Intermediate Accounting

PAS 41: Agriculture FAIR VALUE (PFRS 13):

 the price that would be received to sell an asset or paid
PAS 41 shall be applied for the following: to transfer a liability in an orderly transaction between
a. Biological Assets market participants at the measurement date.
b. Agricultural Produce
c. Government grant related to a Biological Asset FAIR VALUE HEIRARCHY:

Elements of “Agriculture”
a. Capability to Change – Capable of Biological Transformation
e.g. Living Animals and Plants
b. Management of the Transformation – facilitate the Biological
transformation by enhancing or at least stabilizing conditions
necessary for the process to take place, e.g. nutrient levels, feeds,
temperature, fertility, and light.
c. Measurement of Change – The change in quality or quantity
brought about by the Biological Transformation or harvest is
measured and monitored as a routine management function.
LEVEL 1: Quoted Prices in an Active Market for Identical Assets
 Observable inputs which the entity can access at the
measurement date
LEVEL 2: Inputs that are Observable either Directly or Indirectly
 Quoted Prices for Similar Assets in an Active Market
 Quoted Prices for Identical/Similar Assets in an
Inactive Market
LEVEL 3: Inputs that are Unobservable for the Asset
 Information usually developed by entity using the best
info available from the entity’s own data. e.g. Present
Value of Future Cash Flows from the Assets

Accounted for Fair Value Measurement Assumes that the Transaction to sell the
Items Accounted for as: in accordance Asset takes place either:
with: (a) in the Principal Market for the Asset; or
Consumable plants PAS 41: (b) in the absence of a principal market, in the most
and animals (e.g. Sheep, Biological Assets Agriculture advantageous market for the Asset.
Dairy Cattle, Pigs, crops,
trees for lumber)
PAS 41:
Bearer Animals Biological Assets Agriculture
Bearer Plants used Property, Plant, and PAS 16: PPE Note: Cost of Disposal is the incremental cost directly attributable to
solely to grow Equipment the disposal of the asset.
produce over several  Commissions to Broker and Dealer
period (Fruit trees,
Grape vines)*  Levy by regulatory agency and commodity exchange
Produce growing on Biological Assets PAS 41:  Transfer tax and duty
bearer plants (not yet Agriculture Under the basis for conclusion on PAS 41, Cost of Disposal excludes
harvested/detached)
transaction costs like:
Agricultural Produce Agricultural Produce PAS 41:
AT THE POINT of Agriculture  Transport Cost
Harvest  Finance Cost
Agricultural Produce Inventory unless they PAS 2:  Income Tax
AFTER Harvest qualify as another asset Inventories Transaction Costs are not characteristics of an asset; rather, they are
Dogs used to secure Property, Plant, and PAS 16: PPE
farm Equipment specific to a transaction.
*Note: For short-term bearer plants e.g. Tomato Vines = Biological Asset
Note: The Quoted Price serves only as the Basis of Fair Value so any
PAS 41: MEASUREMENT OF BIOLOGICAL ASSET transaction costs are deducted from the Quoted Price to get the Fair
Value of the biological asset.
 Measured on initial recognition and at the end of each
This also means that if Fair Value is given in the problem, assume
reporting period at its Fair Value Less Costs of Disposal
that any transaction costs were already considered before getting the
(FVLCD)
Fair Value of the Asset so you need to deduct only the costs of
 Agricultural Produce harvested from an Entity’s Biological disposal, because costs like transportation costs were already
Assets shall be measured also at PAS 41 or at its Fair reflected in the Fair value.
Value less Costs of Disposal/Sell

PAS 2: Inventories Illustration 1:

 Agricultural Produce AFTER Harvest = Accounted for as The following pertains to Czar Company’s Biological Assets:
Inventory or depending on what the entity would do with it. Price of the Asset in the Principal Market 18T
 Initial Measurement of Inventory = The Fair Value Less Price of the Asset in a Different Market 19T
Costs to Sell of the Agricultural Produce at the Point of Selling Price in a binding contract to sell 20T
Estimated commissions to brokers 1,800
Harvest
Estimated transport and other costs
necessary to get asset to the Market 1,200

Solution:
 Price of the Asset in the Principal Market 18T Newborn animal at Jul 1 7,000
Estimated transport and other costs 2.5yo animal on Jul 1 10,800
necessary to get asset to the Market (1,200) New born animal on Dec 31 7,200
FAIRVALUE 16,800
0.5yo animal on Dec 31 8,000
Est. commissions to brokers (COD) (1,800)
Biological Assets 15,000 2yo animal on Dec 31 10,500
2.5yo animal on Dec 31 11,100
3yo animal on Dec 31 12,000

Illustration 2: Compute for the following:

The following pertains to Czar Company’s Biological Assets: 1. CA of Biological Assets as of Dec. 31
Fair Value based on Quoted Price
in an active market for Similar asset 5,100
Fair Value based on Quoted Price in 2. Increase in FV-CTS of biological assets in the current
an active market for Identical asset 5,000 period due to price changes
Fair Value based on unobservable
inputs for the asset 4,900
Selling Price in a binding contract to sell 5,200
3. Increase in FV-CTS of biological assets in the current
Estimated commissions to brokers and dealers 500 period due to physical changes
Estimated transport and other costs
necessary to get asset to the market 300

Solution:
Fair Value based on Quoted Price in
an active market for Identical asset 5,000
Estimated commissions to brokers and dealers (500)
Biological Assets 4,500

Gains and Losses on Biological Assets and Agri Produce

 Shall be included in Profit or Loss for the Period in
which they Arise

 Gain on Initial Recognition of a Biological Asset

 Loss on Initial Recognition of a Biological Asset
(Costs to Sell > FV) In FVLCD
 Gain or Loss from change in Fair Value of a Bio Asset
 Gain or Loss on initial recognition of Agricultural
Produce as a result of harvesting

PRICE Changes Vs. PHYSICAL Changes

Price Change = Same Age, Different Dates

 The Change in the quoted price during the initial

measurement is compared to the measurement at year end

Physical Change = Same Date, Different Age

 The Change in quoted price by comparing the “supposed”

Value of the asset at year-end if it was acquired at that date
and then compare that to the actual value considering its
actual age.

Illustration 3:

You noted the following in connection with your audit of

Ysmael’s biological assets.

A herd of 17 2-year-old animals was held at Jan 1 of the current

period. On July 1, two animals aged 2.5 years was purchased for
10,800 and one animal was born. No animals were sold or
disposed of during the period. Per unit fair values less costs to sell
were as follows:

2yo animal on Jan 1 10,000