CHAPTER 8

AGRICULTURE

Agriculture- farming or the process of producing crops and raising livestock

Agricultural activity- the management by an entity of the biological transformation and harvest
of biological assets for sale, including exchange or non-exchange transactions, or
for conversion into agricultural produce, or into additional biological assets.
Example of agricultural activities include:
 raising livestock
 forestry
 annual or perennial cropping
 cultivating orchards and plantations
 floriculture
 aquaculture including fish farming

Common features of agricultural activities:

A. Capability to change- living animals and plants are capable of biological transformation
B. Management of change- management facilitates biological transformation by
enhancing, or at least stabilizing, conditions necessary for the process to take place.
Example: harvesting from unmanaged sources (such as ocean fishing and deforestation.
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
.
Biological transformation
 comprises the following processes that cause qualitative or
quantitative changes in a biological asset
I. Asset changes through:
 Growth - increase in quantity or improvement in quality of an
animal or plant
 Procreation - is the creation of additional living animals or
plants.
 Degeneration - decrease in the quantity or deterioration in
quality of an animal or plant.
II. Production of agricultural produce.
 Biological Asset - a living animal or plant
 Agricultural Produce - the harvested product of the entity’s
biological assets
RECOGNITION AND MEASUREMENT
When do you recognize an asset or an agricultural produce?
 when it meets the recognition criteria of an asset, including
the reliable measurement of its fair value or cost
How do you measure a biological asset?
 initially and subsequently measured at Fair Value less cost
to sell
 gain or loss due to measurement changes are recognized in
surplus or deficit
 biological assets whose fair value cannot be reliably
determined on initial recognition are
 initially measured at cost
 subsequently measured at cost less accumulated
depreciation and accumulated impairment losses
How do you measure agricultural produce?
o initially measured at fair value less costs to sell at point of
harvest
o subsequently measured at lower of cost and NRV
o gain recognized in surplus or deficit
b. Cost to sell - are the incremental costs directly attributable to the
disposal of an asset, excluding finance costs and income taxes.
How do you compute for the fair value?
o Fair value is determined as follows:
 An active market in which all the following conditions exist:
a) the items traded in the market are homogeneous
b) willing buyers and sellers can normally be found at any time
c) prices are available to the public
 If there more than one active market, the entity shall use the
price in the market expected to be used
 If there is no active market, the entity shall estimate the
market price based on the following
 most recent market transaction price
 market prices for similar assets with adjustment
 sector benchmarks
 present value of expected net cash flows from the
asset discounted at a current market-determined rate
 Contract prices are irrelevant when determining fair value.
 Transport costs refer to all costs necessary in getting the
asset to the market for the sale.
o The determination of fair value may be facilitated by
grouping biological assets or agricultural produce according
to significant attributes like by age or quality.
o Cost may sometimes approximate fair value, particularly
when:
i. Little biological transformation has taken place
since initial cost incurrence (seedling planted
immediately prior to reporting date)
ii. The impact of the biological transformation on
price is not expected to be material (the initialgrowth in a 30-year pine plantation production
cycle)
o biological assets attached to land (trees in a plantation
forest) may not have a separate market, but an active
market may exist for the combined assets (i.e., biological
assets, raw land and land improvements) as a package. In
such case, the fair value of the raw land and land
improvements may be deducted from the fair value of the
combined assets to arrive at the fair value of the biological
assets.
e. A biological asset that is previously measured at fair value
less costs to sell shall be measured at fair value less costs to
sell until it is disposed.
Disclosures related to agriculture:
a. The aggregate gain or loss on initial recognition of
biological assets and agricultural produce and from
the change in fair value less costs to sell of biological
assets.
b. Consumable and bearer biological assets and
biological assets held for sale and held for distribution
at no charge or for a nominal charge.
1. Consumable biological assets are those
biological assets that are to be harvested as
agricultural produce or sold as biological
assets, for example, where cows are bred as a
food source, the resulting beef is agriculture
produce. Such assets embody future economic
benefits.
c. Bearer Biological Assets- are those that are self-
generating and are used repeatedly for more than one
year. Examples: dairy cattle held for the production of
milk, fruit trees and trees from which firewood is
harvested while the tree remains.
 Mature and immature biological assets
a) Mature Biological assets - are those that have
attained harvestable specification (for consumable
biological assets