Biological

• Biological Asset


  A living animal or plant
• Biological Assets


  • Consumable Biological Assets
  • Bearer Biological Assets
• Consumable Biological Assets


  • Those that are to be harvested as agricultural produce or sold as biological assets
• Consumable Biological Assets


  • Livestock intended for the production of meat
  • Livestock held for sale
  • Fish on farms
  • Crops such as maize and wheat
  • Produce on a bearer plant
  • Trees being grown for lumber
• Bearer Biological Assets


  • Those that are held to bear produce, only the produce is harvested while the bearer's biological asset remains
• Bearer Biological Assets


  • Livestock from which milk is produced
  • Fruit trees from which fruit is harvested
• Bearer Plant


  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
• Plants that are to be harvested as agricultural produce are not 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
• Only plants that bear produce repeatedly over a long period of time are considered bearer plants (PPE)
• Agricultural Produce


  The harvested produce of the entity's biological assets
• Harvest


  The detachment of produce from a biological asset or the cessation of a biological asset's life processes
• 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.
• Produce growing on bearer plants is a biological asset, but in many cases it is impractical to account for it before harvest, so companies often start applying PAS 41 at the point of harvest
• Types of Assets


  • Biological Asset (PAS 41)
  • Agricultural Produce (PAS 41)
  • Processed Product (PAS 2)
• Agricultural Activity


  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 of Agricultural Activities

  • Raising livestock
  • Forestry
  • Annual or perennial cropping
  • Cultivating orchard and plantations
  • Floriculture
  • Aquaculture (including fish farming)
• Common Features of Agricultural Activities

  • Capability to Change - living animals and plants are capable of biological transformation
  • Management of Change - management facilitates biological transformation by enhancing, or at least stabilizing, conditions necessary for the process to take place
  • 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 processes that cause qualitative and quantitative changes in biological assets: a) Growth - increase in quantity or improvement in quality, b) Procreation - creation of additional living animals or plants, c) Degeneration - decrease in quantity or deterioration in quality
• Biological assets and agricultural produce are recognized when they meet the asset recognition criteria, including the reliable measurement of their fair value or cost
• Measurement of Biological Assets

  Initially and subsequently measured at fair value less cost to sell, gain or loss recognized in profit or loss
• Measurement of Agricultural Produce

  Initially measured at fair value less cost to sell at the point of harvest, this will be the deemed cost for subsequent accounting
• Fair Value


  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


  The incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes
• Initial measurement


  Recognized in profit or loss
• 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
• Fair value is not adjusted by the existence of a contract
• When cost may approximate fair value

  • Little biological transformation has taken place since initial cost occurrence
  • The impact of the biological transformation on price is not expected to be material
• Cash flows for financing the assets or reestablishing biological assets after harvest are not considered when measuring fair value
• Costs to sell include

  • Commission to brokers
  • Levies by regulatory agencies and commodity exchanges
  • 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
• Advertising costs are not incremental costs directly attributable to the sale of the biological assets of agricultural produce
• Illustration 2: Fair Value Measurement

  • Active Market #1: Price 130, Costs to Sell 15, Transport Costs 10
  • Active Market #2: Price 125, Costs to Sell 5, Transport Costs 10
  • Contract Price: 90
• Principal Market


  The market with the greatest volume and level of activity for the asset or liability
• Most Advantageous Market


  The market that maximizes the amount that would be received to sell the asset, after taking into account costs to sell and transport costs
• Illustration 3: Loss on Initial Recognition of Biological Asset

  • Fair Value: 10,000, Costs to Sell: 500, Necessary Costs: 2,000
• Illustration 4: Gain on Initial Recognition of Biological Asset

  • Fair Value Less Costs to Sell: 5,000, Costs Incurred: 3,000