PAS41

PAS 41 Agriculture

Learning Objectives
1. Differentiate the following biological assets, bearer pla
agricultural produce and inventory. nts,
2. State the initial and
assets and
subsequent measurement of biological
agricultural produce.
State the accounting for
government grants that are within the
SCope of PAS 41.

Introduction
Agriculture means farming or the process of
producing crops and
raising ivestock. PAS 41 Prescribes the
disclosures for accounting and
agricultural and related activity.
PAS 41 applies to the
following when they relate to
agricultural activity:
a.
Biological assets, except bearer plants;
b. Agricultural
produce at the point of harvest; and
c. Unconditional government grants related to a biological asset
measured at its fair value less costs to sell

PAS 41 does not apply to the

following:
a. Land relate to agricultural activity (PAS 16 and PAS 40).
b. Bearer plants (PAS 16). However, PAS 41 applies to the
produce on those bearer plants.
c. Govenment grants related to bearer
plants (PAS 20).
d. Intangible assets related to agricultural activity (PAS 38).

PAS 41 applies to agricultural

produce only at the pom
harvest. After harvest, PAS 2 Inventories or other
appue
standard is applied.
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Aruuture

Biological a s s e t

living animal or plant." (PAS41.5)

logical asset is
BIO io" means life. Therefore, dead
animals, dead plants and
her non-living things cannot qualify as
othe
biological assets.
Biological assets can be either:
Consumable biological assets -"those that are to be harvested as
agricultural produce or sold biological assets." (PAS 41.44)
as

Examples:
i. livestock intended for the production of meat
. livestock held for sale
ii. fish in farms
iv. crops such as maize and wheat
.
produce on a bearer plant
trees being
VI.
grown for lumber (PAS 41.44)
b. Bearer biological assets
those that are held to bear
produce.
Only the produce is harvested while the bearer biological asset
remains. Examples:
i. livestock from which milk is produced
ii. fruit trees from which fruit is harvested (PAS
41.44)

Living animals, whether consumable or bearer, are

dassified as biological assets if they relate to
agricultural activity.
However, iving plants are classified as biological assets only if
they are consumable. Bearer plants are classified as PPE.

Bearer plantis "a living plant that:

is used in the production or supply of agricultural produce;
&15expected to bear produce for more than one period; and
has a remote
likelihood of being sold as agricultural produce,
except for incidental scrap sales." (PAS 41.5)

Plants that are to be harvested as agricultural produce are

Dearer plants. For example, a tree that is intended to be cut
a n d used as lumber is a consumable plant, and therefore

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PAS41
classified as biological asset.A tree that is
intended to
and only the fruits are harvested while the tree ear
remains
plant, and therefore dassified as property, plant and equin
Bearer plants that may be sold as
scrap when noo longer
used are not necessarily precluded from
being classified
ssified as bearer
plants.
Annual crops and similar plants that
die onc
produce has been harvested are considered consumable via
and therefore classified biological asset. Examples: peanut
as
beans, sugarcane, tobacco, banana, garlic, onion, rice
lettuce, cabhae
carrots, and the like. Only plants that bear produce
repeaterl
over a
long period of time are considered bearer plants (PPE).

CARemember the following:

Items Applicable standart
Bearer and Consumable animals PAS 41
Consumable plants PAS 41
Bearer plants PAS 16
Produce growing on bearer plants PAS 41

Agricultural produce
Agricultural produce is "the harvested produce of the entity's
biological assets." (PAS 41.5)
Harvest is "the detachment of produce from a biological
asset or the cessation of a biological asset's life
processes:" (eAS413
Agricultural produce refers to those that are in ther
natural state and are not yet processed. Those that are already
subjected to processing are treated as inventories.
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APple fruits growing on the tree

biological asset (PAS 41) t»

APple tree-bearer plant (held

to bear produce), accDunted for
under PAS 16 PPE.
Harvestedag APple ple-subjected to
agriculural produce, processing accounted for
accounted for under PAS under PAS 2 irventories.
41 at the point
of harvest.

PAS 41.5C states that "Produce growing on bearer plants is a biologica!

e1" However, in many cases, it is impractical to account for fruits growing
on trees before they are harves ted. Many companies, therefore, start to apply
PAS41 on the fruits only at the point of harvest. This is also true for produce
animals, e g, milk is accounted for only after it is squeezed from the cow's
breast.

Remember the following:

Nature of asset Type of as8et
Living animal or plant Biological asset (PAS 41)
However, bearer plants are
classified as PPE (PAS 16)
Unprocessed harvested Agricultural produce (PAS 41)
produce
LProcessed product Inventory (PAS 2)

NOT FOR SA
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PAS41
The table below shows examples of items that are
included
are inchua. and
excluded from the scope of PAS 41:

Agricultural Products that

are the
Bearer produce at result of
Biological asset plants point of harvest processing
harvest
after
(PAS 41) (PAS 16 PPE) (PAS 41) (PAS 2Iventories
Sheep Wool
Yam, carpet
Trees in a timber
Felled trees
plantation Logs, lumber
Dairy cattle Milk Cheese

Pigs Carcass Sausages, cured

hams
Cotton plants Harvested cotton Thread, clothing
Sugarcane Harvested cane Sugar
Tobacco plants Picked leaves Cured tobaco
Tea bushes Picked leaves Tea

Grape vines Picked grapes Wine

Fruit trees
Picked fruit Processed fruit
Oil palms Picked fruit Palm oil

Rubber trees |Harvested latex Rubberproduct

P PAS 4)

Agricutural activity
Biological assets and agricultural produce are accounted for unde
PAS 41 only when they relate to agricultural activity. Those ns
do not relate to agricultural activity are accounted for under oin
applicable Standards. For example, plants used in landscaping a
not biological assets but rather land improvements (ie., PPE
the
Agricultural actioity is "the management by an entilyo ae
biological transformation and harvest of biological assets tor
or for conversion into agricultural produce or into adain
biological assets." PAS41.5)
raising

Examples of agricultural activities incude ating

livestock, forestry, annual or perennial cropping
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A g r i c u i t u r e

445

orchal
ards and plantations, floriculture, and aquaculture (indudin8
(PAS 41.5)
fish farming).
The following are the common features of
a c t i v i t i e s :
agricultural
Capability to change living animals and plants are capable of
biological transformation;
Management of change management facilitates biological
transformation by enhancing, or at least stabilizing, conditions
necessary for the process to take place. Such management
distinguishes agricultural activity from other activities. For
example, harvesting from unmanaged sources (such as ocean
fishing and deforestation) is not agricultural activity; and
c Measurement of change - the change in quality or quantity

brought about by biological transformation or harvest is

measured and monitored as a routine management function.
(PAS41.6)

Bialogical Transformation comprises the following processes that

-

ause qualitative or quantitative changes in a biological asset:

L Asset changes through:
a. Growth is an increase in quantity or improvement in
quality of an animal or plant.
Procreation -is the creation of additional living animals
or
b.

plants.
decrease in the quantity
is a
or
c Degeneration -

deterioration in quality of an animal or plant.

L. Production of agricultural produoe.

Racognitlon when it
Abiological asset or agricultural produce is recognized reliable
the
S the asset recognition criteria, including
Surement of its fair value or cost.

Moasurement and subsequently

measured at fair
a assels are initially from initial
ess costs to sell. The gain or loss arising
All rights belongs to respectivea
n a o e itsgesonemacomgAVing the orioi
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PAS4
measurement and subsequent changes in fair vahue less
vahue less
sell are recognized in profit or loss. costs t
A gain may arise on the initial recognition of a biol.
asset, for example, when a calf is born. A loss may arise
initial recognition of a biological asset because costs to sae
Sell a
deducted from fair value.
Biological assets whose fair ualue cannot be
determined on initial recognition are initially measured at cost reliably
subsequently measured at cost less accumulated depreciation
and
accumulated impairment losses. Once the fair value becomes relial
measurable, the biological asset is measured at its fair value les
costs to sell.

Agricultural produce is, in all cases, initially measured at fair valhe

less costs to sell at the point of harvest. This will be the deemed
cost for subsequent accounting using PAS 2 or another applicable
Standard. The gain or loss arising from the initial measurement is
recognized in profit or loss.
F a i r value - is "the price that would be received to sell an aset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date." PAS418)
Costs to sell - are the incremental costs directly attributable t
the disposal of an asset, excluding finance costs and income
taxes. (PAS 41.5)

An entity uses PFRS 13 Fair Value Measurement when

measuring the fair value of biological assets and agriculura
produce. Fair value measurement may be facilitated by groupung
biological assets or agricultural produce according to signina
attributes, such as age and quality.
Contract prices are not necessarily relevant
d by
measuring fair value. Accordingly, fair value is not adjus
the existence
Cash offlows
a contract.
on finance costs, taxes, and t od
ts

cost
tnE
reestablishing biological assets after harvest (eg
mu ShuDoCucom SDecive
 APrciure
447

an ting after harvest) are not considered when measuring fair

value

"Cost may sometimes approximate fair value,

when:
particularly
itle biological transtormation has taken place since initial cost
incurrence (e-g-, seedlings planted immediately prior to the end
of a reporting period or newly acquired livestock); or
the impact of the biological transformation on price is not
expected to be material (eg-, the initial growth in a 30-year pine
tree plantation production cycle)" (PAS 41.24)

Biological assets attached to land (eg, trees in a plantation

forest) may not have aseparate market but an active market may
exst for the combined assets (i.e., biological assets, raw land, and
land improvements) as a package. In such case, the fair value of
the land and land improvements
raw
may be deducted from the
fair value of the combined assets to arrive at the fair value of the
biological assets.
A biological asset that is previously measured at fair value
less costs to sell is continued to be measured at fair value less
costs
to sell until it is
disposed of.
Government Grants
Only government grants that are related to biological assets
measured at fair value less costs to sell are accounted for under PAS
41.Those that are related to biological aseets measured at cost less
accumulated depreciation and accumulated impaiment losses are
accounted for under PAS 20.

Under PAS 41, if the

government grant 1s:
unconditional - the grant is recognized in profit or loss when it
becomes receivable.
b.
Conditional the grant is recognized in profit or loss when the
attached conditions are met.
onditional but the terms of the grant allow part of it to be retained
Ccord ing to the time that has elapsed-a portion of the grant is
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PAS41
recognized in profit or loss as time passes (e.g. on
(e.g, on a
line basis). straight.
Disclosure
General disclosures:
a. The aggregate gain or loss arising on initial recognite
biological assets and agricultural produce and from
change in fair value less costs to sell of biological assets, he
b. Description of each group of biological assets.
c.
Description of the nature of activiies involving each group oi
biological assets and physical quantities of assets on hand a
the end of the period and output of
agricultural produe
during the period.
d. Restrictions on titles to biological assets.
e. Commitments for the development or acquisition of biological
assets.
f. Financial risk management strategies related to agricultural
activity.
g. Reconciliation of changes in the carrying amount of biological
assets, showing separately changes in fair value less costs to
sell, purchases, sales, harvesting, business combinations, and
foreign exchange differences.

Encouraged disclosures:
The following disclosures are encouraged but not required:
a. Consumable and bearer biological assets.
b. Mature and immature biological assets.

Mature biological assets are "those that have attaine

harvestable spedifications (for consumable biolog
assets) or are able to sustain regular harvests (for beane

biological assets)." (PAS 4145)

Change in fair value less costs to sell during the period(
to price change and (2) due to
physical change.
NOT FOR SALE
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449
This information is useful if the
wtends beyond one year. It is less
useful
production cycle
wcle is less than year (e.g.,
a
if the
production
annual crops). raising chickens or
growing
Discdosures for biological assets measured at cost:
a Description of the assets
h. explanation of why fair value cannot be reliably measured
An
GIf possible, range within which fair
a

e
value is highly likely
to
d. Depreciation method, useful lives or
e.Reconciliation of gross carrying amount depredation rates
depreciation at the beginning and end of theand accumulated
showing information on reporting period,
reversal of impairment loss.depreciation, impairment loss and

Disclosures for government grants:

a Nature and extent of
b. recognized government grants.
Unfulfilled conditions.
c
Significant decreases expected in the level of
grants. (PAS 41.57) government

NOT FOR SALE

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PASA
Summary:
PAS 41 applies to the following when they relate to a
activity: (a) biological assets, except bearer lants;
agricultural produce at the point of harvest: by
and
unconditional government grants related to a biologicel.9
measured at its fair value less cost to sell.
Biological asset is a living animal or plant.
Agricultural produce are harvested products from biolne
logical
assets before any processing
Harvesting from unmanaged sources is not agricultual
activity.
Biological asset is initially and subsequently measured at fair
value less costs to sell
Agricultural produce is initially measured at fair value les
costs to sell at the point of harvest and
subsequently
measured under PAS 2 Inventories or another applicable
Standard.
Gains and losses arising from the initial measurement
of
biological assets or agricultural produce and from the
subsequent changes in fair value less costs to sell of biologial
assets are recognized in profit or loss.
Biologicalassets whose fair value carnot be reliably
determined on initial recognition are initially measured at
cost
and subsequently measured at cost less accumulated depreciation
andaccumulated impairment losses.

PROBLEMS

PROBLEM1: MULTIPLE CHOICE

1. Which of the following is an agricultural activity?
a. poaching
c. deforestation
b. hunting in the forest d. fish farming

2. Which of the unted

following is a biological asset that is accu
for under PAS 41?

NOT FOR SA
Agriculture
451

a. mango tree
C. rice plant
b. harvested mango fruit d. extra rice

Which of the following is

3.
for under PAS 41?
a
biological asset that is accounted
a. plants used for beautification
b. bearer plant
c. dead animals used for display
d. dairy cattle used to produce milk

4. According to PAS 41, a biological asset or agricultural

is recognized when all of the produce
the
following criteria are met exoept
a. 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
C.the fair value or cost of the asset can be measured
d. the asset reliably
represents a
present obligation as at the end of
the reporting period

5. Agricultural produce is measured at fair value less costs to sel1

at the point of harvest
a.
except when fair value cannot be measured reliably, in
which case, the initial measurement is at cost.
b.
except when costs to sell cannot be measured
reliably, in
which case, the initial measurement is at fair value.
C and bb
a
d. without exception.

BLEM 2 FOR CLASSROOM DISCUSSION

*Which of the following is outside the scope of PAS 41?
dairy cattle used in the production of milk
Chickens used in the production of meat
rice plarnts and other crops that produce agricultural
products only once
mango trees and other plants that produce agricultural
products repeatedly over a long period of time

elongs to respective at
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PAS 41

2. Which of the following is considered a biological asset?

a. Carcass c. Pig
b. Ham d. Piggy bank

3. Which of the following is considered an agricultural produce?

a. fruit cocktail c.
picked or harvested fruit
b. fruit tree d. dried frit

4.
According to PAS 41, biological assets are measured as
follows:
Initial measurement Subsequent measurement
a. fair value less costs to sell fair value less costs to sell
cost cost less accumulated
depreciation
cost cost less accumulated
depreciation and
impairment losses
d. fair value less costs to sell cost

5. Which of the following statements is correct regarding the

measurement of assets related to agricultural activities?
a. Biological assets are initially and subsequently measured
at fair value.
b. No gain or loss can arise on the initial recognition of a
biological asset.
c Agricultural produce is initially and subsequently
measured at fair value less costs to sell.
The gain or loss arising from the initial measurement of
in
biological asset or agricultural prodúuce is recognized
profit or loss.