05/08/2025

TECHNICAL KNOWLEDGE

PAS 41 - AGRICULTURE
At the end of the lesson, the student will be able to:
1. Understand the meaning of biological assets, agricultural produce and PAS 41 shall applied to account for the following when
they relate to agricultural activity:
agricultural activity;

BIOLOGICAL ASSETS 2. Know the recognition and measurement of biological asset;

3. Know the recognition and measurement of agricultural produce;
4. Know the treatment of agricultural land;
a.
b.
c.
Biological Assets
Agricultural produce
Government grant related to a biological asset
5. Know the meaning of bearer plants;
6. Understand the recognition of bearer plants as property, plant and equipment; PAS 41 is applied to agricultural produce at the point of
harvest.
Chapter 15 7. Understand the recognition of bearer animals; Thereafter, PAS 2 on inventories shall be applied.
8. Know the recognition of animal-related recreational activities. PAS 41 does not deal with the processing of agricultural
produce after harvest. (processing of grapes into wine is
covered by PAS 2
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Agricultural activity or simply “agriculture”

Definition of terms
• Biological Assets are living animals and
living plants. Examples of biological Assets
• Agricultural produce is the harvested This is the management by an entity of the biological transformation and harvest of
product of an entity’s biological assets. Biological Asset Agricultural produce Product after harvest biological assets for sale or for conversion into agricultural produce or into
• Harvest is the detachment of produce (PAS 41) (PAS 41) (PAS 2) additional biological assets.
from a biological asset or the cessation Sheep Wool Yarn, Carpet
of a biological asset’s life processes.
Trees in plantation
forest Felled trees Logs, lumber Examples of agricultural activity
Sugarcane plant Harvested cane Sugar
1. Raising livestock
Dairy cattle Milk Cheese 2. Annual or perennial cropping
Pigs Carcass Sausage, cured ham 3. Cultivating orchards and plantations
4. Floriculture
Tobacco plants Pickle leaves Cured Tobacco 5. Aquaculture, including fish farming
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Features of agriculture activity BIOLOGICAL TRANSFORMATION RECOGNITION

An entity shall recognize a biological asset or agricultural produce when:
Common features of agricultural activity:  Comprises the processes of growth, degeneration, production and procreation a. The entity controls the asset as a result of past events.
a. Capability to change that cause qualitative or quantitative changes in a biological asset. 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.
 Living animals and plants are capable of biological transformation.  Asset changes through:
b. Management of change  Growth – an increase in quantity or improvement in quality of an animal In agricultural activity, control may be evidenced by, for example, legal ownership of cattle and the
 Must be “managed” to facilitate the biological transformation by enhancing or plant branding or otherwise marking of the cattle on acquisition or birth.
or at least stabilizing conditions necessary for the process to take place.  Degeneration – a decrease in quantity or deterioration in quality of an
(nutrient levels, moisture, temperature, fertility and light) animal or plant. The future benefits are normally assessed by measuring the significant physical attributes.
 Ocean fishing and deforestation is not agricultural activity  Procreation – creation of additional living animal or plant.
c. Measurement of change  Production of agricultural produce such as latex, tea leaf, wool and milk
MEASUREMENT
 The change in quality or quantity brought by biological transformation or A biological asset shall be measured on initial recognition and at the end of each reporting period at
harvest is measured and monitored as a routine management function. fair value less cost of disposal.

Agricultural produce shall be measure at fair value less cost of disposal at the point of harvest.
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COST OF DISPOSAL FAIR VALUE OF AGRICULTURAL PRODUCE DEFINITION OF FAIR VALUE

 is the incremental cost directly attributable to the disposal of an asset.

 In all cases, an entity shall measure agricultural produce at the point of harvest at  Defined as the price that would be received to sell an asset in an orderly transaction between
 such as commission to broker and dealer, levy by regulatory agency and commodity market participants at the measurement date.
fair value less cost of disposal.
exchange, and transfer tax and duty.  PFRS/IFRS 13, enumerates the fair value hierarchy or best evidence of fair value as follows:
 The fair value of agricultural produce at the point of harvest can always be
 Excludes transport cost, finance cost and income tax  Level 1 inputs are the quoted prices in an active market for identical assets.
measured reliably.  Active market is a market in which transactions for the asset or liability take place with
FAIR VALUE OF BIOLOGICAL ASSET  The fair value measurement of agricultural produce stops at the point of harvest. sufficient regulatory and volume to provide pricing information on an ongoing basis.
After that date, PAS 2 shall apply. This means that the inventory shall be measured  Principal market is the market with the greatest volume and level of activity for the
 presumption that fair value can be measured reliably for a biological asset. at the lower of cost and net realizable value after harvest. asset or liability.
 This presumption can be rebutted only on initial recognition for a biological asset for which market  The harvested product is recorded by debiting the inventory and crediting the gain  Level 2 inputs are inputs that are observable either directly or indirectly.
determined prices are not available or estimates of fair value are determined to be clearly  Level 2 inputs include quoted prices for similar assets in an active market and quoted
from change in fair value of agricultural produce.
unreliable. prices for identical or similar assets in a market that is not active.
 In such case, the biological asset shall be measured at cost less accumulated depreciation and any  Level 3 inputs are unobservable inputs for the asset.
accumulated impairment loss.  Unobservable inputs are usually developed by the entity using the best available
 However, once the fair value of such biological asset becomes clearly demonstrable, the entity shall information from the entity’s own data.
measure the biological asset at fair values less costs of disposal.
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GAIN AND LOSS AGRICULTURAL LAND GOVERNMENT GRANT

 A gain or loss arising from initial recognition of a biological asset at fair value less costs of  Is not deemed a biological asset  An unconditional government grant related to a biological asset that has been
disposal and any subsequent changes in fair value less costs of disposal shall be included in  The requirements of PAS/IAS 16 which are applicable to property, plant and measured at fair value less costs of disposal shall be measured as income when
profit or loss. equipment apply equally to agricultural land for purposes of measurement. the grant becomes receivable.
 A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting  If a government grant related to a biological asset measured at fair value less cost
which shall also be included in profit or loss. of disposal is conditional, the grant shall be recognized as income only when the
 An entity shall disclose the aggregate gain or loss arising on the initial recognition of biological
assets and agricultural produce and from the change in fair value less costs of disposal of conditions attaching to the grant are met.
biological assets. BIOLOGICAL ASSETS ATTACHED TO THE LAND  If a government grant relates to a biological asset measured at cost less any
accumulated depreciation and any accumulated impairment losses, PAS 20 on
 There may be no separate market for biological assets that are attached to the government grant is applied
land but an active market may exist for the combined assets, that is, for the
biological assets and land as a package.

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AMENDMENT FOR BEARER PLANTS AGRICULUTURAL PRODUCE GROWING ON BEARER PLANTS DEFINITION OF BEARER PLANT

 Prior to the IASB amendment, bearer plants are considered biological asset  Remains within the scope of IAS 41  A bearer plant is a living plant that:
included within the scope of IAS 41 and measured at fair value less cost of  Classified as biological asset  Is used in the production or supply of agricultural produce
disposal.  Once harvested, the agricultural produce is measured at fair value less cost of  Is expected to bear produce for more than one period.
 The IASB decided that bearer plants should now be accounted for in the same way disposal at the point of harvest.  Has a remote likelihood of being sold as agricultural produce, except for
as property, plant and equipment in IAS/PAS 16 because the operation of bearer  The fair value less cost of disposal at the point of harvest is the deemed cost of incidental scrap sales.
plants is similar to that of manufacturing. inventory.  Is used solely to grow agricultural produce over the productive life.
 Bearer plants are used solely to grow agricultural produce over several periods.  At the end of productive life, it is usually scrapped
 At the end of their productive life, the bearer plants are usually scrapped.  A bearer plant that no longer bears produce is cut down and sold as scrap at the
 Once a bearer plant is mature, the biological transformation is no longer significant end of the productive life.
in generating future economic benefit.  Incidental scrap sales would not prevent the plant from being a bearer plant.
 Only significant future economic benefit it generates comes from the agricultural
produce it creates.

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EXAMPLES OF BEARER PLANTS PLANT WITH DUAL USE JUDGMENT REQUIRED

Trees that produce fruits are bearer plants while the fruits on the trees are agricultural  A plant with dual use is reported as biological asset and not as bearer plant.  Determining whether a plant is a bearer plant is critical as it drives the subsequent
produce until harvested.  A plant may have a dual use, namely: measurement of the plant.
 In an oil palm plantation, a coconut tree is the bearer plant and the fruit is the agricultural  The plant is cultivated for bearing agricultural produce  Judgment is required in determining if the definition of bearer plant is met
produce  The plant itself is being sold either as a living plant or an agricultural produce especially in deciding whether the sales of the plant itself are incidental scrap
 In a vineyard, the grape vines are the bearer plants and the grapes are the agricultural
 For example, rubber trees may be cultivated to grow rubber milk as agricultural sales.
produce.
produce and may be sold as living plant or cut down at the end of the productive
life to be sold as lumber or wood.
NOT CONSIDERED BEARER PLANTS
 Rubber trees are recognized as biological asset because of the dual use
 Trees grown to be harvested and sold as a log or lumber are not bearer plants.  However, the rubber trees are recognized as bearer plants when simply cut down
 Annual crops which do not bear produce for more than one period and are held solely to be and sold for scrap upon maturity.
harvested as agricultural produce such as corn and rice are not a bearer plants.

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SEPARATING BEARER PLANT FROM AGRICULTURAL PRODUCE MEASUREMENT – IMMATURE BEARER PLANTS MEASUREMENT – MATURE BEARER PLANTS

 Before amendment, the bearer plant and the agricultural produce are considered  Similar to an item of PPE being constructed before the intended use  No specific guidance on when a bearer plant reaches maturity.
to be one single biological asset account presented as either current or noncurrent  The IASB decided that bearer plants before maturity are measured at accumulated  Judgment is required and entities need an accounting policy to determine when
based on the asset’s useful life. cost in the same manner as self-constructed item of PPE. bearer plants reach maturity
 After amendment, the bearer plant and the agricultural produce are now reported  Accumulation cost ceases when the bearer plants are in the location and condition  Measured using either the cost model or revaluation model. The policy adopted
as two separate assets with different measurement model. necessary for the intended use, meaning, the bearer plants already reach maturity. must be applied consistently.
 Bearer plants are presented as noncurrent assets.  Bearer plants are a qualifying asset under IAS/PAS 23 Borrowing costs. Specific  Carrying amount of bearer plants is depreciated on a systematic basis over the
 Agricultural produce is presented as a current asset unless it takes more than one and general borrowing costs are capitalized in accordance with this standard. useful life.
year to mature.  Accumulating cost of an immature bearer plant is a new concept  Useful life of bearer plants is the number of years bearing agricultural produce
 Agricultural produce growing on bearer plant is classified as biological asset.  Depreciation method shall reflect the pattern in which future economic benefits
from the plant are expected to be consumed by the entity. (output method but
using other method to depreciate is not prohibited by the standard
 Useful life of bearer plant should be reviewed at least at each financial year-end

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MEASUREMENT – MATURE BEARER PLANTS MEASUREMENT OF AGRICULTURAL PRODUCE BEARER ANIMALS

 An entity assess if there is any indication that the bearer plant may be impaired by  Agricultural produce as it grows  Explicitly excluded from the IASB amendment and will continue to be accounted for
applying the requirements of IAS/PAS 36 Impairment of assets.  Measured at fair value less cost of disposal with changes recognized in profit or under IAS/PAS 41
 Impairment indicators requiring impairment test include: loss as the produce grows (prior to harvest)  The reason is that the measurement model would become more complex if applied
 Drop in the market price of agricultural produce  Harvested produce to bearer animals.
 Natural phenomena (drought and flood)  Measured at fair value less cost of disposal at the point of harvest  Continue to be reported as biological assets
 Disease in plants causing decreased productivity  IAS/PAS 41 provides that the fair value of agricultural produce at the point of
 Labor constraints harvest can always be measured reliably.
 The fair value less cost of disposal at the point of harvest is the deemed cost of
inventories on the date IAS/PAS 2 Inventories is applied.

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ANIMAL-RELATED RECREATIONAL ACTIVITIES FINANCIAL STATEMENT PRESENTATION

 Managing recreational activities (game parks and zoos) is not agricultural activity
 The reason is that there is no management of the transformation of the biological
asset but simply control of the number of animals
 Shall be presented as a “separate line item” as a biological assets
 Classified as noncurrent assets THANK YOU!
 The natural breeding that takes place is not managed activity and is incidental only PRICE CHANGE AND PHYSICAL CHANGE
to the main activity of providing a recreational facility
 Animals related to recreational activities shall be accounted for in accordance with
IAS/PAS 16 Property, plant and equipment.  Separating the change in fair value between the portion attributable to price
change and the portion attributable to physical change is encouraged but not
required by IAS/PAS 41.

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