PAS 41 Agriculture arning Objectives ae Differentiate the following: biological assets, agricultural produce and inventory. State the initial and subsequent measurement of biologica, assets and agricultural produce. 3. State the accounting for government grants that are within the __scope of PAS 41. ~ Le i, bearer Plant N Introduction Agriculture means farming or the process of producing crops and taising livestock. PAS 41 prescribes the accounting and disclosures for agricultural and related activity, PAS 41 applies to the following when they relate ty agricultural activity: a. Biological assets, except bearer plants; b. Agricultural produce at the point of harvest; and ¢. Unconditional government grants related to a biological asset measured at its fair value less costs to sell PAS 41 does not apply to the following: a. Land related to agricultural activity (PAS 16 and PAS 40). b. Bearer plants (PAS 16). However, PAS 41 applies to the produce on those bearer plants. Government grants related to bearer plants (PAS 20). d. Intangible assets related to agricultural activity (PAS 38). 5 PAS 41 applies to agricultural produce only at the poi harvest. After harvest, PAS 2 Inventories or other applic standard is applied. or alulture iter = jogical asset cal asset is “a living animal or plant.” “Bio” means life. Therefore, other non-living things cannot quali jlo (PAS 415) dead animals, dead plants and fy as biological assets. iological assets can be either: a. Consumable biological assets ~ “those that are to be harvested as agricultural produce or sold as biological assets.” (pas 41.44) Examples: i, _ livestock intended for the production of meat ii. _ livestock held for sale ii, fish in farms iv. crops such as maize and wheat v. produce on a bearer plant vi. _ trees being grown for lumber (pas 41.44) b. Bearer biological assets — those that are held to bear produce. Only the produce is harvested while the bearer biological asset remains. Examples: i _ livestock from which milk is produced ii. fruit trees from which fruit is harvested (Pas 41.44) Living animals, whether consumable or bearer, are dassified as biological assets if they relate to agricultural activity. However, living plants are-classified as biological assets only if they are consumable. Bearer plants are classified as PPE. Reaver plant is “a living plant that: 3 is used in the production or supply of agricultural produce; 4 isexpected to bear produce for more than one period; and © has a remote likelihood of being sold as agricultural produce, xcept for incidental scrap sales.” (PAS 41.5) Plants that are to be harvested as agricultural produce are "t beater plants, For example, a tree that is intended to be cut Nand used as lumber is-a-consumable plant, and therefore442 = Pas 4 classified as biological asset. A tree that is intended typ, and only the fruits are harvested while the tree remaing pi plant, and therefore classified as property, plant and enya a Bearer plants that may be sold as scrap when (me used are not necessarily precluded from being clasifeg 8 plants. bee Annual crops and similar plants that die ong produce has been harvested are considered consumable pit” and therefore classified as biological asset. Examples: peanyy beans, sugarcane, tobacco, banana, garlic, onion, lettuce, ‘lies carrots, and the like. Only plants that bear produce repens’ ever a long period of time are considered bearer plants (PPE) £2 Remember the following: Items Applicable standart © Bearer and Consumable animals | Pasar ¢___ Consumable plants PAS 41 Agricultural produce Agricultural produce is “the harvested produce of the entitys biological assets.” (PAS 41.5) Harvest is “the detachment of produce from a biological asset or the cessation of a biological asset's life processes.” Pas4!5) Agricultural produce refers to those that are in fet natural state and are not yet processed. Those that are already subjected to processing are treated as inventories.aye t Harvested apple — Apple pie ~ subjected to | agricutural produce, processing, accounted for sccounted for under PAS | | under PAS 2 Inventores. ‘41 at the point of harvest. "PAS 41.5C states that “Produce growing on-bearer plants is a biological ase.” However, in many cases, it is impractical to account for fruits growing on trees before they are harvested. Many companies, therefore, start to apply PAS 41 on the fruits only at the point of harvest. This is also true for produce olanimals, e.g,, milk is accounted for only after it is squeezed from the cow’s breast. © Remember the following: Nature of asset Type of asset * Living animal or plant Biological asset (PAS 41) However, bearer plants are | tassified as PPE (PAS 16) |* Unprocessed harvested Agricultural produce (PAS 41) r roduce | Processed product Inventory (PAS 2) bh444 Pas a The table below shows examples of items that are excluded from the scope of PAS 41: Ndludeg ay Mi Agricultural Bearer | produceat | procge Biological asset | plants | point ofharcest |" 4, "fe (PAS 41) (PAS 16 PPE) (PAS 41) (PAS 2 Poy a Sheep Wool ____| Yam, carpet Trees in a timber | | [a plantation | nea — ss timber ‘Dairy cattle | Milk ees Pigs Carcass, Cotton plants Harvested cotton Sugarcane Harvested cane - = + Tobacco plants _ Picked leaves Picked grapes _ | Palm oil Rubber trees | Harvested latex | Rubber producs (PAS 41.4) Agricultural activity Biological assets and agricultural produce are accounted for unde PAS 41 only when they relate to agricultural activity. Those that do not relate to agricultural activity are accounted for under other applicable Standards. For example, plants used in landscaping“ not biological assets but rather land improvements (i.e PPE). i Agricultural activity is “the management by an entity of biological transformation and harvest of biological assets for - or for conversion into agricultural produce or into additiot biological assets.” (PAS 415) ist Examples of agricultural activities include: wali livestock, forestry, annual or perennial cropping, cultiste ats se 445 chards and plantations, floriculture, genfarming)- (PAS 41.5) The following are the common features of agricultural sativities: ” capability fo change — living animals and plants are capable of piological transformation; e 5, Management of change - management facilitates biological transformation by enhancing, or at least stabilizing, conditions necessary for the process to take place. Such management distinguishes agricultural activity from other activities. For example, harvesting from unmanaged sources (such as ocean fishing and deforestation) is not agricultural activity; and 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. (PAS41.6) and aquaculture (including a Biological Transformation — comprises the following processes that cause qualitative or quantitative changes in a biological asset: 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. <. Degeneration - is a decrease in the quantity or deterioration in quality of an animal or plant. 1. Production of agricultural produce. Recognition A biological asset or agricultural produce is recognized when it Tee's the asset recognition criteria, including the reliable Neasurement of its fait value or cost. Measurement : logical assets are initially and subsequently measured at fair Yalue less costs to sell. The gain or loss arising from initial446 ee 484) ~ measurement and subsequent changes in fair value les, sell are recognized in profit or loss. » 8st 4, A gain may arise on the initial recognition of bi asset, for example, when a calf is born. A loss may aricg Bical initial recognition of a biological asset because costs jo sel] deducted from fair value. Biological assets whose fair value cannot be determined on initial recognition are initially measured at subsequently measured at cost less accumulated deprecia the ae Telicb), Ost ang tion ang Teli ue legs accumulated impairment losses. Once the fair value becomes measurable, the biological asset is measured at its fair ya costs to sell. Agricultural produce is, in all cases, initially measured at fair valye less costs to sell at the point of harvest. This will be the deemed cost for subsequent accounting using PAS 2 or another applicable Standard. The gain or loss arising from the initial measurement js recognized in profit or loss > 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.” (PAS41.8) > Costs to sell — are the incremental costs directly attributable the disposal of an asset, excluding finance costs and income taxes. (PAS 415) An entity uses PFRS 13 Fair Value Measurement wher measuring the fair value of biological assets and agriculturd produce. Fair value measurement may be facilitated by grouri™® biological assets or agricultural produce according to signifi attributes, such as age and quality. Contract prices are not necessarily relevan' measuring fair value. Accordingly, fair value is not adjuste’™ the existence of a contract. Cash flows on finance costs, taxes, reestablishing biological»assets»after harvest) (e8- whetye culture ee 447 (i 447 planting after harvest) are not considered when measuring fair value. eo ‘Cost may sometimes @pproximate fair value, particularly whens jittle biological transformation has 0 taken place since initial cost incurrence (¢.g., seedlings planted i; immediately prior to the end luired livestock); or nsformation on price is not expected to be material (e.g, the initial Browth in a 30-year pine tree plantation production cycle).” (Pasay 24) Biological assets attached to land forest) may not have a separate market exist for the combined assets (ie., biol (eg,, trees in a plantation but an active market may logical assets, raw land, and land improvements) as a 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. A biological asset that is previously measured at fair value less costs to sell is continued to be measured at fair value less costs tosell until it is disposed of. Government Grants Only government grants that are related to biological assets measured at fair value less costs to sell are accounted for under PAS {1 Those that are related to biological assets measured at cost less ‘cumulated depreciation and accumulated impairment losses are icounted for under PAS 20. Under PAS 41, if the government grant is: : % Unconditional — the grant is recognized in profit or loss when it becomes receivable. . * Conditional — the grant is recognized in profit or loss when the Attached conditions are met. Conditional but the terms of the grant allow part of it to be retained “cording to the time that has elapsed — a portion of the grant is bhrecognized in profit or loss as time passes (e.g, on a stra line basis). She. Disclosure General disclosures: a. e The aggregate gain or loss arising on initial TeCOBnitign biological assets and agricultural produce and from," change in fair value less costs to sell of biological assets, Description of each group of biological assets. Description of the nature of activities involving each Br0up of biological assets and physical quantities of assets on hand _ the end of the period and output of agricultural Produce during the period. d. Restrictions on titles to biological assets. Commitments for the development or acquisition of biological assets. Financial risk management strategies related to agricultural activity, Reconciliation of changes in the carrying amount of biological assets, showing separately changes in fair value less costs to sell, purchases, sales, harvesting, business combinations, and foreign exchange differences. Encouraged disclosures: The following disclosures are encouraged but not required: a. b. Consumable and bearer biological assets. Mature and immature biological assets. > Mature biological assets - are “those that have attained harvestable specifications (for consumable iological assets) or are able to sustain regular harvests (for bear biological assets).” (Pas 41.45) ) de Change in fair value less costs to sell during the period a to price change and (2) due to physical change.culture agg 449 This information is useful if the production cycle extends beyond one year. It jg less useful if the production cycle is less than a year (eg., raising chickens or growing annual crops). pisdosures for biological assets measured at cost: a. Description of the assets , An explanation of why fair value cannot be teliably measured c. If possible, a range within which fair value is highly likely to lie d. Depreciation method, useful lives or depreciation rates e, Reconciliation of gross carry; Disclosures for government grants: a. Nature and extent of reco; b. Unfulfilled conditions. © Significant decreases expected in the level of government grants. (PAS 41.57) gnized government grants.450 SO easy “Sag, Summary: ° PAS 41 appl jes to the following then they relate ogee activity: (a) biological assets, except bearer plants, ray agricultural produce at the point of harvest; a», © unconditional government grants related to a biolo measured at its fair value less cost to sell. ¢ Biological asset is a living animal or plant. ¢ Agricultural produce are harvested products from biologics, assets before any processing. e Harvesting from unmanaged sources is not agriculturg activity, | ¢ Biological asset is initially and subsequently measured a¢ fiir! value less costs to sell. ¢ Agricultural produce is initially measured at fair value ess costs to sell at the point of harvest and subsequently measured under PAS 2 Inventories or another applicable Standard. e Gains and losses arising from the initial measurement of) biological assets or agricultural produce and from the, subsequent changes in fair value less costs to sell of biological | assets are recognized in profit or loss. | ¢ Biological assets whose fair value cannot be reliably) determined on initial recognition are initially measured at ans} and subsequently measured at cost less accumulated depreciatio: and accumulated impairment losses. | at Bical Sep PROBLEMS PROBLEM 1: MULTIPLE CHOICE 1, Which of the following is an agricultural activity? a. poaching c. deforestation b. hunting in the forest d. fish farming 2. Which of the following is a biological asset that is account for under PAS 41?grictlere 451 a. mango tree ¢.rice plant Bi harvested mango fruit d. extra rice 3, Which of the following is a biological asset that is accounted for under PAS 41? a. plants used for beautification p. bearer plant c. dead animals used for display d. dairy cattle used to produce milk 4, According to PAS 41, a biological asset or agricultural produce is recognized when all of the following criteria are met except a. the entity controls the asset as a result of past events b, itis probable that future economic benefits associated with the asset will flow to the entity the fair value or cost of the asset can be measured reliably the asset represents a present obligation as at the end of the reporting period Bo 5. Agricultural produce is measured at fair value less costs to sell at the point of harvest a. except when fair value cannot be measured reliably, in which case, the initial measurement is at cost. 5. except when costs to sell cannot be measured reliably, in which case, the initial measurement is at fair value. & aandb d. without exception. | PROBLEM 2: FOR CLASSROOM DISCUSSION |. Which of the following is outside the scope of PAS 41? 3. dairy cattle used in the production of milk b chickens used in the production of meat © rice plants and other crops that produce agricultural Products only once ; 4, Mango trees and other plants that produce agricultural Products repeatedly over along period of time | a452 PAS 4] 2. Which of the following is considered a biological asset? a. b, a. b. Carcass c. Pig Ham d. Piggy bank 3. Which of the following is considered an agricultural produce? fruit cocktail c. picked or harvested fruit fruit tree d. dried fruit 4. According to PAS 41, biological assets are measured as follows: Initial measurement Subsequent measurement a. fair value less costs to sell _ fair value less costs to sell b. cost cost less accumulated depreciation c cost cost less accumulated depreciation and impairment losses d. fair value less costs to sell cost 5. Which of the following statements is correct regarding the measurement of assets related to agricultural activities? a. b. Biological assets are initially and subsequently measured at fair value. No gain or loss can arise on the initial recognition of a biological asset. Agricultural produce is initially and subsequently measured at fair value less costs to sell. The gain or loss arising from the initial measurement of biological asset or agricultural produce is recognized in profit or loss.