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 At the end of this lesson you should be able

to
 Describe the nature of biological assets
 Describe the recognition and measurement
principles of biological assets and
agricultural produce as per LKAS 41
 Identify the disclosures for biological assets
and agricultural produce as per LKAS 41
.

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 The nature of biological assets

 Main issues in accounting for biological assets

and agricultural produce at the time of harvest

 Accounting for biological assets and agricultural

produce at the time of harvest in terms of LKAS
41
◦ Recognition and measurement
◦ Presentation and disclosure

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Biological Agricultural
Produce
Asset
A The
living harvest
animal of the
or entity’s
plant. biological
assets

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Biological asset Agricultural Products arise due to
produce processing after harvest
Sheep Wool Yarn, Carpet
Dairy cattle Milk Cheese, Butter
Trees in a timber Felled trees Logs, Lumber
plantation
Cotton plants Harvested Thread, clothing
cotton
Sugar cane Harvested cane Sugar
Graph vines Picked grapes Wine
Tea bushes Picked leaves Tea
Fruit tress Picked fruit Processed fruit
Rubber trees Harvested Rubber products
latex
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Biological asset Agricultural produce

Products arise due

to processing after
harvest

Rangajeewa Herath 6
Biological asset Agricultural produce

Products arise due

to processing after
harvest

Rangajeewa Herath 7
 Natural capacity to grow and/or procreate has
an impact on value
 Great deal of increase in value of resulting
from the input of free goods
 Many costs early in the life, economic benefits
until many years later
 Long production (growing cycle) of assets
 Not necessarily any relationship between the
expenditure and ultimate benefits

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 Since biological assets are unique in nature, do
they need a dedicated accounting standard?

 How should biological assets / agricultural produce

be classified and presented in financial
statements?

 How should biological assets /agricultural produce

be measured?

 When and how should the gain or loss arising from

fair value changes of biological assets / agricultural
produce be recognized?

 What are the disclosures to be made in relation to

biological assets ?
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  Applied to account for the following when they
relate to agricultural activity:

a) Biological assets except for bearer plant;

b) Agricultural produce at the point of harvest;

and

c) Government grants covered by Paragraphs 34

and 35.

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Bearer plant is a plant that :
 Is used in production or supply of agricultural
produce;
 Is expected to bear produce over one
accounting period and;
 has a remote likelihood of being sold as
agricultural produce, except for incidental
scrap sales.

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The following are not bearer plants:
 plants cultivated to be harvested as agricultural
produce (e.g. trees grown for use as lumber);
 plants cultivated to produce agricultural produce
when there is more than a remote likelihood that
the entity will also harvest and sell the plant as
agricultural produce, other than as incidental
scrap sales (e.g. trees that are cultivated both for
their fruit and their lumber);
 annual crops (for example, maize and wheat).

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 The management by an entity of the biological
transformation and harvest of biological assets for
sale or for conversion into agricultural produce or
into additional biological assets.

Harvest is the detachment

Biological transformation of produce from a biological
comprises the processes of asset or cessation of the
growth, degeneration, biological asset’s life
production and procreation processes.
that cause qualitative or
quantitative changes in a
biological asset.

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 Covers a diverse range of activities
 Common features exist within this
diversity:
◦ Capability to change (living animals and plants
are capable of biological transformation.)
◦ Management of change (enhancing or stabilizing
conditions necessary for the process to take place)
◦ Measurement of change (change in quality or
quantity brought about by biological transformation or
harvest)

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 An entity shall recognize a biological
asset or agricultural produce when and
only when:
a) The entity controls the asset as a result of
past events;
b) It is probable that future economic benefits
associated with the asset will flow to the
entity; and
c) The fair value or cost of the asset can be
measured reliably.

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Biological Agricultural
Asset produce
Fair value less
costs to sell on
initial recognition
and at the end of Fair value less
each reporting costs to sell at
period except in the point of
the case described harvest.
in Paragraph 30
where fair value
cannot be
measured reliably.

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Biological Agricultural
Assets Produce

Arising on initial Arising on

recognition and initial
from change in fair recognition
value at the end of
reporting period

Included in profit or loss

Included in profit or for the period in which it
loss for the period in arises (Paragraph 28)
which it arises
(Paragraph 26)

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 Greenhouse PLC grows mangoes and sells to
local producers. At 31.03.2019, Greenhouse
PLC’s mango tress had a net market value of Rs.
300,000. During the year ended 31.03.2020, Rs.
20,000 was spent on fertilizer. Mangoes with a
market value of Rs. 160,000 were harvested at a
cost of Rs. 24,000. At 31.03.2020, net market
value of Greenhouse PLC’s mango tress had a net
market value of Rs. 310,000.
 Prepare the journal entries to account for the
agricultural assets of Greenhouse PLC for the
year-ended 31.03.2020.

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 Description Dr Cr

(Recording fertilizer expenses)

(Recording harvest of mangoes )

(Recording FV change of mango tress at year-end

measurement)

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 Presumption - fair value can be measured
reliably for a biological asset.

 If fair value of a biological asset cannot

measured reliably - measure at cost less
accumulated depreciation and accumulated
impairment losses.
 The presumption in above can be rebutted
only at initial recognition.

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 Description of each group of biological
assets.

 Quantitative description of each group of

biological assets distinguishing between:
- consumable and bearer biological assets
or
- mature and immature biological assets

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 •Harvested as agricultural produce or
Consumable
sold as biological assets. (e.g.
biological assets
livestock held for sale or livestock
held for the production of meat)
• Not agricultural produce but,
Bearer biological rather, self-generating. (e.g.
assets livestock from which milk is
produced)

Mature • Attained harvestable specifications (for

consumable biological assets) or
biological assets sustain regular harvest (for bearer
biological assets).

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 Unique characteristics of biological assets

 Resulting accounting issues

 Addressing those issues through LKAS 41

-Agriculture

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