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Biological Assets

Biological assets are living plants and animals owned by a company for agricultural activities, recognized when controlled and expected to provide future economic benefits. They are measured at fair value less costs to sell, and their value can change due to biological transformations such as growth and production. Understanding biological assets is vital for industries like farming and forestry, as it impacts profits, taxes, and investments.

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9 views2 pages

Biological Assets

Biological assets are living plants and animals owned by a company for agricultural activities, recognized when controlled and expected to provide future economic benefits. They are measured at fair value less costs to sell, and their value can change due to biological transformations such as growth and production. Understanding biological assets is vital for industries like farming and forestry, as it impacts profits, taxes, and investments.

Uploaded by

lakimimomi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Biological Assets

Definition​
Biological assets are living plants and animals that a company owns and uses for agricultural activities. These
assets grow, change, produce products, or reproduce over time, leading to future economic benefits. In
accounting, they are typically measured at fair value less costs to sell, unless fair value cannot be reliably
measured.

Examples

●​ Plants: Trees in a timber plantation, grapevines in a vineyard, sugarcane crops.​

●​ Animals: Dairy cows, sheep, pigs, fish in fish farms.​

Key Characteristics

1.​ Living organisms – Must be alive at the time of recognition.​

2.​ Subject to biological transformation – Growth, degeneration, production, and procreation.​

3.​ Intended for sale, produce, or additional assets – They generate agricultural produce (e.g., milk,
wool, fruits) or are sold themselves.​

Biological Transformation

●​ Growth – Increase in quantity or quality (e.g., a calf growing into a cow).​

●​ Degeneration – Decrease in quality or productivity (e.g., old fruit trees producing less fruit).​

●​ Production – Creation of agricultural produce (e.g., a cow producing milk).​

●​ Procreation – Creation of additional living animals or plants (e.g., sheep giving birth to lambs).​

Recognition in Accounting​
A biological asset is recognized when:

1.​ The entity controls it as a result of a past event.​

2.​ It is probable that future economic benefits will flow to the entity.​

3.​ Fair value or cost can be measured reliably.​

Measurement

●​ Initial Measurement: Fair value less costs to sell (FVLCTS) at the point of recognition.​

●​ Subsequent Measurement: Still at fair value less costs to sell, unless fair value cannot be reliably
measured, in which case cost less accumulated depreciation/impairment is used.​

Example in Practice​
A fruit farm owns 500 mango trees. At the reporting date, the trees are valued at their market price (less
selling costs) because they will bear fruit that will generate revenue. The increase in value from last year is
recorded as a gain in profit or loss.

Agricultural Produce vs. Biological Assets

●​ Biological Asset: The living plant or animal itself (e.g., an apple tree, a cow).​

●​ Agricultural Produce: The harvested product from the biological asset (e.g., apples, milk, wool).​
Once harvested, agricultural produce becomes inventory and is measured according to inventory rules,
not biological asset rules.​

Importance​
Biological assets are crucial for industries like farming, fishing, and forestry because their value changes due
to biological processes. Accurate measurement affects reported profits, tax obligations, and investment
decisions.

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