plant is met especially in deciding whether the sales of
the plant itself are incidental scrap sales.

Measurement – immature bearer plants

Immature bearer plants are similar to an item of property, plant and equipment being
constructed before the intended use. The bearer plants before maturity are measured at
accumulated cost like the PPE. Accumulation of cost ceases when the bearer plants are in the
location and condition necessary for the intended use, meaning, the bearer plants already
reach maturity.

Measurement – mature bearer plants

Mature bearer plants are measured using either the cost model or revaluation model. The
carrying amount of bearer plants is depreciated on a systematic basis over the productive
useful life. The useful life of bearer plants is the number of years bearing agricultural produce.

Cost model- a company’s fixed assets are carried at their historical cost, minus the accumulated
depreciation and accumulated impairment losses associated with those assets. The cost model
does not allow for upward adjustments in the value of an asset based on the fair market value.
Impairment losses- amount by which the carrying amount of an asset or a cash-generating unit
exceeds its recoverable amount. The recoverable amount of an asset or a cash-generating unit
is the higher of its fair value less costs of disposal and its value in use.

Revaluation model- the carrying amount are the fair values at the date of revaluation less any
subsequent accumulated depreciation or amortization. The model makes it possible for the
values of long-lived assets to increase to amounts that are higher than their historical costs.

Bearer animals
Bearer animals, like bearer plants, may be held solely for the produce that they bear. Bearer
animals shall be accounted for as biological assets.

Animal-related recreational activities

Animals related to recreational activities shall be accounted for in accordance with PAS 16,
Property, plant and equipment. Managing recreational activities like game parks and zoos, are
not agricultural activity. There is no management of the transformation of biological asset but
simply control of the number of animals. The natural breeding is incidental only to the main
activity of providing a recreational facility.

Presentation: Current if agricultural produce are harvested within one year, otherwise
noncurrent assets.

Illustration 1: Gamboa Farms provided the following assets in a forest plantationto and farm:
Freestanding Trees P5,000,000
Land under trees 600,000
Roads in forests 300,000
Animal related to recreational activities 1,000,000
Bearer plants 1,500,000
Bearer animals 2,000,000
What total amount of the assets should be classified as biological assets?
a. 7,000,000 b. 8,500,000 c. 5,000,000 d. 8,000,000

Illustration 2: Bukidnon Farms is a producer of coffee. The entity is considering the valuation
of harvested coffee beans. Industry practice is to value the coffee beans at market value and
uses as reference a local publication “accounting for successful farms”. On December 31, 2021,
the entity has harvested coffee beans costing P3,000,000 and with a fair value less cost to sell
of P3,500,000 at the point of harvest.
Because of long aging and maturation process after harvest, the harvested coffee beans were
still on hand on December 31, 2022. On such date, the fair value less cost of disposal is
P3,900,000 and the net realizable value is P3,200,000.
1. What is the measurement of the coffee beans inventory on December 31, 2021?
a. 3,000,000 b. 3,500,000 c. 3,200,000 d. 3,900,000

2. What is the measurement of the coffee beans inventory on Deember 31, 2022?
a. 3,000,000 b. 3,500,000 c. 3,200,000 d. 3,900,000

Illustration 3: Robina Farms is engaged in raising dairy livestock. The entity provided the
following information during the calendar year:
Carrying amount on January 1 P5,000,000
Increase due to purchases 2,000,000
Gain arising from change in FV less cost of disposal attributable to price change 400,000
Gain arising from change in FV less cost of disposal attributable to physical change 600,000
Decrease due to sales
800,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31, 2022?
a. 6,950,000 b. 6,000,000 c. 8,000,000 d. 7,150,000

Illustration 4: At the beginning of current year, an entity purchased 100 cows which are 3 years
old for P15,000 each for the purpose of producing milk for the local community. On July 1, the
cows gave birth to 20 calves.

The active market provided the following fair value less cost of disposal of the biological assets:
Newborn calf on July 1 4,000
Newborn calf on December 31 5,000
½ year old calf on December 31 7,000
3 years old cow on December 31 18,000
4 years old cow on December 31 24,000
Required: Journal entries

Illustration 5: An entity produced milk for sale to local and national ice cream producers. The
entity began operations at the beginning of current year by purchasing 500 milk cows for
P8,000,000.

The entity had the following information available at year-end relating to the cows:
Carrying amount of milking cows, January 1 8,000,000
Increase in fair value due to growth and price change 900,000
Decrease in fair value due to harvest 200,000
Milk harvested during the year but not sold 400,000

Required: Journal entries

Illustration 6: Mabao Farms has a herd of 10 2- year old animals on January 1, 2021. One
animal aged 2.5 years was purchased on July 1, 2021 for P108 and one animal was born on July
1, 2021.
No animals were sold or disposed of during the year. The fair value less cost of disposal per
unit is as follows:
2-year old animal on January 1 P100
2.5 year old animal on July 1 108
New born animal on July 1 70
2 year old animal on December 31 105
2.5 year old animal on December 31 111
New born 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?

a. 1,400 b. 1,320 c. 1,440 d. 1,360

2. What amount of gain from change in fair value of biological assets should be recognized in
the current year?
a. 222 b. 292 c. 300 d. 332

3. What is the gain from change in fair value due to price change?
a. 292 c. 222 c. 237 d. 55

4. What is the gain from change in fair value due to physical change?
a. 292 c. 222 c. 237 d. 55