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Chapter 1
LITERATURE
literature relevant to the study and the statement of the problem that the
Introduction
October 2002).
and had helped many countries to revive their losing economy. Many farmers
practicing the use of accounting standards. Indeed, they realized that using
known that using standards will provide accounting knowledge for different
In the Philippines, many agricultural sectors are not or have not been
asserts. Most of the farmers and common hog raisers are not aware that there
Transactions are just done through the agreement of the buyer and the
seller. Most often, numerous factors are not taken into consideration which
resulted to gaining no profit and sometimes loss which therefore cannot cover
the expenses held by the seller. The incurrence of cost directly related to the
buying and selling and other costs are of great importance in determining the
biological assets of selected enterprises who are practicing the standards set in
PAS 41. Most farms expressed that apart from satisfying external information
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demands, they found financial accounting useful and necessary for internal
make clear that more information are needed for good farm management than
assets from controlled processes that manage their growth and maturation
animals and living plants while agricultural produce is the harvested product
of the entity’s biological assets. Examples are sheep, trees in plantation forest,
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plants, dairy cattle, pigs, bushes, vines, fruit trees and the like (PAS 41, 2005).
perspective 1317).
recognition criteria for set out in the framework and International Financial
Reporting Standard (IFRS, 2005). The entity must demonstrate control over
the assets that will generate future benefits that can be measured reliably (IAS
legal ownership (IAS 41.2). Initial recognition will occur at the point of
purchase, or when biological assets are generated from existing assets. IFRS
includes a presumption that an entity can establish a fair value for biological
biological assets at fair value less estimated point-of-sale costs (IAS 41.12,
2005). According to IAS 41.30, an entity may rebut this presumption in rare
cannot make a reliable estimate of fair value in which case the entity
recognizes the biological assets at cost. The identification of fair value is key
age for animal or plant does not affect the general condition of these assets.
in market activities and their evolution over time. From these accounts,
indicators such as the gross value added (GVA) or agricultural income are
calculated.
Related Study
Under HKAS 41, it is presumed that the fair value for most biological
of biological assets (i.e. animals and fishes), market exists for similar, though
not identical, biological assets and prices in these markets can often provide a
basis for determining the fair values of these biological assets. In the absence
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fair values of biological assets such as sector benchmarks and net present
value of expected cash flows. There are instances in which fair value cannot
stakeholders.
and lead to better performance (Luening, 1989; Allen, 1994). Empirical work
by Garcia, Sonka, Mazzaco (1983) found that farmers who used formal record
system overtime improved their ability to use the kind of information system
produced. They observed that farmers who prepared financial statements were
more likely to make cash flow projections than those who were not involved
in financial accounting. Streeter (1990) studied five farmers who were using
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claim more and better accounting information (Bronstein, 1995; Crane and
information in agriculture and that this information would also be useful for
accounting, however, because current accounting rules do not adapt very well
to their type of business and are difficult and expensive to implement together
with other reasons. These include the generally lower level of managerial
in which farmers are more reluctant to prepare accounting reports and use this
kind of information than the agents in other economic sectors (Poppe, 1991;
Poppe and Breembroek, 1992). Moreover, because of their size or legal form,
and when farmers use account, they typically only do so to comply with tax ad
hour as many Indian companies are venturing into those businesses in big way
own accounting and bank account. It has relations with the outlets and supply
market from where it achieves a part of its production factors that it combines
many active and efficient markets for agricultural produce and some active
markets of biological assets. However, there are several examples that can be
issues. In addition, secondary markets do not exist for all biological assets and
notes, specific farm financial ratios with standardized definitions and methods
of calculation, and suggestions for the use of standardized farm financial data
2009).
(“Rich”) who inherited the farm headquarters consisting of 1500 acres of land
and farm buildings and other improvements. Additional land was purchased
to expand the cattle herd and consists mainly of pastureland. The farm
produces grain (mostly wheat and barley), hay, and feeder cattle. The
cowherd consists of 145 head of crossbred beef cows. The farm business is
During the 1990's Rich has been monitoring the events concerning the
a group called the Farm Financial Standards Council (FFSC) was formed with
reporting and analysis for the benefit of agricultural producers, lenders, and
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other interested parties. In 1997 the FFSC issued “Financial Guidelines for
decided that he needs to begin using FGAP as the basis for producing his own
Services, a small local CPA firm, to assist him in understanding these new
guidelines. Nate Beasley, the owner of Beasley Business Services, has little
staff to assist him in understanding the differences between GAAP and FGAP.
used in the farms. In the book written in the old Turkish 302 Afr. J. Business
Fazil in 1921 - 1922. He stated that this system was very complicated and he
said that the application of single entry system would be more advisable. He
gave some information about the bookkeeping in this system (Guvemli, 2001)
The book that was the publication of the First County and Agricultural
Karova , who was the vice manager of the State Agricultural Enterprises of
that time. The book discussed about the applications of the chart of accounts
In 1966, Sedat Unalan and Salih Ozel, who were members of Gazi
focused on discussing the rules and essentials of the direct product costing.
and big agricultural enterprises separately (Mehmet Ali Aktuglu, 1972). The
Conceptual Framework
Filipinos. Some have knowledge but unfortunately did not apply it since it
know the real rationale of using the standards. The Standards are used as a
observed that farmers and hog raisers who have information of accounting
standards and practices were more likely to make cash flow projections other
than those who were not involved in any financial forecasting. The success
and failure of farm crops, livestock, orchards and plantations and fish farming
will be a lot easier if accounting standards are strictly put into practice. Thus,
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standards.
4. How are biological assets and agricultural produce recorded and valued?
6. What are the problems in recording and valuation of biological assets and
agricultural produce?
The essential findings of this study shall be of great benefit for the
Hog raisers and dealers. Through the results of this study, the livestock
biological assets thereby enabling them to change and/or adopt the right and
Department of Agriculture. They can use the findings of this study in helping
Customers. This study will help the potential customers to know the fair
market of the biological assets and agricultural produce they are purchasing.
agricultural produce.
Accounting teachers. This study will enable the accounting teachers to share
The Researchers. The findings of this study will impart more knowledge to
research.
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Future Researchers. The result of the study will provide information for
There was a random selection of the subjects. Only statistical test was
marketing analysis was performed other than statistical treatment of the data
gathered. This study did not include land related to agricultural activity,
Definition of Terms
Biological assets. These are groups of animals and plants classes which the
assets.
Fair value. It is the price agreed upon by the willing buyer and seller.
regulatory agencies and commodity exchanges, the transfer taxes. This does
not transport and other costs necessary to get assets to the market.
Farm. It is any piece or pieces of land having a total area of at least 1,000
square meters used wholly or partly for the growing of crops such as palay,
corn, fruits, vegetables, nuts, etc., and/or tending of livestock and/or poultry,
balance sheet.
Chapter 2
METHOD
This chapter presents the research design used in the study. It likewise
Research Design
the researchers used the descriptive method. Calderon and Gonzales, 1993
Cagayan and Isabela whose business ventures are inclined in buying and
enterprises. These include the Isabela Green Valley Orchid Farm, Integrated
Lance Garden, JMS Enterprise, Erwin Cafuguan Fishery and Calayan MPC.
Instrumentation
gather the data needed for this study: questionnaire, observation and
interview. The questionnaire which was the major instrument to gather data
from the Dean of the School of Accountancy and Business to allow them to
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conduct the study. After permission was granted, the researchers personally
for clearer information and for the conduct of the interview as well. The
weekends. There was no time limit imposed in filling out the instrument.
enterprises finished answering the items to ensure 100 percent retrieval. The
Data Analysis
The data gathered from the respondents were analyzed using different
significant results, the frequency distribution was used. The formula for
P= f x 100
N
Where:
f = frequency
n = number of respondents
The researchers used the range of values below to determine the qualitative
value of the weighted mean from the data gathered. The range of values is
computed by getting the difference between the highest and the lowest
assigned points 3-1 divided by 3.
1
Not Implemented
1-1.66 at all
2 1.67-2.33 Partially Implemented
3 2.34-3 Fully Implemented
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Chapter 3
RESULTS AND DISCUSSION
Results
Table 1
Profile of the Enterprise according to their Location
TOTAL 20 100
Table 2
Profile of the Enterprise according to their Year of Service/Operations
TOTAL 20 100
Table 3
Profile of the Respondent-Enterprise according to the Number of Employees
1 to 5 employees 16 80
6 to 10 employees 2 10
11 to 15 employees 2 10
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TOTAL 20 100
Table 4
Profile of the Respondents according to the Nature of the Business
Table 5
Profile of the Respondents according to the Type of Business Organization
Table 6
Kinds of Biological assets of the Respondents- Enterprise
Chickens 5 25
Flowering Plants 2 10
Fishes 2 10
Pigs/hogs 1 5
Stag 1 5
Carabao 1 5
Palay 1 5
TOTAL 20 100
Table 7
Kinds of Agricultural Products of the Respondents-Enterprise
Carcass 5 35.72
Flowers 2 14.30
TOTAL 14 100
Table 8
Responses of whether Biological assets are grouped
Yes 17 85
No 3 15
TOTAL 20 100
Table 9
How biological assets are grouped in the books of the Respondent-Enterprise
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Age 2 11.76
Quality 2 11.76
Weight 1 5.88
TOTAL 17 100
Table 10
Recording and Valuation of Biological assets and Agricultural products
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Priced based on 4 20
Percent of Mortality
TOTAL 20 100
Table 11
Recognition and Measurement of Biological Assets and Agricultural Produce
Table 12
Problems in Recording and Valuing Biological assets and Agricultural
produce
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Discussion
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For the profile of the respondents, Table 1 presents the location of the
enterprises in Cagayan and Isabela. The reaserchers have requested the list of
taken from Isabela and 85% from Cagayan. Frequency and percentage
enterprises were already operating for more than 4 years to 6 years. This
means that majority of the owners of the agricultural enterprise have been
operating for not so long time yet. Thus, they are still in the process of
adopting to the focus of the economy, which is engaging into the agricultural
that among the twenty respondents, there were only two which operated for
long years. These were involved in many agricultural activities, thus have
with only limited employees, which points out that they have skilled
employees who can work effectively and efficiently for the business.
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enterprises are contract growers. The contract growers are the entity’s
assigned persons who facilitate the raising of the contactor’s biological assets.
They are paid according to the percentage of mortality, average live weight,
feed conversion ratio and broiler production index. The contractors provide
the technical assistance for the contract growers, including the medicines
needed by the biological assets. Second to contract growers are the enterprises
who are engaging into buy and sell. This signifies that, 15% or 3 of the total
fish production, fruit trees production, palay and corn production, flowers and
Also they believe that growing chickens will give them high turn-over on their
investments. Next to which are the flowering plants, pigs/hogs, goats, cows
and fishes. While the others have varieties of biological assets in their
business.
respondents, there were only 14 of them who sell the agricultural products out
of their biological assets. Majority of them sell the meat or the carcass of the
they group their biological assets, table 8 shows that 85% or 17 of them are
grouping their biological assets for selling and recording purposes while 15%
or 3 do not group their biological assets anymore. These enterprises are those
who are engaged in buying and selling. Their way of selling their biological
assets are on per kilo basis wherein, sizes, sexes and ages are disregarded.
With the total number of 17 who group their biological assets, 35.29% or 6 of
them group their assets based on age, sex, weight and quality. This indicates
identify the costs as well as the selling prices of their biological assets at the
harvesting point. The rest are classified based on the management policy.
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Since the management policies of each enterprise vary, there are also different
ways on how they group their biological assets that depends on the needs of
enterprises record and value their biological assets and agricultural produce.
live weight, feed conversion ratio, and broiler production index) with
percentage of 20; price agreed upon by the buyer and seller less costs of
selling attributable to the asset, price agreed upon by the members of the
which stated that Biological Assets are measured on first recognition and
following dates at the fair value less expenses paid, the weighted mean was
2.05 which indicates that the standards was partially implemented. While the
IAS 41.13 which states that agricultural produce are measured at the fair value
less expenses paid at the harvesting period, the weighted mean is 1.60 which
indicates that the standard was not implemented at all. With the same
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weighted mean is IAS 41.26, which states that a gain on first recognition of
biological assets at fair value and changes in fair value of biological assets
during the period are reported in net earnings/loss is not also implemented at
all. While IAS 41.28 which states that a gain or loss arising on first
costs shall be Included in profit or loss for the period in which it arises, (IAS
41.28) also had a low weighted mean of 1.55. According to the interviewed
they only record their biological assets at first recognition and on the
own policies as to the recording and valuation of their assets but not
Chapter 4
SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
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This chapter synthesizes the findings of the study, the conclusions, and
Summary
are engaged in buy and sell. This indicates that, 15% or 3 of the total 20
respondents.
gathered, it can be seen that out of the total respondents, there were
index), price agreed upon by the buyer and seller less costs of
41.13, the weighted mean is 1.60 which indicates that the standard
was not implemented at all. With the same weighted mean is IAS
Conclusions
more than 4 years to 6 years. It has been found out that enterprises that
belong to the said range of service years are given big opportunities in
proprietor and hire only few employees, which only means that though
they solely handle their business, they are still capable of managing the
enterprises do not record and value their biological assets. Since the
Recommendations
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agricultural produce.
biological assets to encourage the agricultural enterprises who have not been
involved for the recording of the transactions of their biological assets and
facilitate as well as to guide the recording of the entity’s biological assets and
agricultural produce.
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APPENDICES