AGRICULTURE

[BIOLOGICAL ASSET)

Agriculture means farming or the process of producing crops and raising livestock.

Agricultural Activity- is the management by an entity of the biological transformation and harvest of
biological assets for sale, including exchange or non- exchange transactions, or for conversion into
agricultural produce, or into additional biological assets. Examples: raising livestock, forestry, annual or
perennial cropping, cultivating orchards and plantations, floriculture and aquaculture (including fish
farming)

COMMON FEATURES 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
atleast stabilizing conditions necessary for the process to take place. Such management
distinguishes agricultural activity from other activities. Example: Harvesting from unmanaged
sources (such as ocean fishing and deforestation) is not agricultural activity.
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.

Biological Transformation- comprises the following processes that cause qualitative or quantitative
changes in a biological asset:

I. Asset changes through:

a. Growth- is an increase in quantity or improvement in quality of an 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 quality of an animal or
plant
II. Production of agricultural produce.

Biological Asset- is a living animal or plant.

Agricultural produce- is the harvested product of the entity’s biological assets.

Harvest- Detachment of produce from a biological asset or the cessation of a biological asset’s life
processes.

Examples:

Biological Assets Agricultural Produce Products that are the result of

processing after harvest
Tress in a plantation forest Felled Trees Logs, Lumber
Plants Harvested Palay, Rice
Harvested Cane, Sugar
Corn, Corn Flour, Corn Starch
Cotton Thread, Clothing
Dairy cattle Milk Cheese
Sheep Wool Yarn, Carpet
Pigs Carcass Sausages, Cured Hams
Bushes Leaf Tea, Cured tabacco
Vines Grapes Wine
Fruit Trees Picked Fruit Processed Fruit

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 are initially and subsequently measure at fair value less costs to sell. The gain
or loss arising from initial measurement and subsequent changes in fair value less costs to sell are
recognized in surplus or deficit.

Biological Assets whose fair value cannot be reliably determined on initial recognition are
initially measured at cost and subsequently measured at cost less accumulated depreciation and
accumulated impairment losses.

Agricultural Produce is initially measured at fair value less costs to sell at the point of harvest.
This will be the deemed cost when subsequently measuring the agricultural produce using the
measurement basis for inventories or other basis.

The gain arising from the initial measurement is recognized in surplus or deficit.

 Costs to Sell- are the incremental costs directly attributable to the disposal of an asset,
excluding finance costs and income taxes.

Determination of Fair Value

a. Fair Value is determined as follows:

Quoted prince in an active market xx

Less: Transport Costs xx

Fair Value xx

 Active Market- is a market in which all the following condition exist:

a. The items traded in the market are homogenous;
b. Willing buyers and sellers can normally be found at any time and;
c. Prices available to the public.

 If there are more than one active markets, the entity shall use the price in the market expected
to be used.
 If there is NO active market, the entity shall estimate the market price based on one of the
following:
 i. The most recent market transaction price, provided that there is no significant change
in economic circumstances between the date of that transaction and reporting date;
ii. Market prices for similar assets with adjustment to reflect differences.
iii. Sector benchmarks, such as the value of an orchard expressed per export tray, bushel or
hectare and the value of cattle expressed per kilogram of meat; and
iv. Present value of expected net cash flows from the asset discounted at a current
market-determined rate, in circumstances where market-determined prices or values
are not available for a biological asset in its present condition.
Estimates of cash flows exclude finance costs, taxes and costs of reestablishing
biological assets after harvest (example: the cost of replanting tress in a
plantation forest after harvest.)
 Contract prices are irrelevant when determining fair value.
 Transport costs refer to all costs necessary in getting the asset to the market for the sale.

b. The determination of fair value may be facilitated by grouping biological assets or agricultural
produce according to significant attributes (example: by age or by quality)
c. Cost may sometimes approximate fair value, particularly when:
i. Little biological transformation has taken place since initial cost incurrence
(example: seedlings planted immediately prior to reporting date); or
ii. The impact of the biological transformation on price is not expected to be
material (example: the initial growth in a 30-year pine tree plantation
production cycle).
d. Biological Assets attached to the land (example: Trees in a plantation forest) may not have
separate market but an active market may exist for combined assets (example: biological assets,
raw land and land improvements) as package. In such 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.
e. A biological Asset that is previously measured at fair value less costs to sell shall be measured at
fair value less costs to sell until it is disposed.

Disclosures

The following are the peculiar disclosures related to agriculture:

a. The aggregate gain or loss on initial recognition of biological assets and agricultural produce and
from the change in fair value less costs to sell of biological assets.
b. Consumable and Bearer Biological assets and biological assets held for sale and held for
distribution at no change or for a nominal charge.

 Consumable Biological Assets- are those that are to be harvested as agricultural produce or to
be sold or distributed as biological assets. (Examples: livestock intended for production of meat,
annual crops like maize and rice, and trees being grown for lumber.)
 Bearer Biological Assets- are those that are self-generating and are used repeatedly for more
than one year. (Examples: Dairy cattle held for the production of milk, fruit trees and trees from
which firewood is harvested while the tree remains.
 c. Mature and Immature Biological Assets- are those that have attained harvestable specifications
(for consumable biological assets) or are able to sustain regular harvests (for bearer biological
assets)
d. The amount of change in fair value less costs to sell due to physical changes and due to price
changes.

Illustration 1: Journal Entries

A. Entity A purchases five breeding stocks at Php 3,000 each, equal to the fair valye less costs to
sell (FVLCS) at the acquisition date. The journal entry as follows:
Date Breeding stocks 15,000
Cash in Bank- Local Currency 15,000

B. Ten breeding stocks are born. The FVLCS on date of birth is Php 2,000 each. The journal entry is
as follows:
Date Breeding stocks 20,000
Gain on initial Recognition of Biological Assets 20,000

Illustration 2: On January 1 20x1: Entity A has five 2-year old breeding stocks with total carrying amount
of Php 25,000

The following transactions occurred during the period:

a. On July 1, 20x1, ten breeding stocks were born. The FVLCS on this date is Php 2,000 each.
b. On July 1, 20x1, two 2-year old breeding stocks were purchased for Php 5,100 each, equal to the
FVLCS on this date.
c. On December 31, 20x1, three breeding stocks were born. The FVLCS on this date is Php 2,100
each.

The FVLCS on Dec. 31, 20x1 are as follows:

Age FVLCS
New born Php 2,100
0.5 yr. old Php 2,150
2 yrs. old Php 5,200
2.5 yrs. old Php 5,400
3 yrs. old Php 3,700

Requirements: Compute for the change in FVLCS (a) due to price change and (b) due to physical change.