PAS 41 Agriculture

Learning Objectives
 Differentiate the following: biological assets,
bearer plants, agricultural produce and
inventory.
 State the initial and subsequent measurement
of biological assets and agricultural produce.
 State the accounting for government grants
that are within the scope of PAS 41.

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Scope
PAS 41 is applied to account for the following when they
relate to agricultural activity:
a. Biological assets, except for bearer plants.
b. Agricultural produce at the point of harvest; and
c. Unconditional government grants related to a
biological asset measured at its fair value less cost to
sell

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Definition of terms

Biological assets – are living animals and living plants

Agricultural produce – harvested product of an
entity’s biological assets.
Harvest – is the detachment of produce from a
biological asset or the cessation of a
biological asset’s life processes.

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Examples of biological assets
Biological asset Agricultural produce Product after harvest

1. Sheep Wool Yarn ,carpet

2. Trees in plantation Felled trees Log, lumber

forest

3. Sugarcane plant Harvested cane sugar

4. Dairy cattle Milk Cheese

5. Pigs Carcass Sausage, cured ham

6. Tobacco plant Picked leaves Cured tobacco

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 Scope - continuation
PAS 41 does not apply to the following:
a. Land (PAS 16 PPE and PAS 40 Investment Property)
b. Bearer plants related to agricultural activity (PAS 16). However,
PAS 41 applies to the produce on those bearer plants.
c. Government grants related to bearer plants (PAS 20 Acctg. for
Gov’t. Grants and Disclosure of Gov’t. Assistance).
d. Intangible assets (PAS 38 Intangible Assets).

 PAS 41 is applied to agricultural produce at the point of

harvest. After the point of harvest, PAS 2 Inventories or other
applicable standard is applied.

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 Nature of asset Type of asset
 Living animal or plant Biological asset (PAS 41)
However, bearer plants are
classified as Property, Plant
and Equipment (PAS 16)
 Unprocessed harvested Agricultural produce
product (PAS 41)

 Processed harvested Inventory (PAS 2)

product

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 MOOOO!!!

LIVE COW - BIOLOGICAL ASSET

INVENTORY

INVENTORY

CARCASS - AGRICULTURAL PRODUCE INVENTORY

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Consumable vs. Bearer biological assets
Biological assets are either consumable or bearer.
a. Consumable - those that are to be harvested as agricultural
produce or sold as biological assets. Ex. Timber
b. Bearer - those other than consumable biological assets. Ex.
Fruit tree

 PAS 41 applies to both consumable and bearer animals.

However, PAS 41 only to consumable plants but not to
bearer plants.

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MAIZE PLANT – ANNUAL CROP
(CONSUMMABLE – PAS 41)
MANGO TREE
(BEARER PLANT – PAS 16)
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Agricultural activity
 PAS 41 applies to biological assets, agricultural
produce and gov’t. grants only when they
relate to agricultural activity.
 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.

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Examples of agricultural activity

1. Raising a livestock
2. Annual or perennial cropping
3. Cultivating orchards and plantation
4. Floriculture
5. Aquaculture, including fish farming

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Common features of agricultural activity

a. Capability to change – Living animals and plants are capable of

biological transformation.
b. Management of change – Management facilitates biological
transformation by enhancing, or at least stabilizing, conditions necessary
for the process to take place.
• Harvesting from unmanaged sources is not agricultural activity.

c. Measurement of change – The change in quality or quantity brought

about by biological transformation is measured and monitored as a
routine management function.

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Biological transformation
This comprises the processes of growth, degeneration,
production and procreation that cause qualitative or
quantitative changes in a biological asset
1. Asset changes through:
a. Growth – 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 animal or
plant
2. Production of agricultural produce such as latex, tea
leaf, wool and milk
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Recognition

A biological asset or agricultural produce is recognized when:

a. the entity controls the asset as a result of past events;
b. it is probable that future economic benefits associated with the asset
will flow to the entity; and
c. the fair value or cost of the asset can be measured reliably.

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Measurement
 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.

 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 2
Inventories or another applicable standard.

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Measurement - continuation
 A biological asset is measured at cost less accumulated
depreciation and accumulated impairment loss if the fair
value of the biological asset cannot be measured reliably on
initial recognition.

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Definitions

 Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
 Costs to sell are the incremental costs directly attributable to the disposal
of an asset, excluding finance costs and income taxes (e.g., Commissions to
brokers, Levies by regulatory agencies and commodity exchanges, and
Transfer taxes and duties)
 Costs to sell do not include transport costs, advertising costs, income taxes,
and interest expense.
 If location is a characteristic of the biological asset, the price in the
principal (or most advantageous) market shall be adjusted for the
transport costs.

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Gains and losses
 A gain or loss arising on initial recognition of a
biological asset at fair value less costs to sell and from
a change in fair value less costs to sell of a biological
asset shall be included in profit or loss for the period
in which it arises.

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Definition of bearer plant
A bearer plant is a living plant that:
a. Is used in the production or supply of agricultural
produce
b. Is expected to bear produce for more than one period
c. Has a remote likelihood of being sold as agricultural
produce, except for incidental scrap sales

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Government Grants
Nature of government grant Accounting procedure
 Government grant (a) is  Recognize income equal to fair
unconditional and (b) relates to value of the grant when the
biological asset measured at grant becomes receivable.
FVLCS

 Government grant is conditional  Recognize income only when

condition is met.
 Government grant relates to  Account for the grant under PAS
biological asset measured at 20
cost
 Government grant is conditional  Recognize income using
but a portion of the grant is straight-line method
retained according to the time
that has elapsed 20
Encouraged disclosures
Disclosure of the following information is encouraged but not required:
1) Disclosure of consumable and bearer biological assets.
2) Disclosure of mature and immature biological assets.
a. Mature biological assets are those that have attained harvestable
specifications or are able to sustain regular harvests.
b. Immature biological assets are those that have not yet attained harvestable
specifications or are not yet able to sustain regular harvests.

3) Disclosure of breakdown of total “Gain (loss) from changes in FVLCS”

during the period attributable to price change and physical change

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 Summary
• PAS 41 applies to the following when they relate to agricultural activity:
a) biological assets, except bearer plants; b) agricultural produce at the
point of harvest; and c) unconditional government grants related to a
biological assets measured at its fair value less cost to sell.
• Biological asset is a living animal or plant.
• Agricultural produce are harvested products from biological assets before any
processing.
• Harvesting from unmanaged sources is not agricultural activity.
• Biological asset is initially and subsequently measured at fair value less cost
to sell.
• Agricultural produce is initially measured at fair value less cost to sell at the
point of harvest and subsequently measured under PAS 2 Inventories or
another applicable Standard.
• Gains and losses arising from the initial measurement of biological assets or
agricultural produce and from the subsequent changes in fair value less costs
to sell of biological assets are recognized in profit or loss.
• Biological assets whose fair value cannot be reliably determined
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on initial
recognition are measured at cost and subsequently measured at cost less
accumulated depreciation and accumulated impairment loss.
Illustration
At the beginning of current year, an entity purchased 100 cows which
are 3 years old for P15,000 each for the purpose of producing milk
for the local community. On July 1, the cows gave birth to 20
calves.
The active market provided the fair value less cost of disposal of the
biological assets as follows:
Newborn calf on July 1 4,000
Newborn calf on December 31 5,000
½ year old calf on December 31 7,000
3 years old cow on December 31 18,000
4 years old cow on December 31 24,000

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Journal entries
1. To record acquisition of 100 cows at P15,000 each
Biological assets 1,500,000
Cash 1,500,000
2. To record the birth of 20 calves with a fair value of P4,000 each.
Biological assets 80,000
Gain from biological asset 80,000
3. To record the change in fair value of the cows and calves on
December 31.
Biological assets 960,000
Gain from biological assets 960,000

Cows which are now 4 years old (100 x P24,000) 2,400,000

Calves which are now ½ years old (20 x P7,000) 140,000
Total fair value – December 31 2,540,000
Carrying amount of biological assets (1.5M + 80K) 1,580,000
Change in fair value 960,000

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An entity produced milk for sale to local and national ice cream
producers. The entity began operations at the beginning of current
year by purchasing 500 milk cows for P8,000,000.
The entity had the following information available at year-end relating
to the cows:
Carrying amount of milking cows, January 1 8,000,000
Change in fair value due to growth and price change 900,000
Decrease in fair value due to harvest 200,000
Milk harvested during the year but not sold 400,000

Journal entries
1. To record the acquisition of milking cows
Biological assets 8,000,000
Cash 8,000,000

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2. To record the net gain from the change in fair value of
biological assets
Biological assets 700,000
Gain from biological assets 700,000
Change in fair value due to growth and price
change 900,000
Decrease in fair value due to harvest (200,000)
Net gain – biological assets 700,000

3. To record the gain from change in fair value of agricultural

produce
Milk inventory 400,000
Gain from agricultural produce 400,000

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 APPLICATION OF
CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION

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END
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