ACCOUNTING FOR BIOLOGICAL ASSETS

A biological asset is a living plant or animal. Examples are: sheep, trees in a plantation forest, dairy cattle,
pigs, vines, and fruit trees.

Agricultural produce is the harvested product of biological assets. Examples are: wool from sheep, logs
from trees, milk from dairy cattle.

Upon purchase or birth, a biological asset is recognized. It is initially recorded at fair value less cost to sell.
The price in an active market is the best basis of the asset’s fair value. Cost to sell include broker’s
commission, levies by regulatory agencies, transfer taxes and duties. Getting the biological asset to
a market is NOT part of cost to sell.

Notes:
1. At its reporting date, biological assets are to be reported at fair value less cost to sell. Any change in fair
value less cost to sell is reported as gain or loss.

2. Change in fair value less cost to sell are classified as: Change in fair value due to physical change and
change in fair value due to price change. Increase in size, weight and newborn are examples of
physical change.

3. When a biological asset is purchased, it is recorded at its FV less cost to sell. A gain or loss may arise upon
purchase.

4. Upon purchase of biological asset, when the purchase price plus any transaction costs is higher than the
FV less cost to sell there is loss on purchase of bio assets.

5. Whereas, when the purchase price plus any transaction costs is lower than the FV less cost to sell there
is gain on purchase of bio assets.

Example #1. Bruno’s Farm had the following transactions relating to its biological assets in their ranch.
Purchase price of biological asset P 268,000
Fair value less cost to sell of the biological asset 250,000

The entry to record the biological assets purchased is:

Biological asset (at fair value less cost to sell) 250,000
Loss on initial recognition of biological asset 18,000
Cash 268,000
Purchased biological assets at more than fair value.

Example #2.
Purchase price of biological asset P268,000
Fair value less cost to sell of the biological asset 300,000

The entry to record the biological assets purchased is:

Biological asset (at fair value less cost to sell) 300,000
Cash 268,000
Gain on initial recognition 32,000
Purchased biological assets at less than fair value.

When a biological asset is born, it is also recorded at its fair value less cost to sell and is considered an
income.
The entry to record the newborn biological asset is:
Biological asset (at fair value less cost to sell) xxx
Gain from change in fair value of bio assets xxx
To record the birth of bio assets (Physical change).

Labor costs of personnel tending the biological assets, costs of materials and supplies like fertilizers, feeds
and the like are recorded as expense when incurred.

Measurement after initial recognition

Biological assets should be presented in the financial statements at fair value less cost to sell.

Change in fair value due to price change and change in fair value due to physical change are to be reported
separately.

Example #3.

Old Mc Donald Company has the following information relating to its biological assets in its dairy farm in
Bulacan.

A herd of twenty, 2-year old animal was held on January 1, 2020. Five animals aged 2.5 years old were
purchased on July 1, 2020 for P20,000 each. Also on July 2020 four animals were born. On
December 31, 2020 Ten animals (age 3years) were sold for P27,000 each. Fair value less cost to sell
were as follows:

FV less FV less FV less

cost to sell cost to sell cost to sell
Age January 1,2020 July 1, 2020 December 31,2020
3 years P27,000
2.5 years P20,000 22,000
2 years P15,000 16,500
.5 year 9,200
newborn 8,000 8,500

JOURNAL ENTRIES FOR BIOLOGICAL ASSETS in 2020.

July 1, 2020 Biological assets (P20,000x5) 100,000

Cash 100,000
To record biological assets purchased.

July 1, 2020 Biological assets (P8,000x4) 32,000

Gain from increase in fair value due to birth 32,000
increase in fair value due to birth of 4 animals. (physical
change)

Dec.31,2020 Biological assets 279,800

Gain from increase in fair value due to price change 42,000
Gain from increase in fair value due to physical change. 237,800
To record increase in FV due to price and physical change.

Dec. 31,2020 Cash 270,000

Biological assets 270,000
To record sale of biological assets.

COMPUTATIONS of Change in FV due to Price change and Physical change

 Gain from change in fair value due to price change is determined by comparing the price on
December 31, with the price on January 1.

Dec. 31, January Difference

Age price 1, price in Price Quantity Amount
Newborn 8,500 8,000 500 4 P2,000
2- year old 16,500 15,000 1,500 20 30,000
2.5 year old 22,000 20,000 2,000 5 10,000
Change in FV due to price change P42,000

Gain from change in fair value due to physical change is determined by considering the
physical change in the bio assets. Example, the one year old on January 1, will become 2
years old on December 31. ( Consider only the price on December 31.)

Price on Price on
Age on Dec. 31, Dec. 31,
Dec. of of
31 previous Current Difference
age age in Price Qty. Amount

Age on Jan.1- 3 yrs. 16,500 27,000 10,500 20 P210,000

2 yrs. old old
Age on July 1- 3 yrs. 22,000 27,000 5,000 5 25,000
2.5 yrs. old
Newborn on .5 yr. 8,500 9,200 700 4 2,800
July 1 old
Change in FV due to physical change P237,800

On December 31, 2020, the amount of biological assets that will be presented in the company’s
financial statements is 441,800 determined as follows:

January 1 – balance ( twenty, 2-year old animal x P15,000)- P300,000

Add(Less): 2020 transactions
July 1 Biological biological assets purchased 100,000
July 1 Biological assets Born 32,000
Dec.31 Increase in FV due to price and physical change
(42,000+237,800) 279,800
Dec.31 Biological assets sold (270,000)
December 31,2020 - Balance 441,800

Alternative computation of Biological Assets balance at Dec. 31, 2020:

Age 3 yrs at Dec. 31 ( 20 + 5 – 10)=15 x P27,000 = P405,000

Age .5 yr. old (4 x P9,200)---------------------------------- 36,800
Biological Assets – Dec. 31, 2020----------------------P441,800

Example #4.

At December 31, 2021, the following information was gathered for

biological assets of Mariano’s Poultry.
Price of bio assets in an active market 3,600,000
Broker’s commission 45,000
Levies by regulatory bodies 12,000
Transport and other costs to get the assets to the market 40,000
Market prices in the previous month for similar assets 2,900,000

At what amount should the biological assets be presented on Dec. 31, 2021? Answer- P3,543,000

Computation:
Price of bio assets in an active market 3,600,000
 Less: cost to sell
Broker’s commission (45,000)
Levies by regulatory bodies (12,000)
Fair Value less cost to sell of bio assets on Dec. 31, 3,543,000
2021

Note: Transport and other costs to get the assets to the market is ignored. Because getting the biological
asset to the market is not part of cost to sell.

Example #5.
The following information is made available by Camilo’s Farms in Batangas relating to its dairy livestock
during 2021.

Carrying amount at January 1 P1,000,000

Fair value less cost to sell of livestock purchased during the year 280,000
Fair value less cost to sell of livestock Born during the year 60,000
Increase in FV less cost to sell due to price change 180,000
Increase in FV less cost to sell due to physical change 40,000
FV less cost to sell of livestock sold during the year 890,000

How much is the biological assets reported at December 31, 2021? 670,000

Computation:
January 1, balance P1,000,000
Add(less):
Fair value less cost to sell of livestock purchased during the year 280,000
Fair value less cost to sell of livestock Born during the year 60,000
Increase in FV less cost to sell due to price change 180,000
Increase in FV less cost to sell due to physical change 40,000
FV less cost to sell of livestock sold during the year (890,000)
Biological assets reported at December 31, 2021? 670,000

ASSIGNMENT TO BE SUBMITTED:

Please Answer /show computations for the following: MC 19; MC 21; MC22; MC23; MC25:MC26