CHAPTER 20
AGRICULTURE
Related Standard: PAS 41 Agriculture
Introduction
Agriculture means farming or the process of producing crops and raising livestock. PAS
41 prescribes the accounting and disclosures for agricultural and related activity.
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 asset measured at its fair
value less cost to sell (FV-CTS)
PAS 41 does not apply to the following:
a) Land related to agricultural activity (PAS 16 and PAS 40)
b) Bearer plants (PAS 16). However, PAS 41 applies to the produce on those bearer
plants.
c) Government grants related to bearer plants (PAS 20)
d) Intangible assets related to agricultural activity (PAS 38)
PAS 41 applies to agricultural produce only at the point of harvest. After harvest, PAS 2,
Inventories, or other applicable standard is applied.
BIOLOGICAL ASSET
Biological Asset is “a living animal or plant”. (PAS 41.5)
Bio means life. Therefore, dead animals, dead plants, and other non-living things cannot
qualify as biological assets.
Biological assets can be either:
a) Consumable Biological Assets – “those that are to be harvested as agricultural
produce or sold as biological assets.” PAS 41.44
Examples:
i. Livestock intended for the production of meat
ii. Livestock held for sale
iii. Fish on farms
iv. Crops such as maize and wheat
v. Produce on a bearer plant
vi. Trees being grown for lumber (PAS 41.44)
b) Bearer Biological Assets – those that are held to bear produce. Only the produce
is harvested while the bearer’s biological asset remains. Examples:
i. Livestock from which milk is produced
ii. Fruit trees from which fruit is harvested
Living animals, whether consumable or bearer, are classified as biological assets if
they relate to agricultural activity. However, living plants are classified as biological assets
only if they are consumable. Bearer plants are classified as PPE.
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, and
c) Has remote likelihood of being sold as agricultural produce, except for incidental
scrap sales,” (PAS 41.5)
Plants that are to be harvested as agricultural produce are not bearer plants. For
example, a tree that is intended to be cut down and used as lumber is a consumable plant,
and therefore classified as a biological asset. A tree that is intended to bear fruit and
only fruits are harvested while the tree remains is a bearer plant, and therefore
classified as property, plant, and equipment.
Bearer plants that may be sold as scrap when no longer used are not necessarily
precluded from being classified as bearer plants.
Annual crops and similar plants that die once their produce has been harvested
are considered consumable plants, and therefore classified as biological assets. Examples:
Peanut, rice, beans, sugarcane, tobacco, banana, garlic onion, lettuce, cabbage, carrots,
and the like. Only plants that bear produce repeatedly over a long period of time are
considered bearer plants (PPE).
Remember the following:
Items: Applicable Standard
Bearer and Consumable animals PAS 41
Consumable Plants PAS 41
Bearer Plants PAS 16
Produce growing on bearer plants PAS 41
AGRICULTURAL PRODUCE
Agricultural Produce is “the harvested produce of the entity’s biological assets.” (PAS
41.5)
Harvest is “the detachment of produce from a biological asset or the cessation of a
biological asset’s life processes.” (PAS 41.5)
Agricultural produce refers to those that are in their natural state and are not yet
processed. Those that are already subjected to processing are treated as inventories.
PAS 41.5C states that “produce growing on bearer plants is a biological asset.” However,
in many cases, it is impractical to account for fruits growing on trees before they are
harvested. Many companies, therefore, start to apply PAS 41 on the fruits only at the
point of harvest. This is also true for produce of animals, e.g., milk is accounted for only
after it is squeezed from the cow’s breast.
Nature of Asset Type of Asset
Living animals or plant Biological Asset (PAS 41)
Unprocessed harvested produce Agricultural Produce (PAS 41)
Processed Product Inventory (PAS 2)
The table shows examples of items that are included and excluded from the scope of PAS
41:
BIOLOGICAL BEARER PLANTS AGRICULTURAL PRODUCTS ARE
ASSET (PAS 41) (PAS 16 PPE) PRODUCE AT THE RESULT OF
POINT OF PROCESSING
HARVEST (PAS 41) AFTER HARVEST
(PAS 2)
Sheep Wool Yarn, carpet
Trees in a timber Felled Trees Logs, Lumber
plantation
Dairy Cattle Milk Cheese
Pigs Carcass Sausages, cured
hams
Cotton Plants Harvested Cotton Thread Clothing
Sugarcane Harvested Cane Sugar
Tobacco Plants Picked Leaves Cured Tobacco
Tea bushes Picked Leaves Tea
Grape vines Pick Grapes Wine
Fruit Trees Picked Fruit Processed Fruit
Oil Palms Picked Fruit Palm Oil
Rubber Trees Harvested Latex Rubber Products
(PAS 41.4)
AGRICULTURAL ACTIVITY
Biological assets and agricultural produce are accounted for under PAS 41, only
when they relate to agricultural activity. Those that do not relate to agricultural activity
are accounted for under other applicable standards. For example, plants used in
landscaping are not biological assets but rather land improvements (i.e., PPE).
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.” (PAS 41.5)
Examples of Agricultural Activities include: raising livestock, forestry, annual or
perennial cropping, cultivating orchard and plantations, floriculture, and aquaculture
(including fish farming). (PAS 41.5)
The following are the common feature of agricultural activities:
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. Such management distinguishes agricultural activity from other activities.
For example, harvesting from unmanaged sources (such as ocean fishing and
deforestation) is not agricultural activity; and
c) Measurement of Change – the change in quality or quantity brought about by
biological transformation or harvest is measured and monitored as a routine
management function. (PAS 41.6)
Biological Transformation – comprises the following processes that cause qualitative
and quantitative changes in biological assets:
I. Asset changes through:
a) Growth – is an increase in quantity or improvement in quality of animal or plant.
b) Procreation – is the creation of additional living animals or plants.
c) Degeneration – is a decrease in the quantity or deterioration in quantity of an
animal or plant.
II. Production of agricultural produce.
RECOGNITION
A biological asset or agricultural produce is recognized when it meets the asset
recognition criteria, including the reliable measurement of its fair value or cost.
MEASUREMENT
Biological Assets
Biological Assets are initially and subsequently measured at fair value less cost to
sell. The gain or loss arising from initial measurement and subsequent changes in fair
value less CTS are recognized in profit or loss.
A gain may arise on the initial recognition of a biological asset, for example, when a calf
is born. A loss may arise on the initial recognition of a biological asset because costs to
sell are deducted from fair value.
Biological assets whose fair value cannot be reliably determined on initial
recognition are initially measured at cost less accumulated depreciation and
accumulated impairment losses. Once the fair value becomes reliably measurable, the
biological asset is measured at FV – CTS.
A biological asset that is previously measured at FV-CTS is continued to be measured at
FV-CTS until it is disposed of.
Agricultural Produce
Agricultural produce, in all cases, is initially measured at FV-CTS at the point of harvest.
This will be the deemed cost for subsequent accounting using PAS 2 or another applicable
standard. The gain or loss arising from the initial measurement is recognized in profit or
loss.
❖ 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. (PAS 41.5)
❖ Costs to Sell – are the incremental costs directly attributable to the disposal of an
asset, excluding finance costs and income taxes.
An entity uses PFRS 13 Fair Value Measurement when measuring the fair value of
biological assets and agricultural produce. Fair value measurement may be facilitated by
grouping biological assets or agricultural produce according to significant attributes such
as age and quality.
Contract prices are not necessarily relevant when measuring fair value.
Accordingly, fair value is not adjusted by the existence of a contract.
Cost may sometimes approximate fair value, particularly when:
i. Little biological transformation has taken place since initial cost occurrence (e.g,
seedlings planted immediately prior to the end of a reporting period or newly
acquired livestock); or
ii. The impact of the biological transformation on price is not expected to be material
(e.g., the initial growth in a 30-year pine tree plantation production cycle) (PAS
41.24)
Cash flows for financing the assets or reestablishing biological assets after harvest (e.g.,
the cost of replanting after harvest) are not considered when measuring fair value .
Costs to sell include the following:
a) Commission to brokers
b) Levies by regulatory agencies and commodity exchanges
c) Transfer taxes and duties
Costs to sell does 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.
Illustration 1: Measurement
An entity has the following information:
Price in the Principal Market 20,000
Commissions to Brokers 1,000
Transport Costs 700
Levies by Commodity Exchange 300
Transfer taxes and duties 500
Advertising Costs 200
Requirements: Compute for the ff: a) fair value, b) costs to sell, c) fair value less costs to
sell:
Solutions:
Price in the principal market 20,000
Transport Costs (700)
Fair Value 19,300
Commission to Brokers 1,000
Levies by Commodity Exchange 300
Transfer taxes and duties 500
Costs to Sell 1,800
Fair Value 19,300
Costs to Sell (1,800)
Fair Value less Costs to Sell 17,500
Advertising costs are not incremental costs directly attributable to the sale of the
biological assets of agricultural produce. Accordingly, they are not considered in
determining the FV-CTS.
Illustration 2: Fair Value Measurement
Information on a Biological Assets of ABC Co, with a historical cost of P100 is shown
below:
Active Market #1 Active Market #2
Market Price 130 125
Costs to Sell 15 5
Transport Costs 10 10
The contract price for the biological asset is P90
Case #1: Principal Market
If “Active Market #1” is the principal market for the asset, at what amount is the biological
asset recognized in the year-end financial statements?
Solution:
Price in Active Market #1 130
Transport Costs (10)
Fair Value 120
Costs to Sell (15)
FV – CTS 105
Notice that both the historical costs and the contract price are ignored.
Case #2: Most Advantageous market
If neither market is the principal market for the asset, at what amount is the biological
asset recognized in the year -end financial statements?
Solution: In the absence of a principal market, the price in the most advantageous market
for the asset shall be used. The most advantageous market is the market that maximizes
the amount that would be received to sell the asset, after taking into account costs to sell
and transport costs.
The most advantageous market is determined as follows:
Active Market #1 Active Market #2
Market Price 130 125
Costs to Sell 15 5
Transport Costs 10 10
Amount Received from Sale 105 110
Active Market #2 is the most advantageous market because the sale proceeds is the
highest in this market. The price in Active Market #2 will be used in determining the fair
value of the asset.
The measurement of Biological Asset is determined as follows:
Price in Active Market #2 125
Transport Costs (10)
Fair Value 115
Costs to Sell (5)
FV – CTS 110
❖ Active Market is “a market in which transactions for the asset or liability take
place with sufficient frequency and volume to provide pricing information on an
ongoing basis. (IFRS 13.A)
On January 1, 20x1, ABC Co. acquired a biological asset at its fair value of P10,000. The
necessary costs incurred on the purchase totaled 2,000. It was estimated that if the
biological asset is to be sold currently, costs to sell would amount to P500.
The Biological Asset is initially recognized as follows:
2021
Jan 1 Biological Asset (10,000-500) 9,500
Loss from Change in FVLCS 2,500
Cash 12,000
*Fair Value of 10,000 less CTS of 500 = 9,500
The loss from change in fair value less CTS (FVLCS) is recognized in profit or loss.
Illustration #4: Gain on Initial Recognition of Biological Asset
On August 1, 20x1, dairy cattle of ABC CO. gave birth to a calf. The fair value less CTS of a
newly born calf as of August 1, 20x1 is P5,000. Costs incurred to induce procreation such
as costs as artificial insemination, costs of labor and cesarean birth totaled P3,000.
The newly born biological asset is initially recognized as follows:
2021
Aug 1 Biological Asset 5,000
Gain from Change in FVLCS 5,000
The biological asset is recognized at fair value less costs to sell. The other necessary
costs are expensed when incurred.
Illustration #5: Gain on Initial Recognition of Agricultural Produce
On April 1, 20x1, ABC Co. harvested ripe mangoes. The harvested mangoes have fair value
less costs to sell of P50,000 on April 1, 20x1. Labor costs incurred in the harvest totaled
5,000.
The agricultural produce is initially recognized as follows:
2021
April 1 Inventory 50,000
FVLCS of Agricultural Produce 50,000
The harvest cost is expensed immediately. Subsequently, the inventory is
measured at Lower of Cost or NRV under PAS 2.
Illustration 6: Changes in Fair Value less Costs to Sell
On January 1, 20x1, the biological assets of ABC Co., consisted of 10 two- year-old animals
with fair value less costs to sell of P10,000 for a total of P100,000.
Transactions during the year include the following:
❖ One animal aged 2.5 years was purchased on July 1, 20X1 for P10,800.
❖ One animal was born on July 1, 20x1
❖ No animals were sold or disposed of during the period.
Per unit fair values less costs to sell are as follows:
Newborn animal at July 1, 20x1 7,000
2.5-year-old animal at July 1, 20x1 10,800
Newborn animal at December 31, 20x1 7,200
0.5-year-old animal at December 31, 20x1 8,000
2-year-old animal at December 31, 20x1 10,500
2.5-year-old animal at December 31, 20x1 11,100
3-year-old animal at December 31, 2021 12,000
The entry to record the purchase of biological asset is as follows:
2021
July 1 Biological Assets 10,800
Cash 10,800
The entry to recognize the newly born animal is as follows:
2021
July 1 Biological Assets 7,000
Gain from Change in FVLCS 7,000
FVLCS on December 1, 20x1:
Ten animals from January 1, 20x1 now 3 years old each (10*12,000) 120,000
One animal purchased on July 1, 20x1, now 3 years old (1*12,000) 12,000
One animal born on July 1, 20x1, now 0.5-year-old (1*8,000) 8,000
FVLCS – December 31, 20x1 P140,000
Carrying Amount on December 31, 20x1 before year-end adjustment
Carrying Amount on January 1, 20x1 100,000
One animal purchased on July 1, 20x1 10,800
One animal born on July 1, 20x1 7,000
Carrying Amount on December 31, 20x1 before year-end adjustment 117,800
Additional gain from change in FVLCS (140,000-117,800) = 22,200
The change in FVLCS is recognized as follows:
2021
Dec 31 Biological Assets 22,200
Gain from Change in FVLCS 22,200
The total gain from change in FVLCS in 20x1 is analyzed as follows:
Gain from FVLCS of newborn animal – 7/1/x1 7,000
Gain from Change in FVLCS – 12/31/21 22,200
Total gain from Change in FVLCS 29,200
Alternative Solution: Total gain from change in FVLCS in 20x1:
FVLCS, end 140,000
Carrying amount excluding newborn
Beginning of the period 100,000
Increase due to purchase 10,800 110,800
Total gain from change in FVLCS 29,200
BIOLOGICAL ASSETS ATTACHED TO LAND
Biological assets attached to land (e.g., trees in a plantation forest) may not have a
separate market but an active market may exist for the combined assets (i.e., biological
assets, raw land, and land improvements) as a package. In such a case, the fair value of
the raw land and land improvements may be deducted from the fair value of the
combined assets to arrive at the fair value of the biological assets.
Illustration:
ABC CO. has the following assets as of December 31, 20x1:
Land held as plantation 300,000
Trees (planted on the land referred to above) 120,000
The combined market value of the assets is P500,000, while the market value of the land
is 320,000, 10% of which is attributable to improvements of land.
The fair value of the biological asset (i.e., trees) is determined as follows:
Combined Market Value of Land and Trees 500,000
Fair Value of Land including land improvement (320,000)
Fair Value of Attributable to Trees 180,000
*The agricultural land is accounted for as property, plant, and equipment under PAS 16.
Only government grants that are related to biological assets measured at FV-CTS are
accounted for under PAS 41. Those that are related to biological assets measured at
costs less accumulated depreciation and accumulated impairment losses are
accounted for under PAS 20 Accounting for Government Grants and Disclosure of
Government Assistance.
a) – the grant is recognized in profit or loss when it becomes
receivable.
b) – the grant is recognized in profit or loss when the attached
conditions are met.
c) Conditional but the terms of the grant allow part of it to be retained
according to the time that has elapsed –
(e.g., on a straight-line basis)
On January 1, 2021, the government granted ABC Co. P100,000 cash as an aid in financing
the domestication of ostriches. The ostriches are raised to produce eggs which are sold
to the community. ABC measures its biological assets at fair value less cost to sell. No
conditions are attached to the grant.
Requirement: How much is the income from government grants in 20x1?
On December 31, 20x1, ABC Co. received 100,000 cash from the government to be used
in planting corn. Corn plants are considered annual crops and therefore are not bearer
plants. The grant becomes receivable when ABC acquires a suitable site to plant the
corn. As of December 31, 20x1, ABC has yet to comply with the condition.
Requirement: How much is the income from government grants in 20x1?
In 20x1, the government granted ABC Co. a 3-hectare land to plant potatoes. Potato plants
are not considered bearer plants. The land has a fair value of . The grant
required ABC to farm only within the city limits for five years. If any of the conditions is
breached, ABC is required to return the entire grant.
a) How much income from government grant is recognized in 20xx1?
Ans: 0. The five-year restriction has not yet lapsed.
b) How much income from government grant is recognized in 20x6, after the 5-year
restriction has lapsed?
Ans:
On January 1, 20x1, the government granted ABC Co. P500,000 cash as aid in planting
rice. Rice plants are considered “annual crops” and therefore do not qualify as bearer
plants. The grant requires ABC to farm only within the city limits for five years. If any of
the conditions is breached, ABC must return the grant taking into consideration the
portion retained based on passage of time.
A) Assuming no breach of condition, how much income from government grant is
recognized in 20x1?
B) Assuming no breach of condition, how much income from the government is
recognized in 20x2?
Disclosure of the following information is encouraged but not required:
1) .
2)
❖ – are “those that have attained harvestable
for consumable biological assets) or are
(for bearer biological assets) (PAS 41.5)
3) Disclosure of Breakdown of Total “Gain/Loss from changes in FVLCS” during
Separate disclosure of physical and price changes is
future prospects, particularly when there is a production cycle of more
than one year.
This information is generally less useful when the production cycle is less than one year
(for example, when raising chickens or growing cereal crops).
pertains to the
of biological assets.
pertains to the
, FVLCS at the beginning
of the period is ignored.
–
Changes in FVLCS due to price change xxx
Change in FVLCS due to physical change xxx
Total gain (loss) on change in FVLCS xxx
On January 1, 20x1, the biological assets of ABC CO. consist of 10 two-year-old animals
with fair value less CTS of P10,000 each for a total of 100,000.
Transactions during the year include the following:
• One animal aged 2.5 years was purchased on July 1, 20x1 for 10,800.
• One animal was born on July 1, 20x1
• No animals were sold or disposed of during the period.
Newborn animal at July 1, 20x1 7,000
2.5-year-old animal at July 1, 20x1 10,800
Newborn animal at December 31, 20x1 7,200
0.5-year-old animal at December 31, 20x1 8,000
2-year-old animal at December 31, 20x1 10,500
2.5-year-old animal at December 31, 20x1 11,100
3-year-old animal at December 31, 2021 12,000
Requirements: Compute for the following:
a) Total Gain (Loss) from Change in FVLCS
b) Change in FVLCS due to price change
c) Change in FVLCS due to physical change
Solutions:
FVLCS, end 140,000
Beginning of the period 100,000
Increase due to purchase 10,800 (110,800)
29,200
Formula: (FVLCS, end. Age as of beg.) – (FVLCS, beg. Age as of beg.) * Qty.
Ten animals from the beginning period (10,500-10,000) *10 5,000
One animal purchased during the period (11,100-10,800) *1 300
One animal born during the period (7,200-7,000) *1 200
Formula: (FVLCS, end. Age as of end) – (FVLCS, end. Age as of beg) * Qty + PVLCS of
a newborn at the date of birth
Ten animals from the beginning of the period (12,000-10,500) *10 15,000
One animal purchased during the period (12,000-11,100) *1 900
One animal born during the period (8,000 – 7,200) * 1 800
FVLCS of newborn at date of birth 7,000
Reconciliation:
Change in FVLCS due to price change 5,500
Change in FVLCS due to physical change 23,700
egated and presented in the statement of financial position
under the “Biological Assets”. Biological assets are normally classified as non
The .
, agricultural produce are presented under “ ” and are
classified as .
An entity of biological
assets and agricultural produce and from the of biological
assets.
