Biological assets are assets which are living in nature.
It includes trees, animals and nowadays cannabis
too as it has been made legal. The company’s management breaks down assets side of balance
sheet and classifies them by type and attributing a value to them.
Biological assets are dealt in International Accounting standards 41 (IAS 41). As per IAS 41, biological
assets are any living plant or animal owned by the business. These are typically measured at fair values
less selling costs.
Examples of biological assets include goats, fish, vegetables, corn, tomatoes, apples and so on. Biological
assets are generally perishable and are in the nature of current assets in the balance sheet.
Nature of Biological assets:
Biological assets are held and can be accounted only by the business owners. These assets are important
to farmers and individuals whose primary source of profit comes from growing, selling and shipping
biological goods.
They are active component in environment; hence, they are always difficult to maintain. They are always
under the radar of qualitative and quantitative threats.
Importance of Biological Assets:
Biological assets generate substantial revenue or income for businesses in industries such as vineyards,
floriculture, silviculture, and paper products.
Biological assets are typically seen in the balance sheet of these companies in industries. The only
distinguished feature for biological assets are that it is a living thing.
The major difference of biological assets is that biological assets change naturally and depreciate
naturally and more rapidly than other types of goods.
Various biological assets like other goods can be in high or low demand depending on the season of the
product. Recently there has been surge in demand of cannabis as it has been made legal in United states
of America.
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The threats suffered by biological assets include drought, cold weather, inconsistent rain, or forms of
diseases. Biological asset is unique to the field of accounting for the purpose of clearly categorizing and
identifying assets owned by businesses.
Recognition of Biological assets as per IFRS:
An entity recognizes biological asset when the entity controls the asset as result of past events. It is fairly
reliable to say that benefit will flow to the entity and fair value can be measured reliably.
Measurement of Biological asset:
Biological assets come within the scope of IAS 41. Initial recognition is done and at subsequent reporting
dates, the biological assets are recognized at fair value less estimated costs to sell, unless fair value
cannot be reliably estimated.
The gain on initial recognition of biological assets at fair value less costs to sell and changes in fair value
less costs to sell of biological assets during a period are included in profit or loss.
All other costs related to biological assets which can be measured at fair value are recognized as
expenses when incurred, other than costs to purchase biological assets.
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