ACCOUNTING FOR

AGRICULTURE
 ACCOUNTING FOR AGRICULTURE
(MFRS 141)
• Agricultural activity is the management of the
biological transformation of biological assets (plants
and animals) into agricultural produce for sale,
processing, or consumption. Biological assets will go
through different phases eg. grow, procreate,
produce and degenerate.
 Plantation/
Orchards

Vegetable
farming, Livestock
farming
etc.
AGRICULTURE

Forestry Aquaculture
 DEFINITION OF BIOLOGICAL ASSETS

• Living animals and plants that are controlled

by an enterprise as a result of past events

• Include those controlled through ownership

and those controlled through a legal or
similar arrangement

• Includes all types of plants and animals that

are subject to the management of biological
transformation
 BIOLOGICAL ASSETS IN THE FORM OF
PLANTS

• Rubber trees and oil palms in a plantation

• Trees within a forest
• Bushes within a tea plantation
• Cane trees in a sugar cane plantation
• Vines within a vineyard
• Cash crops such as padi and tobacco within
a field
• Ornamental plants in a horticulture farm
• Some biological assets like timber are
‘consumable biological assets’ as they are
logged. Logged timber becomes inventory

• ‘Bearer biological assets’ are biological assets

that are harvested for their produce eg tea,
palm trees, durian trees
BIOLOGICAL ASSETS IN THE FORM OF LIVING
ANIMALS
• Sheep
• Deer
• Cattle
• Pigs
• Fish
• Different biological assets go through different
transformation phases but have certain common
features

• All biological assets have the capacity to change

or transform

• The process of transformation depends on the

management of conditions whereby the
transformation is enhanced or stabilised

• The transformation may result in quality or

quantity change in the biological assets
The biological transformation result in

• Growth – increase in size, increase in

quantity and improvements in quality

• Procreation – creation of new additional

living plants and animals

• Degeneration – deterioration in quality or

decrease in quantity
 BIOLOGICAL
ASSET

CONSUMABLE
BEARER
BIOLOGICAL
BIOLOGICAL
ASSET
ASSET
 CONSUMABLE BIOLOGICAL ASSETS
• Consumable biological assets are those that
are to be harvested as agricultural produce or
sold as biological assets.
• Examples of consumable biological assets are
livestock intended for the production of meat,
livestock held for sale, fish in farms, crops such
as maize and wheat, and trees being grown for
lumber.
 BEARER BIOLOGICAL ASSETS
• Bearer biological assets are those other than
consumable biological assets;
• For example, livestock from which milk is
produced, grape vines, fruit trees, and trees
from which firewood is harvested while the
tree remains.
• Bearer biological assets are not agricultural
produce but, rather, are self-regenerating.
MATURE/IMMATURE BIOLOGICAL ASSETS

• Biological assets may be classified either as

mature biological assets or immature
biological assets.
• Mature biological assets are those that have
attained harvestable specifications (for
consumable biological assets) or are able to
sustain regular harvests (for bearer biological
assets).
 MFRS 141
MFRS 141 applies to :

• Biological assets
• Agricultural produce at the point of harvest
• government grants relating to agricultural assets
IT DOES NOT APPLY TO:

• Agricultural produce after the point of harvest, for example,

latex, oil palm, wool, meat, fruits, tea, logs that are
processed subsequently (MFRS 102 Inventories applies to
these produce)

• The land on which the biological assets grow, regenerate

and/or degenerate (MFRS 116 Property, Plant and Equipment
apply)

• Agricultural activity that is not managed such as open fishing

• Minerals and natural resources such as oil and gas

Agriculture: Bearer Plants
(Amendments to MFRS 116 and MFRS 141)

• This Addendum sets out the amendments to MFRS 116 Property, Plant and
Equipment. An entity shall apply the amendments in this Addendum for annual
periods beginning on or after 1 January 2016. Early application is permitted.

Scope
This Standard clarifies that an entity is required to apply the principles of this
Standard to items of property, plant and equipment used to develop or maintain:
(a) biological assets and
(b) mineral rights and mineral reserves such as oil, natural gas and similar non-
regenerative resources.

Agriculture: Bearer Plants

(Amendments to IAS 16 and IAS 41), issued in June 2014, amended the scope of
this Standard to include bearer plants related to agricultural activity) under MFRS
116 and be treated as PPE
DEFINITION OF A BEARER PLANT

Living plants that:

 Is used in the production or supply of agricultural

produce
 Is expected to bear produce for more than one
period
 Has a remote likelihood of being sold as agricultural
produce, except for incidental scrap sales

Will be presented as non-current assets

 INITIAL RECOGNITION-BIOLOGICAL ASSET
As with all assets the biological assets and agricultural produce are
recognised only when:

• The entity has control over the asset as a result of past event

• It is probable that economic benefits associated with the assets will flow
to the entity and

• The cost or fair value can be measured reliably

Control can be evidenced by legal ownership, lease, joint

venture, license or concession to harvest

Economic benefits may be in the form of physical

growth such as size, weight, protein or fat content, age etc.
 INITIAL RECOGNITION-BIOLOGICAL ASSET

 The initial measurement for “bearer plants” is the same as under

item of PPE- at cost (all directly and indirectly attributable costs
incurred in the immature period, including the yearly maintenance
costs of fertilisers, labour, and other inputs, are capitalized in the bearer
plant)

 Plantation entity ceases capitalization of costs when commercial

harvesting commences

 After the commencement of commercial harvesting, all maintenance

costs shall be recognized as expense
 MEASUREMENT

Biological assets (exclude “bearer plants” as it is treated

as PPE)
• Measured initially and at each SOFP at fair
value less estimated point-of-sale costs

Agricultural produce
• Measured at fair value less estimated point-
of-sale costs at the point of harvest
 DEFINITION OF HARVEST
• The detachment of agricultural produce from the
biological asset (for eg, latex extraction from a
rubber tree or apple picking)

• The removal of a living plant from agricultural land

and replanting (such as for horticultural purposes)

• The cessation of a biological asset’s life processing

(for eg, slaughter of animals or felling of trees)
• The standard does not deal with further
processing of agricultural produce after
harvest (such as processing fresh fruit bunches
into crude palm oil, latex into rubber, grapes
into wine)
 POINT-OF-SALE COSTS
Include
-commissions 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 are
not point-of-sale costs but are included in determination of fair value

FV at farm = market price less transport cost

(other similar costs) to get BA to market
 COSTS INCURRED IN BIOLOGICAL
TRANSFORMATION
A. Costs incurred in developing, nurturing,
producing and harvesting BA– charged to
expenses when incurred

B. Costs that increases the quantity of BA – add

to carrying amount of the BA; subsequently – FV
less point-of-sale costs.
 GAINS AND LOSSES
• Gains or losses from changes in FV less
point-of-sale costs of BA at initial
recognition shall be recognised in P/L
(MFRS 141.26)
• In the case of timber cultivation ( a consumable biological
plant) no gain or loss will arise on initial recognition when an
entity first commences cultivation of the crop.

• The fair value of the biological asset (timber crop) at the start
of the cultivation is theoretically nil.

• At the initial planting stage, costs incurred are recognised as

an expense

• At the end of the reporting period, the fair value of the crop
is determined and the change in fair value (less cost to sell) is
recognised as a gain or loss.
 INTEGRATED & MIXED FARMING
• Cultivate various crops, some of which are
consumable biological assets while others are bearer
biological assets

Example- bearer crops may include chili, cucumbers,etc. whilst the

consumable crops may include green-leaf vegetables of various
kinds and other tuber crops in ground .
Cattle (for meat production) and dairy cows (for milk production)

• Find FV separately for bearer and consumable

biological assets
 RECOGNITION &
MEASUREMENT ISSUES
1. Recognition of future agriculture
produce still attached to BA
 not to be recognised separately from BA.
 i.e. measure BA as a whole

(under MFRS 141)

2. BA attached to agricultural land, eg.
Immature trees.
 Must find FV at each reporting date
 Find FV for combined assets (BA, Land & Land
improvement)
 FV of BA = FV combined assets – (FV Land + Land
improvements)
3. Measuring FV
A. Active market:
 Single market- quoted market price
 >1 market – price in most relevant market
 Market price is not contract price

B. No active market:
 Most recent market price
 Market price for similar assets adjusted for differences
 Sector benchmarks – eg. Value of cattle expressed per
kg of meat
C. If reliable market-based price for BA in present
condition not available:

Present value of expected NCF from the asset.

 Discount rate: current market-determined pre-tax rate.

 Exclude:
 Increases in value from additional biological transformation and
future activities of the entity
 Financing and taxation CF
 CF from re-establishing BA after harvest
4. FV not reliable

Cost-accumulated depreciation - accumulated

impairment loss

When FV becomes reliably measurable:

FV less point –of-sale cost

 FAIR VALUE MFRS 141 & MFRS 13 FAIR
VALUE HIERARCHY

MFRS 141 Agriculture MFRS 13 Fair value

Quoted price in active market Level 1 inputs

No active market Level 2 inputs: observable inputs

other than quoted price

Reliable market-based price not Level 3 inputs: unobservable inputs

available (including PV of NCF)
 GAINS AND LOSSES
• Biological Asset
Gain or loss on biological asset will arise due to

– Changes in fair value (less point-of-sale cost) between

SOFP dates, and

– Initial recognition of a biological asset at fair value (less

point-of-sale cost), for example, when a calf is born

The change in fair value of biological assets during a period

should be recognised in net profit or loss for the period as
part of profit or loss from operating activities
 AGRICULTURAL PRODUCE
– Gain or loss will arise on initial recognition of
the produce

– The gain or loss is the fair value less point of

sale costs

– The gain or loss is recognised in the profit and

loss in the period of harvest
 GOVERNMENT GRANTS

Grant related to BA at
FV less POS costs

Unconditional Conditional

Recognise in P/L when,

Recognise in P/L when, If grant is received
and only when,
and only when, grant before conditions are
conditions attached to
becomes receivable met - liability
the grant are met
 PHYSICAL AND PRICE CHANGES OF
BIOLOGICAL ASSETS

The fair value of biological asset can change due to

both physical changes and price changes in the market

• Physical changes are attributable to the biological

transformation which results in growth, degeneration,
production and procreation

• Price changes are unrelated to the physical changes in the

biological assets, but are attributable to changes in the
per-unit fair value due to market forces
 PHYSICAL CHANGE
Change in fair value is measured as the difference between

• The CA at the beginning of the period re-measured at end of

period per-unit FV (the same physical characteristics as those
held at the beginning of the period) and
• The CA (FV) at the end of the period, excluding increases due to
purchases and decreases due to sales. (Change only due to
biological transformation; not due to changes in quantity)
 PRICE CHANGE
Change in fair value is the difference between

• The CA (FV) at the beginning of the period and

• The CA at the beginning of the period re-measured

at end of period per-unit FV (the same physical
characteristics as those held at the beginning of the
period); excluding increases due to purchases and
decreased due to sales
 Presentation
• MFRS 101: carrying amount of BA disclosed
separately in SOFP

• MFRS 141: aggregate gain or loss on initial

recognition of BA & agricultural produce plus
from changes in FV (price and/or physical
changes)
 DISCLOSURE
The disclosure requirements include

• Gain or loss on initial recognition and changes in fair value of

biological assets

• Fair value of agricultural produce harvested during the period

• Description of each group of biological assets

• Description of the nature of the enterprise’s activities of each

group of biological assets and non-financial measures or
estimates of physical quantities of produce and assets on hand
at the end of the period
• Information about biological assets whose title is restricted
or pledged as security

• Amount of commitment for development or acquisition of

biological assets

• Financial risk management strategies related to

agricultural activities

• Reconciliation of the changes in carrying value of biological

assets for the period, detailing gain or loss in changes in
fair value, purchases, decreases due to sale and/or harvest,
business combinations and foreign exchange differences
• For biological assets carried at cost less accumulated
depreciation less impairment loss

– Description of the assets

– Explanation for not using fair value measurement
– Range of fair value within which likely to fall, if possible
– Depreciation method, useful life or depreciation rates
and
– Gross carrying amounts and accumulated depreciation

• Details of Government grants such as nature of grant,

amount recognised, unfulfilled conditions etc
THE END