ACCOUNTING FOR BIOLOGICAL ASSETS

• Agricultural Activity is 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.

Common Features of agricultural activities

a. Capability to change
b. Management of change
c. Measurement of change

DEFINITIONS
a. Biological Asset – is a living animal or plant
b. Agricultural Produce – is the harvested product of the entity’s biological
assets.
Biological assets Agricultural produce Inventory
Trees in a plantation Felled trees Logs, Lumber
forest
Plants Harvested cane Sugar
Corn Corn Starch
Cotton Clothing
Dairy cattle Milk Cheese
Sheep Wool Yarn, Carpet
Pigs Carcass Ham
Bushes Leaf Tea
Vines Grapes Wine
Fruit trees Picked fruit Processed fruit

MEASUREMENT
• Biological assets - initially and subsequently measured at fair value less costs
to sell.

• Gain or loss arising from measurement are recognized in surplus or deficit.

• Biological assets whose fair value cannot be reliably determined on initial
recognition are initially measured at cost and subsequently measured at cost
less accumulated depreciation and accumulated impairment losses.
• Agricultural produce - initially measured at fair value less costs to sell at the
point of harvest.

DETERMINATION OF FAIR VALUE

Quoted price in an active market xx
Less: Transport costs (xx)
Fair value xx

 If there are more than one active markets, 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
one of the following:
• Most recent market transaction price
• Market prices for similar assets with adjustment to reflect differences
• Sector benchmarks
• Present value of expected net cash flows from the asset.

DISCLOSURES
• Consumable and Bearer biological assets
– Consumable Biological Assets – are those that are to be harvested as
agricultural produce or to be sold or distributed as biological assets.
– Bearer Biological Assets – are those that are self-generating and are used
repeatedly for more than one year.
• Mature and immature biological assets
– Mature Biological Assets – are those that have attained harvestable
specifications or are able to sustain regular harvests.
• The amount of change in fair value less costs to sell due to physical changes
and due to price changes.

ACCOUNTING FOR INVESMENT PROPERTY

Investment Property – is land and/or building held for rentals or capital appreciation.
Examples:
a. Land held for long-term capital appreciation rather than for short-term sale in the
ordinary course of operations.
b. Land held for a currently undetermined future use.
c. A building owned by the entity (or held by the entity under a finance lease) and
leased out under one or more operating leases on a commercial basis.
d. A building that is vacant but is held to be leased out under one or more operating
leases.
e. Property that is being constructed or developed for future use as investment
property.
The following are NOT considered investment property:
• Biological assets and Mineral rights and mineral reserves
• Property held for sale in the ordinary course of operations
• Property being constructed on behalf of third parties.
• Property held for future development and subsequent use as owner-occupied
property.
 • Property occupied by employees.
• Owner-occupied property awaiting disposal.
• Property that is leased to another entity under a finance lease.
• Property held to provide a social service and which also generates cash inflows.
• Property held for strategic purposes.
• Property held for use in the production or supply of goods or services or for
administrative purposes.

INITIAL MEASUREMENT
• An investment property is initially measured at cost. The measurement of cost
depends on the mode of acquisition.
• Modes of Acquisition
a. Cash purchase – purchase price plus direct costs necessary in bringing the
asset to its intended condition.
b. Installment purchase – cash price equivalent
c. Non-exchange transaction – fair value at acquisition date
d. Self-construction – direct materials, labor, and construction overhead

SUBSEQUENT MEASUREMENT
• Investment properties are subsequently measured at cost less accumulated
depreciation and accumulated impairment losses (i.e., Cost Model).
• Note: The fair value model is not allowed for government entities.

ACCOUNTING FOR PROPERTY, PLANT AND EQUIPMENT

IPSAS/PPSAS 17 applies to Property, Plant and Equipment (PPE), including Specialist

Military Equipment and Infrastructure Assets. This standard neither require nor prohibit
the recognition of heritage assets. However, an entity which recognizes heritage assets
is required to comply with the disclosure requirements of this standard. Property, plant
and equipment are tangible items that are:

a. held for use in the production or supply of goods, services or program outputs,
for rental to others, or for administrative purposes, and not intended for resale in
the ordinary course of operations; and
b. expected to be used for more than one reporting period

The useful life of PPE is the period over which an asset is expected to be available for
use by an entity; or a number of production or similar units expected to be obtained from
the asset by an entity.

RECOGNITION
Section 3, Chapter 10 – PPE, GAM provides that the cost of an item of PPE shall be
recognized as an asset if, and only if:
 1. It is probable that future economic benefits or service potential associated with
the items will flow to the entity; and
2. The cost or fair value can be measured reliably.
3. Beneficial ownership and control clearly rest with the government.
4. The asset is used to achieve government objectives.
5. It meets the capitalization threshold of P50,000.

The capitalization threshold of P15,000, as initially discussed in the preceding section,

represents the minimum cost of an individual asset recognized as a PPE on the
Statement of Financial Position. Some items may have individual values below the
threshold but which work together as a group of network asset whose total value
exceeds the threshold shall be recognized as part of the primary PPE (e.g. computer
network). This threshold shall be applied on an individual asset or per item basis. Each
item within the bulk acquisition with total value of PPE will need to meet the
capitalization threshold to be recognized as PPE.

Major spare parts and stand-by equipment qualify as PPE when an entity expects to
use them for more than one period. Similarly, if the spare parts and servicing equipment
can be used only in connection with an item of PPE, they may be accounted as PPE.

INITIAL MEASUREMENT
• PPE are initially measured at cost. Cost comprises the following:
a. Purchase price, including non-refundable taxes but excluding trade and
cash discounts;
b. Direct costs; and
c. Present value of decommissioning and restoration costs.

Examples of directly attributable costs

• Costs of employee benefits arising directly from the construction or acquisition of
PPE;
• Costs of site preparation;
• Initial delivery and handling costs (e.g., freight costs);
• Installation and assembly costs;
• Testing costs, net of disposal proceeds of samples generated during testing; and
• Professional fees.

Examples of costs that are expensed outright

• Costs of opening a new facility.
• Costs of introducing a new product or service (including costs of advertising and
promotional activities).
• Costs of conducting business in a new location or with a new class of customers
(including costs of staff training).
• Administration and other general overhead costs.
MODES OF ACQUISITION
a. Acquisition by Purchase
b. Acquisition by Construction
 c. Acquisition through Exchange
d. Acquisition through Non-Exchange Transaction
e. Acquisition through Intra-agency or Inter-agency Transfers

MEASUREMENT AFTER RECOGNITION

Subsequent to recognition, an entity shall choose either the cost model or the
revaluation model as its accounting policy and shall apply that policy to the entire class
of PPE.
Under the cost model, an item of PPE shall be carried at its cost less any accumulated
depreciation and any accumulated impairment losses.
Under the revaluation model, an item of PPE, whose fair value can be measured
reliably shall be carried at revalued amount less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
Depreciation is charged systematically over the useful life of the depreciable asset.
Depreciation begins when it is available for use and even it is idle or retired from active
use and held for disposal because depreciation ceases when derecognized or fully
depreciated. The estimation of useful life of the asset is a matter of judgment based on
the experience of the entity with similar assets.

Property, Plant and Equipment Estimated Useful Life

Land Improvements Useful life of the asset or the
improvement whichever is shorter
Infrastructure Assets 20-50 years
Building & Other Structures 30-50 years
Machinery & Equipment 5-15 years
Motor vehicles 5-15 years
Motor vehicles (Military vehicles) 3-20 years
Trains 10-20 years
Aircrafts & Aircrafts ground equipment 10-20 years
Watercrafts 10-25 years
Furniture, Fixtures and Books 2-15 years
Leased assets, excluding Land Useful life of the leased asset or the lease
term, including any renewal option,
whichever is shorter
Other PPE 2-15 years

A residual value equivalent to at least five percent (5%) of the cost shall be adopted
unless a more appropriate percentage is determined by the entity based on its
operations subject to the approval of COA. Generally, infrastructure assets have no
residual value.
The residual value and useful life of an asset shall be reviewed at least at each annual
reporting date and, if expectations differ from previous estimate, the change shall be
accounted for as a change in accounting estimate.

INFRASTRUCTURE ASSETS
According to IPSAS 17, the ownership of infrastructure asset is not confined for entities
in the public sector, however significant infrastructure assets are frequently found in the
public sector. To identify these assets as infrastructure, the following characteristics
may be useful:

1. They are part of the system or network.

2. They are specialized in the nature and do not have alternative uses.
3. They are immovable.
4. They are subject to constraints on disposal.
Examples of infrastructure assets, provided by this standard, include road network,
sewer systems, water and power supply systems, and communication networks.

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