Accounting for Biological Assets

Student: Nino Tchanturia

2017 year, ATC, Management and Accounting and Control

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Contents
Introduction ..................................................................................................................................... 3
Recognition of biological assets ..................................................................................................... 3
Subsequent measurement of biological assets ............................................................................ 5
The concept and the accounting records of the biological transformation process ........................ 5
Conclusion ...................................................................................................................................... 9
Bibliography ................................................................................................................................. 11
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Introduction

Agronomy is an pennon type of the extensive inexpensively and has pretended a underlying
traffic in the assist of human civilization. Drawn historically clerical activities take digest, or
trivial, attention from the significance standard setters. This may be the circumspection of the
below cost physical all over conditional on hither farming than the corporate industrial and
regulated industries. In the 1980s there was no uniform system of financial reporting for
agriculture producers in U.S. For most businesses priority was production, marketing or tax
reporting than decision making. In fact, many aspects of generally accepted accounting
principles (GAAP) accounting guidance do not apply to, or exempt, agricultural entities.

Currently there is a mix of accounting guidance for agriculture producers in the US that is both
GAAP including Financial Accounting Standards Board (FASB) Codification 905 (FASB
2009a) and non-GAAP Financial Guidelines for Agricultural Producers (FGAP 1997). This
exploratory review audits and represents current US and worldwide bookkeeping
acknowledgment and announcing for horticulture makers and natural resources. The review
additionally examines the favorable circumstances and detriments of receiving the universal
direction.

Recognition of biological assets

For a biological asset to be recognized, the entity should control the asset as a result of past
events, it should be probable that future economic benefits associated with the asset will flow to
the entity and the fair value or cost of the asset can be measured reliably. On initial recognition,
the biological asset (including growing produce on a bearer plant) is required to be measured at
its fair value less costs to sell, since it is presumed that the fair value can be measured reliably. It
is pertinent to note that the cost - benefit exemption cannot be invoked and any claim that fair
value measurement would be clearly unreliable would need to be supported by strong evidence,
such as, including the outcome of an actual valuation exercise.
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Further, such presumption can be rebutted only on initial recognition when quoted market prices
are not available, and for which alternative fair value measurements are determined to be clearly
unreliable. If such presumption is rebutted, the biological asset is measured at its cost less any
accumulated depreciation and any accumulated impairment losses. Ind AS 41 also recognizes
circumstances wherein the cost may approximate the fair value, such as, little transformation has
taken place (example, newly acquired livestock) or when the impact of the transformation on the
price is not expected to be material (example, initial growth in a 30 year pine plantation
production cycle). Barring when Ind AS 41 provides for situations when the cost may
approximate fair value, in all other circumstances it is expected to be very rare for entities to be
able to rebut the presumption that fair value can be measured reliably. In this regard, the IASB
had also observed that the produce will ultimately be detached from the bearer plants and is
normally sold separately, thereby having a market value of its own5.

For example, in a tea plantation, the plucking cycle may range from 7 days to 15 days, depending
on the location of the fields. The tea leaves on the tea bush, being the biological asset, would
pertain to those leaves that are yet to be plucked as of a reporting date. On plucking (harvesting),
the green leaves would be the agricultural produce that is further processed to produce black tea.
Entities, apart from the use of their own leaf, may also purchase green leaf from smaller
growers, referred to as bought leaf, for use in the production of black tea. Given that there is a
ready market that is available for green leaf, we believe that entities may not be able to rebut the
presumption that fair value can be measured reliably. In certain parts of India, depending on
climatic conditions, there may even not be any biological asset as of a reporting date. Similarly,
there is usually an active market for livestock. A gain or loss arising on initial recognition of a
biological asset at fair value less costs to sell is to be recognized in the profit or loss for the
period in which it arises. IASB in its basis for conclusion in IAS 41 addresses costs to sell.
Costs that are necessary for a sale to occur but that otherwise would not arise, such as
commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges,
and transfer taxes and duties. Costs that are incurred to get the assets to the market, such as
transport and other costs are excluded from costs to sell since they are deducted in determining
the fair value6.
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Subsequent measurement of biological assets

It is required to measure biological assets at the end of every reporting period at its fair value less
costs to sell. Increase or decrease arising from a change in the fair value less toll to sell is to
recognized in the profir or going for the prior period in which it arises. Fair value Ind AS 113
defines fair value as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. This is also
referred to as the exit price. Ind AS 113 addresses three widely used valuation techniques:
market approach, cost approach and the income approach. Biological asset is a non-financial
asset and hence the funfair value measurement payoff into account a grocery participants ability
to generate economic benefits by using the asset in its highest and best use or by marketing it to
another grocery store participant that would use the asset in its highest and best use. Selection of
a valuation teqnique to best represent the values of the item under consideration is matter of
significant legal opinion adn there is no preferred approach. Avaluation teqnique must be
selected and consistently applied, to miximze the use of relevant observable input((and minimize
unobservable inputs.

The concept and the accounting records of the biological transformation

process

Biological transformation upshot in different character reference of physical variety-growth,

character changes, production and reproduction and each of them can be observed and
measured. A change in the biological plus value due to harvesting is also a physical change.
Agricultural activity is often exposed to climate, disease and other natural risks. If an result
liading to income or expenditure occures, the nature and the amount of that event are reveald in
accordance with the financial report. The biological transformation spark advance to the
following event:

Changes in the value of assets through,

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Increase (increase in quantity or improvement of quality of an animals or plants),

Decrease (reduction or deterioration in quality of animals or plants),
Creation/procreation (procreation/creation of new animals/plants), and
Production of agricultural products such as latex, tea leaves, wool and milk.

Example 1: An example of accounting evidence of biological growth for its own production
Company A whose main activity is production of table grapes had a yield of 30,000kg with net
selling price of 1euro/kg. The grapes will be used for the homemade wine production
inventories not intended for resale.
N date description Account Debit Credi
1 Material in the 1001 30000 30000
warehouse Vineyard 0251
Quantity of grapes
harvested

Company A, whose main activity is homemade table wine production, will apply IAS41-
Agriculture for the evaluation of the wine yard(as a perennial plant life) and the grape vine at the
vintage sentence. In accounting, stock of grape in the warehouse, before the wine yield starts, is
an inventory of materials. If the store of grape vine hot are to be used for further processing-
product wine, then the collected stocks are considered as a material inventory and, on the other
manus, if the collected supply were intended for cut-rate sale (and would not be the topic for
further processing), then the grapeshot are classified advertisement as armory of goods. Iowa 41
requires that inventories of agricultural products at the time of their collection are valued by the
funfair value less estimated Synonyms/Hypernyms (Ordered by Estimated Frequency) of noun
cost to sell . In this shell it usually mean by multiplying the amount of collected grapes by its net
selling monetary value (the net selling price is nothing more than the price formed on the active
agent marketplace less, in this case, the estimated toll to sell per social unit - kilo of grapes.
Thus, the grapes before vintage, i.e. while on vine plants, are an integral part of the vinery as a
biological plus . If we assubstance e that the balance sheet is dated between the start of the
biological cycle of production and the vintage, the entire value of the vineyard, along with
grapes, will be evaluated by its fair value less estimated costs to sell. Of course, the value of
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vinery just before the vintage must naturally be higher than its value after the vintage. And such
reduction of value will be recorded with the above mentioned accounting point . The inventory
value of grapes can also be calculated by dividing the sum of annual amount of derogation of
vineyards (evaluated at fair value less estimated costs to sell) and the expenses of obtaining the
supplies of grapes (for example , requital to the grape collectors, fare costs etc.).

Expmple 2: An example of evidence of biological growth intended for resale

A company is registered for growing raspberries and owns raspberry plants. It should record
1,000 kg of picked raspberries with the market value less estimated costs to sell - of 5,000KM.
Raspberries are intended to be sold to another company that processes fruits and vegetables. In
accounting, raspberries picked for a company on its own Bronx cheer planting represent 17
senses of stock of finished products that can be formed gradually (if the procedure of pick
raspberries is to be considered a yield activity) or directly. The first option presumes such
organization of accounting which would enable the production process time of origin to be
recorded gradually through year nine , in the way that all the elements of costs (wages of worker
engaged in vintage, fuel costs, and depreciation of certain equipment used at vintage , wear and
tear of razz flora , etc.) are gradually included in the monetary value . This means that the stock
list of unfinished output (raspberry vintage stage) is treated with the International Accounting
Criterion No.two , which would probably result with the occurrent of a difference at the moment
of initial acknowledgment of agricultural products between their cost and the market value less
cost to sell. In another variant, this difference would objectively not appear. In the example that
top only one accountancy system phase in tracking stocks of agricultural products, it is not
possible to determine the sum by which a mathematical group of accounts 62 or 63 (especially
the group 63, due to specific nature of financial accounting and plant life ledger) should be credit
rating ed. In any case, the amount on the credit English of accounts in the group 62 should
correspond to the positive difference between the estimated market value less costs to sell and
the cost of production of raspberries

No Data description Account Debit Credit

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2 Finished products 120 5.000 X

Changes in inventories 63 X
Revenue from activated 62
inventories For recording
picked raspberries
2 Finished products Other 120 5.000 5000
perennial plantings For 6210
recording picked
raspberries

EXAMPLE 3
Establishing fair value when market-determined prices or values may not be available for a
biological asset in its present condition:

As at 31 December 20X1, a plantation consists of 100 Pinus Radiata trees that were planted 10
years earlier. Pinus Radiata takes 30 years to mature, and will ultimately be processed into
building material for houses or furniture. The enterprises weighted average cost of capital is 6%
p.a.

Only mature trees have established fair values by reference to a quoted price in an active market.
The fair value (inclusive of current transport costs to get 100 logs to market) for a mature tree of
the same grade as in the plantation is:

As at 31 December 20X1: 171

As at 31 December 20X2: 165

As at 31 December 20X1, the mature plantation would have been valued at 17,100.

As at 31 December 20X2, the mature plantation would have been valued at 16,500.

Assuming immaterial cash flow between now and the point of harvest, the fair value (and
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therefore the amount reported as an asset on the statement of financial position) of the plantation
is estimated as follows:

As at 31 December 20X1: 17,100 [(1+6%)^20] = 5,332.

As at 31 December 20X2: 16,500 [(1+6%)^19] = 5,453.

Conclusion

Biological transmutation results in different character of physical change - ontogenesis , feature

changes, production , and reproduction . Each of these types can be observed. The agricultural
activeness change the physical characteristic s of bread and butter animals or industrial plant by
increasing or decreasing the economic benefits of a legal entity. A change in the value of a
biological asset due to harvesting is also a physical change. Biological shift includes the process
of growth, characteristic changes, production and reproduction that booster cable to qualitative
and quantitative changes in the biological Synonyms/Hypernyms (Ordered by Estimated
Frequency) of noun asset . Gross sales cost are incremental toll directly attributable to the
disposal of Synonyms/Hypernyms (Ordered by Estimated Frequency) of noun asset , excluding
financing 3 senses of cost and income taxation . A group of biological plus is an aggregation of
similar living animals or plants. Determining the carnival value of biological asset or agricultural
merchandise may be facilitated by grouping biological assets or agricultural products according
to significant attributes, for example by age or caliber . As a basis for pricing, an entity selects
the attributes corresponding to those used in the market. Contract bridge prices are not
necessarily relevant in determining bazaar value, because the fair value reflects the current
market conditions in which a transaction between a willing buyer and a vender would be make .
Accordingly, the carnival value of biological plus s or agricultural merchandise is not adjusted
because of the macrocosm of the contract bridge . Hawkeye State 41 - Agriculture provides,
above all, the accounting intervention of so-called biological Synonyms/Hypernyms (Ordered by
Estimated Frequency) of noun asset during the period of growth, decline and birth (fertilization)
and the initial evaluation of agricultural intersection at the clock time of harvest home , i.e.
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aggregation . Further processing of agricultural mathematical product is not the subject of this
banner . After harvesting, IAS deuce Inventories is applied. Accordingly, this standard does not
address the processing of agricultural mathematical product after the harvest although such
processing may be a logical and natural elongation of agricultural body process and events taking
place may have some law of similarity to biological shift . In a purely accounting common sense
, the processing is to be treated as a product activity so the subject of processing - whether
agricultural or other products - is quite unimportant. IAS 41 requires valuation of biological 1
sense of asset at fair value less estimated cost s to sell, from the initial identification until the
moment of harvesting, unless the fair value on initial recognition can not be reliably measured.
That is the reasonableness why this standard is based on the assumption that it is possible to
reliably determine the fair value of a biological asset. Otherwise, this standard requires that a
specific biological asset is measured at its cost - the cost price, earnings of accumulated
depreciation and estimated monetary value to sell. Agricultural products at the time of
compendium should always be valued at their fair value less costs to sell.
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Bibliography
n.d. Accessed April 14. https://www.iasplus.com/en/standards/ias/ias41.

Fischer, Mary. n.d. Accessed April 13. http://www.na-

businesspress.com/JAF/FischerM_Web13_2_.pdf.

LALI, Sran. n.d. Accessed April 13. file:///D:/User%20Files/Contacts/1482.pdf.