Philippine Accounting

Standards 41
AGRICULTURE
INCLUDING
BIOLOGICAL ASSETS
 PAS 41: Agriculture/Bio. Assets
• SCOPE OF PAS 41
• This Standard shall be applied to account
for the following when they relate to
agricultural activity:
– biological assets;
– agricultural produce at the point of harvest; &
– government grants.
 OUTSIDE THE SCOPE OF PAS 41
• Does not apply to:
– land related to agricultural activity (PAS
16 and PAS 40); and
– intangible assets related to agricultural
activity (PAS 38).
– processing of agricultural produce after
harvest (PAS 2)

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 APPLIED ONLY UPON HARVEST
• This standard:
– Applies to agricultural produce,
which is the harvested product of
the entity’s biological assets.
– Applies only to agricultural produce
at the point of harvest
– Thereafter, PAS 2 Inventories or
another standard is applied.
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 NOT A BIOLOGICAL ASSET
• Example:
– Processing of grapes into wine by a
vintner who has grown the grapes.
– While such processing may be a
logical and natural extension of
agricultural activity, and the events
taking place bear some similarity to
biological transformation, it is not
considered as an agricultural activity
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 OTHER EXAMPLES
Biological Agricultural Products after
Assets Produce harvest
Sheep Wool Yarn, Carpet
Trees in forest Felled Trees Logs, lumber
Plants Cotton Thread, clothing
Sugarcane Harvested Cane Sugar
Dairy cattle Milk Cheese
Pigs Carcass Sausages, etc.

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 OTHER EXAMPLES
Biological Agricultural Products after
Assets Produce harvest
Tea, cured
Bushes Leaf tobacco
Grape Vines Grapes Wine
Fruit trees Picked Fruit Processed fruits

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 Key Definitions
• Agricultural activity is the
management by an entity of the
biological transformation of biological
assets for sale, into agricultural
produce, or into additional biological
assets.
 Key Definitions
• Agricultural produce is the harvested
product of the entity’s biological
assets.
• A biological asset is a living animal or
plant.

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 Key Definitions
• Biological transformation comprises the
processes of growth, degeneration,
production, and procreation that cause
qualitative or quantitative changes in a
biological asset.

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 Key Definitions
• A group of biological assets is an
aggregation of similar living animals or
plants.
• Harvest is the detachment of produce
from a biological asset or the cessation of
a biological asset’s life processes.

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 COVERAGE OF ACTIVITY
• Agricultural activity covers a diverse range
of activities
• Examples are raising livestock, forestry,
annual or perennial cropping, cultivating
orchards and plantations, floriculture, and
aquaculture (including fish farming).

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 COMMON FEATURES
• Capability to change
• Management of change
• Measurement of change

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 CAPABILITY OF CHANGE
• Living animals and plants are capable of
biological transformation

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 MANAGEMENT OF CHANGE
• Management of change facilitates
biological transformation by enhancing, or
at least stabilizing, conditions necessary
for the process to take place (example,
nutrient levels, moisture, temperature,
fertility, and light).
• This management distinguishes
agricultural activity from other activities.

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 NOT AN AGRICULTURE
• Harvesting from unmanaged
sources is not agricultural activity.
• Examples are ocean fishing and
deforestation.

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 Recognition
• An entity shall recognize a biological
asset or agricultural produce only
when:
– the entity controls the asset as a result
of past events;
– it is probable that future economic
benefits associated with the asset will
flow to the entity; and
– the fair value or cost of the asset can be
measured reliably.
 Recognition
• In agricultural activity
– Control may be evidenced by, for
example, legal ownership of cattle and
the branding or otherwise marking of the
cattle on acquisition, birth or weaning.
– The future benefits are normally
assessed by measuring the significant
physical attributes.

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 Measurement
– On initial recognition and at each balance
sheet date, a biological asset is
measured at its fair value less costs to
sell, except where the fair value cannot
be measured reliably.
– There is a presumption that fair value
can be measured reliably for a biological
asset.
– However, when its fair value cannot be
determined reliably, it shall be measured
at its cost less any accumulated
depreciation and impairment losses.
 Measurement
– The presumption that a biological asset’s
fair value can be measured reliably can
be rebutted only on initial recognition
when market determined prices or values
are not available and for which
alternative estimates of fair value are
determined to be clearly unreliable
– Once the fair value of such biological
asset becomes reliably measurable, an
entity shall measure it at its fair value
less costs to sell.
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 Measurement
– When a non-current biological asset
meets the criteria to be classified as held
for sale or is included in a disposal group
that is classified as held for sale in
accordance with PFRS 5, it is presumed
that fair value can be measured reliably.
– An entity that has previously measured a
biological asset at its fair value less costs
to sell continues to measure the
biological asset at its fair value less costs
to sell until disposal.
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 Measurement
– In all cases, an entity measures
agricultural produce at the point of
harvest at its fair value less costs to sell.
– PAS 41 reflects the view that the fair
value of agricultural produce at the point
of harvest can always be measured
reliably.
– In determining cost, accumulated
depreciation and accumulated
impairment losses, an entity considers
the requirements of PAS 2, PAS 16 and
PAS 36, respectively.
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 Measurement
– Agricultural produce harvested from
an entity’s biological assets shall be
measured at its fair value less costs
to sell at the point of harvest.
– Such measurement is the cost at
that date when applying PAS
Inventories or another applicable
standard.

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 Fair Value
• The determination of fair value for a
biological asset or agricultural produce may
be facilitated by grouping biological assets
or agricultural produce according to
significant attributes (e.g. by age or quality)
• An entity selects the attributes
corresponding to the attributes used in the
market as a basis for pricing.

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 Fair Value
• Entities often enter into contracts to sell
their biological assets or agricultural
produce at a future date.
• In this case, contract prices are not
necessarily relevant in determining fair
value, because fair value reflects the
current market in which a willing buyer and
seller would enter into a transaction.

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 Fair Value
• The fair value of a biological asset or
agricultural produce is not adjusted because
of the existence of a contract.
• In some cases, a contract for the sale of a
biological asset may be an onerous contract,
as defined in PAS 37, in such a case, the
requirements of that standard shall apply.

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 Fair Value
• The amount for which an asset could be
exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s
length transaction.
• If an active market exists for a biological
asset or agricultural produce, the quoted
price in that market is the appropriate basis
for determining the fair value of that asset.
 Fair Value
• If an entity has access to different active
markets, the entity uses the most relevant
one.
• For example, if an entity has access to two
active markets, it would use the price
existing in the market expected to be used.

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 Fair Value – No active market
• If an active market does not exist, an entity
uses one or more of the following, when
available, in determining fair value:
– the most recent market transaction price,
provided that there has not been any
significant change in economic
circumstances between the date of that
transaction and the balance sheet date;
 Fair Value – No active market
• If an active market does not exist, an entity
uses one or more of the following, when
available, in determining fair value:
– market prices for similar assets with
adjustment to reflect differences; and
– sector benchmarks such as the value of
an orchard expressed per export tray,
bushel, or hectare, and the value of cattle
expressed per kilogram of meat.

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 Fair Value – No active market
• In some cases, the preceding information
herein may suggest different conclusions as
to the fair value of a biological asset or
agricultural produce. In such a case;
– An entity considers the reasons for those
differences, in order to arrive at the most
reliable estimate of fair value within a
relatively narrow range of reasonable
estimates.
• In some circumstances, market-determined
prices or values may not be available.

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 Fair value not available for a biological
asset in its present condition
• In these circumstances, an entity:
– Use the present value of expected net
cash flows from the asset discounted at a
current market-determined pre-tax rate in
determining fair value.
• The objective of a calculation of the present
value of expected net cash flows is to
determine the fair value of a biological asset
in its present location and condition.
 Cost approximates Fair Value
• Cost may sometimes approximate fair value,
particularly when:
– little biological transformation has taken
place since initial cost incurrence (for
example, for fruit tree seedlings planted
immediately prior to a balance sheet date);
or
– the impact of the biological transformation
on price is not expected to be material (for
example, for the initial growth in a 30-year
pine plantation production cycle).
 Point of sale costs
– costs to sell:
• include commissions paid to brokers
and dealers, levies by regulatory
agencies and commodity exchanges,
and transfer taxes and duties.
• exclude transport and other costs
necessary to get assets to a market.

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 Gain or Losses
• Gain or loss arising on initial recognition at
fair value less costs to sells and from a
change in fair value less costs to sell is
recognized:
– Biological assets – in profit or loss for the
period in which it arises
– Agricultural produce – in profit or loss for
the period it in which it arises
 Government Grants
• Government grant related to a biological
asset measured at its fair value less costs to
sell:
– If grant is unconditional, recognize as
income when, and only when, the
government grant becomes receivable.
– If grant is conditional recognise the
government grant as income when, and
only when, the conditions attaching to the
government grant are met.
 Required Disclosures
General disclosures follow:
• the aggregate gain or loss arising during
the current period on initial recognition of
biological assets and agricultural produce
and from the change in fair value less costs
to sells of biological assets.
• a description of each group of biological
assets.
 Required Disclosures
• the nature of entity’s activities involving
each group of biological assets; and
• non-financial measures or estimates of the
physical quantities of:
– each group of the entity’s biological
assets at the end of the period; and
– output of agricultural produce during the
period.

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 Required Disclosures
• the methods and significant assumptions
applied in determining the fair value of
each group of agricultural produce at the
point of harvest and each group of
biological assets.
• the fair value less costs to sells of
agricultural produce harvested during the
period, determined at the point of harvest.
 Required Disclosures
• the existence and carrying amounts of
biological assets whose title is restricted,
and the carrying amounts of biological
assets pledged as security for liabilities;
• the amount of commitments for the
development or acquisition of biological
assets;
• financial risk management strategies related
to agricultural activity.

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 Required Disclosures
• A reconciliation of changes in the carrying
amount of biological assets between the
beginning and the end of the current period. The
reconciliation shall include:
– the gain or loss arising from changes in fair
value less costs to sells;
– increases due to purchases;
– decreases attributable to sales and biological
assets classified as held for sale (or included in
a disposal group that is classified as held for
sale) in accordance with IFRS 5;
 Required Disclosures
• A reconciliation of changes in the
carrying amount of biological assets
between the beginning and the end of
the current period. The reconciliation
shall include:
– decreases due to harvest;
– increases resulting from business
combinations;

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 Required Disclosures
– net exchange differences arising on the
translation of financial statements into a
different presentation currency, and on
the translation of a foreign operation into
the presentation currency of the
reporting entity; and
– other changes.

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 Disclosures when fair value cannot be measured

Required disclosures, among others, follow:

• a description of the biological assets;
• an explanation of why fair value cannot be
measured reliably;
• the range of estimates within which fair value
is highly likely to lie;
 Disclosures when fair value cannot be
measured
Required disclosures, among others, follow:
• the depreciation method used;
• the useful lives or the depreciation rates
used; and
• the gross carrying amount and the
accumulated depreciation (aggregated with
accumulated impairment losses) at the
beginning and end of the period.

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 Disclosures for
Government Grants

• the nature and extent of government grants

recognized in the financial statements;
• unfulfilled conditions and other
contingencies attaching to government
grants; and
• significant decreases expected in the level of
government grants.
ANSWERS TO MCQ & DIY DRILL

1. C 9. B 17. C 25. D 1. A
2. A 10.B 18.C 26. D 2. B
3. D 11.A 19.D 27. D 3. A
4. B 12.A 20.C 28. A 4. D
5. B 13.A 21.D 29.C 5. D
6. A 14.D 22.A 30.D 6. B
7. B 15.D 23.D 31.D 7. A
8. A 16.B 24.D 32.C 8. A

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