(Financial Accounting &

Reporting 1B)
LECTURE AID

2017

ZEUS VERNON B. MILLAN

FAR PART 1B: Zeus Vernon B. Millan

Chapter 14 Agriculture

Related standard:
PAS 41 Agriculture

Learning Competencies
• Identify the scope of PAS 41.
• Differentiate the following: biological assets,
agricultural produce and inventory.
• State the initial and subsequent measurement
of biological assets and agricultural produce.
• Account for government grants that are within
the scope of PAS 41. FAR PART 1B: Zeus Vernon B. Millan
Scope

PAS 41 is applied to account for the following when they

relate to agricultural activity:
a. Biological assets, except for 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

FAR PART 1B: Zeus Vernon B. Millan

 Scope - continuation
PAS 41 does not apply to the following:
a. Land (PAS 16 PPE and PAS 40 Investment Property)
b. Bearer plants related to agricultural activity (PAS 16). However,
PAS 41 applies to the produce on those bearer plants.
c. Government grants related to bearer plants (PAS 20 Acctg. for
Gov’t. Grants and Disclosure of Gov’t. Assistance).
d. Intangible assets (PAS 38 Intangible Assets).

• PAS 41 is applied to agricultural produce at the point of

harvest. After the point of harvest, PAS 2 Inventories or other
applicable standard is applied.
FAR PART 1B: Zeus Vernon B. Millan
 Nature of asset
 Living animal or plant
 Unprocessed harvested
product
Type of asset
Biological asset (PAS 41)
However, bearer plants are
classified as Property, Plant
and Equipment (PAS 16)
Agricultural produce
(PAS 41)

 Processed harvested Inventory (PAS 2)

product

FAR PART 1B: Zeus Vernon B. Millan

 MOOOO!!!

BIOLOGICAL ASSET
INVENTORY

INVENTORY

AGRICULTURAL INVENTORY
PRODUCE FAR PART 1B: Zeus Vernon B. Millan
Consumable vs. Bearer biological assets
Biological assets are either consumable or bearer.
a. Consumable - those that are to be harvested as agricultural
produce or sold as biological assets. Ex. Timber
b. Bearer - those other than consumable biological assets. Ex.
Fruit tree

• PAS 41 applies to both consumable and bearer animals.

However, PAS 41 only to consumable plants but not to
bearer plants.

FAR PART 1B: Zeus Vernon B. Millan

MAIZE PLANT – ANNUAL CROP
(CONSUMMABLE – PAS 41)
MANGO TREE
(BEARER PLANT – PAS 16)

FAR PART 1B: Zeus Vernon B. Millan

Agricultural activity
• PAS 41 applies to biological assets, agricultural
produce and gov’t. grants only when they relate
to agricultural activity.
• Agricultural activity is the management by
an entity of the biological transformation of
biological assets for sale, into agricultural
produce, or into additional biological assets.

FAR PART 1B: Zeus Vernon B. Millan

Common features of agricultural activity
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.
• Harvesting from unmanaged sources is not agricultural
activity.

c. Measurement of change – The change in quality or quantity

brought about by biological transformation is measured and
monitored as a routine management function.

FAR PART 1B: Zeus Vernon B. Millan

Recognition
A biological asset or agricultural produce is recognized when:
a. the entity controls the asset as a result of past events;
b. it is probable that future economic benefits associated with the
asset will flow to the entity; and
c. the fair value or cost of the asset can be measured reliably.

FAR PART 1B: Zeus Vernon B. Millan

Measurement

• A biological asset shall be measured on initial recognition and at

the end of each reporting period at its fair value less costs to
sell.

• Agricultural produce harvested from an entity’s biological assets

shall be measured at its fair value less costs to sell at the
point of harvest. Such measurement is the cost at that date when
applying PAS 2 Inventories or another applicable standard.

FAR PART 1B: Zeus Vernon B. Millan

Measurement - continuation

• A biological asset is measured at cost less accumulated

depreciation and accumulated impairment loss if the fair
value of the biological asset cannot be measured reliably on
initial recognition.

FAR PART 1B: Zeus Vernon B. Millan

Definitions
• 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.
• Costs to sell are the incremental costs directly attributable to the
disposal of an asset, excluding finance costs and income taxes (e.g.,
Commissions to brokers, Levies by regulatory agencies and commodity
exchanges, and Transfer taxes and duties)
• Costs to sell do 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.

FAR PART 1B: Zeus Vernon B. Millan

Gains and losses
• A gain or loss arising on initial recognition of a
biological asset at fair value less costs to sell and from
a change in fair value less costs to sell of a biological
asset shall be included in profit or loss for the period
in which it arises.

FAR PART 1B: Zeus Vernon B. Millan

Government Grants
Nature of government grant
 Government grant (a) is
unconditional and (b) relates to
biological asset measured at
FVLCS
Accounting procedure
 Recognize income equal to fair
value of the grant when the
grant becomes receivable.

 Government grant is conditional  Recognize income only when

condition is met.
 Government grant relates to  Account for the grant under PAS
biological asset measured at 20
cost
 Government grant is conditional  Recognize income using
but a portion of the grant is straight-line method
retained according to the time
that has elapsed
FAR PART 1B: Zeus Vernon B. Millan
Encouraged disclosures
Disclosure of the following information is encouraged but not required:
1) Disclosure of consumable and bearer biological assets.
2) Disclosure of mature and immature biological assets.
a. Mature biological assets are those that have attained harvestable
specifications or are able to sustain regular harvests.
b. Immature biological assets are those that have not yet attained
harvestable specifications or are not yet able to sustain regular harvests.

3) Disclosure of breakdown of total “Gain (loss) from changes in

FVLCS” during the period attributable to price change and
physical change

FAR PART 1B: Zeus Vernon B. Millan

Change in FVLCS

Due to price change:

(FVLCS, end. Age as of beg.) - (FVLCS, beg. Age as of beg.) x Qty.

Due to physical change:

(FVLCS, end. Age as of end.) - (FVLCS, end. Age as of beg.) x Qty.
+ FVLCS of newly born at date of birth

FAR PART 1B: Zeus Vernon B. Millan

 CLASSROOM
DISCUSSIONS &
COMPUTATIONS
PROBLEM 14-2: THEORY & COMPUTATIONAL

FAR PART 1B: Zeus Vernon B. Millan

 QUESTIONS????
 REACTIONS!!!!!

FAR PART 1B: Zeus Vernon B. Millan

 SEATWORK
(PROBLEM 14-4: CLASSROOM ACTIVITY)

FAR PART 1B: Zeus Vernon B. Millan