FINANCIAL ACCOUNTING & REPORTING
FAR.Biological Assets and Agricultural Produce
LECTURE
Scope of PAS 41
PAS 41 applies, when they related to agricultural activity,
to biological assets, agricultural produce at the point of
harvest, and government grants related to these biological
assets. It does not apply to land and intangible assets
related to agricultural activity.
Key definitions
 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.
 Biological transformation comprises the processes of
growth, degeneration, production, and procreation
that cause qualitative or quantitative changes in a
biological asset.
 Biological asset is a living animal or plant.
 Group of biological assets is an aggregation of similar
living animals or plants.
 Bearer plant is a living plant that:
- Is used in the production or supply of agricultural
produce
- Is expected to bear produce for more than one
period, and
- Has a remote likelihood of being sold as
agricultural produce, except for incidental scrap
sales.
 Agricultural produce is the harvested product 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 of biological assets, agricultural produce,
and products that are the result of processing after
harvest; (1) sheep to wool to yarn or carpets; (2) dairy
cattle to milk to cheese; (3) bushes to leaf to tea or
cured tobacco; (4) fruit trees to picked fruit to
processed fruit.
Recognition
An entity should recognize a biological asset or agriculture
produce when, and only when:
 the entity controls the asset as a result of past events;
 it is probable that future economic benefits will flow to
the entity; and
 the fair value or cost of the asset can be measured
reliably.
Measurement
Biological assets should be measured on initial recognition
and at subsequent reporting dates at fair value less costs
to sell, unless fair value cannot be reliably measured.
The gain on initial recognition of biological assets at fair
value, and changes in fair value of biological assets during
a period, are reported in profit or loss.
Agricultural produce should be measured at fair value less
costs to sell at the point of harvest. Because harvested
produce is a marketable commodity, there is no
'measurement reliability' exception for produce.
A gain on initial recognition of agricultural produce at fair
value should be included in profit or loss for the period in
which it arises.
All costs related to biological assets that are measured at
fair value are recognized as expenses when incurred, other
than costs to purchase biological assets.
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NOREEN MACAYAN
NOTES
Costs to sell are the incremental costs directly attributable
to the disposal of an asset, excluding finance costs and
income taxes.
What is fair value of an asset?
PFRS 13 defines fair value as the price that would be
received to sell an asset in an orderly transaction between
market participants at the measurement date
Fair value is a market-based measurement, not an entity-
specific measurement.
The asset
 A fair value measurement is for a particular asset.
Therefore, when measuring fair value and entity shall
take into account the characteristics of the assets if
market participants would take those characteristics
into account when pricing the asset at the
measurement date. Such characteristics include, for
example, the following:
(a) The condition and location of the asset, and
(b) Restriction, if any, on the sale or use of the
asset.
The transaction
 A fair value measurement assumes that the asset is
exchanged in an orderly transaction between market
participants to sell the asset at the measurement date
under current market conditions.
 A fair value measurement assumes that the
transaction to sell the asset takes place either:
(a) In the principal market for the asset; or
(b) In the absence of a principal market, in the most
advantageous market for the asset
Market participants
 An entity shall measure the fair value of an asset using
the assumptions that market participants would use
when pricing the asset, assuming that market
participants act in their economic best interest.
The price
 Fair value is the price that would be received to sell an
asset in an orderly transaction in the principal (or most
advantageous) market at the measurement date
under current market conditions (ie an exit price)
regardless of whether that price is directly observable
or estimated using another valuation technique.
 The price in the principal (or most advantageous)
market used to measure the fair value of the asset
shall not be adjusted for transaction costs.
Transaction costs shall be accounted for in accordance
with other IFRSs. Transaction costs are not a
characteristic of an asset; rather, they are specific to
a transaction and will differ depending on how an
entity enters into a transaction for the asset.
 Transaction costs do not include transport costs. If
location is a characteristic of the asset (as might be
the case, for example, for a commodity), the price in
the principal (or most advantageous) market shall be
adjusted for the costs, if any, that would be incurred
to transport the asset from its current location to that
market.
Fair value at initial recognition
 When an asset is acquired in an exchange transaction,
the transaction price is the price paid to acquire the
asset (an entry price). In contrast, the fair value of
the asset is the price that would be received to sell the
asset (an exit price). Entities do not necessarily sell
assets at the prices paid to acquire them.
FAR
 In many cases the transaction price will equal the fair  If the transaction price differs from the fair value, the
value (eg that might be the case when on the entity shall recognize the resulting gain or loss in profit
transaction date the transaction to buy an asset takes or loss.
place in the market in which the asset would be sold).

REVIEW QUESTIONS

1. An entity in agribusiness produces cacao to sell to unit fair values less estimated point-of-sale costs were as
chocolate factories. Its statement of financial position follows:
at 31 December 2018 presents: two tractors Jan 1 Jul 1 Dec 31
(500,000 each), three computers (P20,000 each) and Newborn animal N/A 70 72
software (P50,000) to manage the cultivation of cacao 0.5 year old N/A N/A 80
on its farmland, which is planted with cacao-bearing 2-year old 100 N/A 105
trees (estimated value, P10 million). The entity’s 2.5-year old N/A 108 111
assets also included pods of recently harvested cacao 3-year old N/A N/A 120
(estimated value, P2 million). How much should be
classified as biological assets? 6. The carrying amount of biological assets as of
a. P13 million c. P10 million December 31, 2018 is
b. P12 million d. Nil a. P1,292 c. P1,338
b. P1,400 d. P1,320
2. An entity on adoption of PAS 41 has reclassified
certain assets as biological assets. The total value of 7. The increase in fair value of biological assets in 2018
the entity’s forest assets is P200 million comprising: due to price change is
freestanding trees P170 million; land under trees P20 a. P55 c. P53
million; and roads in forests P10 million. How much b. P222 d. P212
should be classified as biological assets?
a. P200 million c. P190 million 8. The increase in fair value of biological assets in 2018
b. P170 million d. P0 due to physical change is
a. P70 c. P237
3. The following pertains to Smile Company’s biological b. P229 d. P167
assets:
Price of the asset in the market P5,000 9. An entity cultivates cattle for the fresh meat industry.
Estimated commissions to brokers and It slaughters its cattle and butchers the meat into cuts
dealers 500 before selling them to its meat wholesaler customers.
Estimated transport and other costs The entity’s statement of financial position at 31
necessary to get asset to the market 300 December 2017 reported cattle at their fair value less
Selling price in a binding contract to sell 5,200 cost to sell of P1,000,000. At 31 December 2018,
when the fair value less costs to sell of the entity’s
The entity’s biological assets should be valued at herd is P1,500,000, the entity slaughtered 40 percent
a. P4,700 c. P4,400 of its herd (10 cattle) incurring slaughter costs of
b. P4,500 d. P4,200 P5,000. The quoted price of a carcass is P70,000 and
the costs to sell are estimated at P200 per carcass.
4. The following pertains to the biological assets owned On 31 December 2018 the entity also incurs P30,000
by ABC Farms, Inc.: direct costs in processing the carcasses into meat cuts
Carrying amount at January 1 P459,570 ready for sale to its customers. The net amount to be
Gains arising from changes in fair recognized in 2018 profit or loss is
value less costs to sell a. P1,198,000 c. P593,000
attributable to physical changes 15,350 b. P1,193,000 d. P563,000
Gains arising from changes in fair
value less costs to sell Use the following information for the next two
attributable to price changes 24,580 questions.
Sales 100,700 At the end of the reporting period (31 December 2017) a
Purchases 26,250 tomato grower’s vines are bearing developed ripe
The carrying amount of the biological assets on tomatoes. On 31 December 2017, the fair value less costs
December 31 is to sell of the vines with the soon-to-be harvested
a. P425,050 c. P525,750 tomatoes attached is measured at P24,000. The initial
b. P499,500 d. P451,300 cost of the vines was P5,500 and the cost of growing them
during 2018 (planting, irrigation and fertilization) was
5. The following pertains to the biological assets owned P7,250. The entity harvested its tomatoes on 3 January
by Ngitngit Farms, Inc.: 2018. The cost of harvesting the tomatoes is P1,000. The
Carrying amount, January 1 P800,000 quoted price per kilogram of tomatoes is P50 and costs to
Carrying amount, December 31 1,080,000 sell are estimated at 1 percent of quoted price. The entity
Purchases 230,000 harvests 500 kilograms of tomatoes The life of tomato
Sales 110,000 vine is about 6 months. After harvest, the vine has come
The amount to be recognized in the current period to the end of its life and its fair value is negligible.
profit or loss related to these biological assets is 10. The fair value adjustment gain to be recognized in
a. P280,000 c. P50,000 2017 profit or loss is
b. P390,000 d. P160,000 a. P18,500 c. P10,250
b. P11,250 d. Nil
Use the following information for next three
questions. 11. The fair value adjustment gain on initial recognition of
A herd of 10 2 year old animals was held at 1 January of agricultural produce to be recognized in 2018 profit or
the current period. On 1 July, one animal aged 2.5 years loss is
was purchased for 108, and one animal was born. No a. P24,750 c. P750
animals were sold or disposed of during the period. Per- b. P24,750 d.. Nil

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