PHILIPPINE INTERPRETATIONS COMMITTEE (PIC)

QUESTIONS AND ANSWERS (Q&As)

Q&A No. 2018-04

PAS 41 - Inability to measure fair value reliably for biological assets within the
scope of PAS 41, Agriculture

Issue

Under PAS 41, Agriculture, there is a presumption that the fair value of all biological
assets within the scope of the standard (including produce growing on a bearer plant)
can be measured reliably. This presumption can only be rebutted on initial recognition
for a biological asset (not agricultural produce).

What does an entity need to consider in order to rebut this presumption and determine
that it is unable to reliably measure fair value for biological assets within the scope of
PAS 41?

Relevant guidance and analysis

Paragraph 30 of PAS 41 states:

“There is a presumption that fair value can be measured reliably for a biological asset.
However, that presumption can be rebutted only on initial recognition for a biological
asset for which quoted market prices are not available and for which alternative fair
value measurements are determined to be clearly unreliable...”

Paragraph 31 of PAS 41 states:

“The presumption in paragraph 30 can be rebutted only on initial recognition. An entity

that has previously measured a biological asset at its fair value less costs to sell
continues to measure the biological asset at its fair value less costs to sell until
disposal.”

The first criterion in paragraph 30 of PAS 41 requires that there be no quoted market
prices available. PAS 41 does not restrict the criteria to quoted prices in an active
market. Therefore, in order to rebut the presumption, an entity would need to determine
that quoted prices in both active and inactive markets are unavailable for the asset.

The second criterion requires that an entity consider measures of fair value that do not
rely on quoted market prices and demonstrate that these are clearly unreliable.
Complexity in determining fair value, in and of itself, is not sufficient to suggest fair value
is unreliable.
If an entity is able to determine that quoted prices for the asset are unavailable, it would
still need to determine that all other methods for measuring fair value are clearly
unreliable before it can rebut the presumption. This is not the same as identifying that a
fair value measurement is complex and/or subjective. That is, measuring fair value often
involves estimation and significant judgement, but this does not mean that it is
automatically unreliable. Furthermore, the requirement is for the measurements to be
‘clearly unreliable’, which is arguably a higher hurdle than ‘unreliable’.

Consensus

PAS 41 assumes that reliable estimates of fair value will rarely, if ever, cease to be
available. Therefore, in order to determine that fair value cannot be reliably measured, an
entity must demonstrate both of the following:
a. quoted market prices for the biological asset are not available; and
b. alternative fair value measurements for the biological asset are determined to be
clearly unreliable.

Both of these conditions must be met. Furthermore, determining that fair value cannot be
reliably measured should be based on the weight of evidence available and in
consideration of the requirements in PFRS 13, Fair Value Measurement.

Demonstrating that quoted market prices are not available

In order to meet this condition, an entity would need to determine that quoted prices are
not available in active markets and inactive markets.

Demonstrating that alternative fair value measurements are clearly unreliable

To meet this condition, alternative fair value measurements must be ‘clearly unreliable’,
which is arguably a higher hurdle than ‘unreliable’. An entity’s assessment should include,
but not be limited to, considering the reliability of the following factors:

 Estimates of quantities on hand and the stage of development – while estimates

are often required of quantities on hand (including current stage of biological
transformation and anticipated yields for future agricultural produce), the mere fact
that estimates are used is not sufficient to demonstrate that fair value is unreliable.
Rather, an entity would need to demonstrate that their estimates of the quantity and
current state of their biological assets are often incorrect. This may be challenging
for entities to demonstrate if the underlying information is regularly used by
management to make decisions about future operations of the business.

 Prices for the asset in a future state (e.g., for the mature biological asset or the
agricultural produce that will ultimately be harvested).

 Price for similar assets that can be used as an input into the fair value
measurement – this could include plants and animals that are similar to the asset

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 held by the entity or the ultimate agricultural produce that will result from managing
the biological transformation of the asset held by the entity.

 Cash flow projections for the asset.

 The replacement cost of the asset.

Entities may also need to consider whether other entities (within a country or globally) are
able to demonstrate that fair value can be reliably measured for the same or similar
assets.

Transition and effective date

The consensus in this Q&A is effective from the date of the approval by the FRSC.

Date approved by PIC: January 31, 2018

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(Original signed)

PIC Members

Wilson P. Tan, Chairman

Emmanuel Y. Artiza Ma. Gracia F. Casals-Diaz

Chase M. Sarmiento Zaldy D. Aguirre

Wilfredo A. Baltazar Ferdinand George A. Florendo

Gloria T. Baysa Jose Emmanuel U. Hilado

Rosario S. Bernaldo Lyn I. Javier

Ma. Isabel E. Comedia Arnel Onesimo O. Uy

Jerome Antonio B. Constantino Lovely M. Del Amen

Date approved by FRSC: March 14, 2018