Lesson Title: Chapter 4 – Biological Assets (PAS 41)

Lesson Objectives:
At the end of the module, the learners will be able to:
 Explain the scope of PAS 41
 Define biological assets and give examples.
 Explain recognition and measurement of biological assets and agricultural produce.
 Describe the presentation and disclosure requirements for biological assets.
Lectures and annotations:
Agriculture is defined as the art, science, and practice of farming, including the
cultivation of the soil for the growing of crops and the rearing of animals to provide food,
wool, and other products.

Agricultural activity is the management by an entity of the biological transformation and

harvest of biological assets for sale or for conversion into agricultural produce or into
additional biological assets.
Examples:
• annual or perennial cropping
• aquaculture
• cultivating orchards and plantations
• floriculture
• forestry
• raising livestock
Biological transformation comprises the processes of growth, degeneration, production
and procreation that cause qualitative or quantitative changes in a living plant or animal.
1) Assets changes through;
a. growth – (an increase in quantity or improvement in quality of an animal or
plant)
b. degeneration – (a decrease in quantity or deterioration in quality of an animal
or plant)
c. procreation – (creation of additional living animals or plants)
2) Production of agricultural produce such as latex, tea leaf, wool and milk.
Biological asset is a living animal or plant. It can either be:
 Consumable biological assets – are those that are to be harvested as agricultural
produce or sold as biological assets.
Examples:
• Livestock for the production of meat
• Livestock held for sale
• Fish in farms
• Produce on a bearer plant
• Trees being grown for lumber
• Crops such as maize and wheat
 Bearer biological assets – are those that are held to bear produce. Only the produce is
harvested while the bearer biological asset remains.
Examples:
• Livestock for which milk is produced
• Fruit trees from which fruit is harvested

 Living plants and animals, except for bearer plants, are classified as biological assets,
if they are relate to agricultural activity.
 In the case of bearer plant, only its produce is classified as a biological asset, while
the bearer plant itself is classified as property, plant and equipment.
 Biological
Consumable
assets
Plants
Bearer PPE
Plants & Animals
Biological
Consumable
assets
Animals
Biological
Bearer
assets
Agricultural produce
• The harvested produce of the entity’s biological assets.
• Harvest is the detachment of produce from a biological asset or the cessation of a
biological asset’s life processes.
• Examples; apples, mangoes, banana
• The land use in agricultural activities (agricultural land) is classified as PPE.
Examples:
Recognition principle
An entity shall recognize a biological asset or agricultural produce when, and 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
• The fair value or cost of the asset can be measured reliably.

Measurement of Biological Assets (initial & subsequent):

• A biological asset shall be measured on initial recognition and at the end of each
reporting period at its fair value less costs to sell (FVLCS) except where the FV cannot
be measured reliably.
• If the FV cannot be measured reliably, the biological asset shall be measured at its
cost less any accumulated depreciation less any accumulated impairment losses.
Costs to sell are the incremental costs directly attributable to the disposal of an asset. It
includes the ff:
• Broker’s commissions
• Levies by regulatory agencies and commodity exchanges
• Transfer taxes and duties
Excludes the ff:
• Income taxes
• Interest or finance costs
• Transportation costs
• Advertising costs
 Gain or loss arising on initial recognition of a biological asset at FVLCS and from a
change in FVLCS of a biological asset shall be included in P/L for the period in which
it arises.
 All costs incurred in biological assets that are measured at FVLCS are recognized in
P/L.
 Changes in FVLCS are recognized in P/L.
o The change in FVLCS consists of two components:
1. Price change
2. Physical change
Agricultural produce
 Agricultural produce harvested from an entity’s biological assets shall be measured
at its FVLCS at the point of harvest. Such measurement is the cost at that date.
 Subsequent accounting shall be governed by PAS 2 Inventories or other applicable
accounting standards.
 A gain or loss arising on initial recognition of agricultural produce at FVLCS shall be
included in P/L for the period it arises.
Biological assets acquired through government grant
• An unconditional govt. grant related to a biological asset measured at its FVLCS shall
be recognized in P/L when, and only when, the govt. grant becomes receivable.
• If a govt grant related to a biological asset measured at its FVLCS is conditional, an
entity shall recognize the govt. grant in P/L when, and only when, the conditions
attaching to the govt. grant are met.
Financial Statement Presentation
 Biological asset is presented under the non-current assets section of the statement
of financial position.
References:
Millan, ZV. B. (2020). Intermediate Accounting 1A & 1B. Baguio City: Bandolin Enterprise
Publishing
Ocampo, R. R. (2022). Intermediate Accounting Volume 1. Manila: DomDane Publishers
Villaluz, BC. S., Cruz, MS. M. (2022). Financial Accounting and Reporting. Cainta, Rizal: BCV
Accounting Bookshop