PAS 41 AGRICULTURE & Section 34 of PFRS for SMEs

Define

biological assets and agricultural produce Initially measure and recognize biological assets and agricultural produce Account for changes in biological assets Present biological assets on the financial statements Identify required disclosures relating to agricultural activity

Applies to accounting for Biological assets Agricultural produce, only at the point of harvest Government grants related to biological assets measured at fair value less estimated point of sale costs

 PAS

41 does not apply to

Land

related to agricultural activity

assets related to agricultural activity

Intangible

Government

grants of biological assets measured at cost less accumulated depreciation and impairment loss.

Agricultural Activity
Biological Transformatio n

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 Comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative changes in a biological assets Harvest is the detachment of produce from a biological asset or the cessation of a biological assets life processes.

Harvest

Agricultural The harvested product of the entitys biological assets produce

Biological assets
Group of biological assets

Living animals and plants

Aggregation of similar living animals or plants

Dried mango factory

Biological Assets

Agricultural produce

Products that are the result of processing after harvest

Sheep Trees in a plantation forest Plants Dairy Cattle Pigs Bushes Vines Fruits Trees

Wool Felled tress Cotton Harvested can Milk Carcass Leaf Grapes Picked Fruit

Yarn, carpet Logs, lumber Thread, clothing Sugar Cheese Sausages, cured hams Tea, cured tobacco Wine Processed fruit

An entity recognizes a biological asset when The enterprise controls the asset as a result of past event It is probable that future economic benefits will flow to the entity. The fair value or cost should be measured reliably. A biological asset should be measured initially and at each balance sheet date at its fair value less costs-to-sell. Exception is where the fair value cannot be measured reliably.

 Initial

recognition and at each balance sheet date

At

fair value less cost-to-sell, except where the fair value cannot be measured reliably.

 If

an active market exists The quoted price in the market If an active market does not exist, use one or more of the following: The most recent transaction price Market prices for similar assets Sector benchmarks Present value of expected net cash flows

INCLUDED Commission to brokers and dealers Levies by regulatory agencies Commodity exchanges Transfer taxes and duties EXCLUDED Transport and other costs necessary to get assets to market

When an animal is born: Biological Asset xx Income xx` (Fair Value Less costs-to-sell)
When purchased Biological Asset xx Cash, others xx (fair value less costs-to-sell)

When an animal is born, gain arises from biological transformation Biological Assets (FV POS cost) 30k Gain 30k Losses can arise on the initial recognition of the purchase, as the fair value less estimated point-of-sale costs are likely to be less than the total purchase price plus transaction and transportation costs.

Biological Assets Loss Cash (purchase price)

30k

2k
32k

Change in the fair value less cost to sell of biological assets during the reporting period are included in profit or loss.
January 1 FV= P25K

12/31/11 entry Biological Assets Cattle 30K Income Change in FV of BA 30K

December 31 FV = P55K

 All

costs relating to biological assets, except the cost of purchase, are taken to profit or loss.
Expense xx Cash, others Fertilizers, feeds, labor

xx

The

asset is measured at cost less accumulated depreciation and impairment losses All other biological assets of the entity still must be measured at fair value. If FV becomes reliably measurable, the entity must switch to fair value less pointof-sale costs.

Reconciliation of Carrying amounts of Daily Livestock Carrying amount, Jan. 1, 2007 P459,570 Increases due to purchases 26,250 Gain arising from change in fair value less POS costs attributable to physical changes 15,350 Gain arising from change in fair value less POS costs attributable to price changes 24,580 Decreases due to sales ( 100,000) Carrying amount, December 31, 2007 P425,050

Biological Assets Cash

26,250 26,250

Biological Assets 39,930 Gain Arising from Change in FV Less POS Due to Physical Change 15,350 Gain Arising from Change in FV Less POS Due to Price Change 24,580
Cash Biological Assets 100,000 100,000

A herd of ten 2-year old animals was held at Jan. 1, 2007. One animal was purchased on July 1, 2007 for 108, and one animal was born on July 1, 2007. No animals were sold or disposed of during the period. Per unit fair values less estimated POS costs were as follows: January 1, 2007: 2 year old animal 100 July 1, 2007 New born animal 70 2.5 year old animal 108 Dec. 31, 2007 New born animal 72 0.5 year old animal 80 2 year old animal 105 2.5 year old animal 111 3 year old animal 120 Compute for Changes in FV attributable to Price Change and to Physical Change and give entries for the foregoing.

Ending balance: 3 year old animals 11 x P120 0.5 year old animal 1 x P80 Total on the balance sheet
2 years old at 01/01 10 x (105-100) Newborn at 07/01 1 x (72-70) Purchased at 07/01 1 x (111-108)

P1,320 80 P1,400
P 50 2 3

Increase in FV less POS cost due to Price Change

55

Increase in FV less POS cost due to Physical Change

3 years old 10 x (120 105) 3 years old 1 x (120 111) 1 New born 1 x 70 at December 31 1 x (80 72) Total Change in FV (Income)

P150 9 70 8 237 P292

Balance,Jan. 1 10 x 100 Purchase on July 1 1 x 108 Change in FV less POS Cost Due to Price Change Change in FV less POS Cost Due to Physical Change (including the newborn on 7/01) Balance, December 31, 2007

P1,000 108 55

237 P1,400

Purchase Biological Assets Cash New born on July 1 Biological Assets Gain from Change in FV less POS Cost due to Physical Change Change in FV during the year Biological Assets Gain from Change in FV less POS Cost due to Price Change Gain from Change in FV less POS Cost due to Physical Change (237 70)

108 108 70 70 222 55 167

Agricultural produce is the harvested product of the entitys biological assets.

Upon harvest: Inventory xx Income xx (at fair value less point-of-sale-costs) After harvest, IAS 2 Inventories will apply

Initially

recognized at fair value less costs to sell at the point of harvest. There is no exception to this rule as IAS 41 presumes that agricultural produce can always be measured at fair value. Cost to sell costs exclude transport and other costs necessary to get the assets to a market.

The aggregate gain or loss on initial recognition of biological assets and agricultural produce and from the change in value less estimated point-of-sale costs of the biological assets. A description of each group of biological assets The methods and assumptions applied in determining FV The fair value less estimated point-of-sale costs of agricultural produce harvested during the period Restrictions on title Commitments for the development and acquisition of biological assets and managements financial risk strategies

Gain or loss on disposal Where fair value cannot be reliably measured, the depreciation method used, useful lives or depreciation rates Reconciliation of changes in carrying amount, showing separately changes in value, purchases, sales harvest, business combination and exchange differences. If FV is not ascertainable for biological assets previously measured at cost less accumulated depreciation and impairment loss, an explanation why FV is now reliably measurable and the effect of the change Nature and extent of government grants of biological assets, conditions that have not been fulfilled, and significant decreases in the expected level of the grants.

An unconditional government grant related to a biological asset measured at its fair value less costs to sell shall be recognized in profit or loss when, and only when, the government grant becomes receivable.

If a government grant related to a biological asset measured at its fair value less costs to sell is conditional, including when a government grant requires an entity not to engage in specified agricultural activity, an entity shall recognize the government grant in profit or loss when, and only when, the conditions attaching to the government grant are met.

Carrying amount of biological assets

Description of an entitys biological assets, by board group Change in fair value less costs to sell during the period Fair value less costs to sell of agricultural produce harvested during the period Description of the nature of an entitys activities with each group of biological assets and non-financial measures or estimates of physical quantities of output during the period and assets on hand at the end of the period Information about biological assets whose title is restricted or that are pledge as security Commitments for development or acquisition of assets Financial risk management strategies

 Methods

and assumptions for determining fair

value Reconciliation of changes in the carrying amount of biological assets, showing separately changes in value, purchase, sales, harvesting, business combinations, and foreign exchange differences..

Disclosure of a quantified description of each group of biological assets, distinguished between consumable and bearer assets or between mature and immature assets, is encouraged but not required.

If the fair value cannot be measured reliably, additional required disclosures include: Description of the assets An explanation of the circumstances If possible, a range within which fair value is highly likely to lie Depreciation method Useful lives or depreciation rates Gross carrying amount and accumulated depreciation, beginning and ending.

If the fair value of biological assets previously measured at cost now becomes available, certain additional disclosures are required.
Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions, ad significant decreases expected in the level of grants.