What does Biological assets mean?
Biological assets are living plants or animals, such as trees in a plantation or orchard, cultivated plants, sheep and cattle, etc. The term was introduced in International Accounting Standard 41, Agriculture.
It applies to biological assets, agricultural produce at the point of harvest, and government grants related to biological assets.
The table below provides examples of biological assets, agricultural produce, and products that are the result of processing after harvest:
|Biological assets||Agricultural produce||Products that are the result of processing after harvest|
|Trees in a plantation forest||Felled trees||Logs, lumber|
|Pigs||Carcass||Sausages, cured hams|
|Bushes||Leaf||Tea, cured tobacco|
|Fruit trees||Picked fruit||Processed fruit|
As per above table agriculture produce would be considered as a biological asset only up to the point of harvest
How should an entity recognize it
An entity should recognize a biological asset or agriculture produce only when the entity controls the asset as a result of past events, it is probable that future economic benefits will flow to the entity, and the fair value or cost of the asset can be measured reliably.
Sheep and Lamb are Biological Assets however the wool sheared from the sheep is an Agricultural Asset.
How should an entity Measure its Biological Assets
Briefly stating the parameters in IAS 41 below:
Biological assets should be measured on initial recognition and at subsequent reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured. [IAS 41.12]
Agricultural produce should be measured at fair value less estimated costs to sell at the point of harvest. [IAS 41.13] Because harvested produce is a marketable commodity, there is no ‘measurement reliability’ exception for produce.
The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value less costs to sell of biological assets during a period, are reported in net profit or loss. [IAS 41.26]
Impact on Reporting as per Indian Accounting Standards (IGAAP)
Under IGAAP, AS 10 and AS 2 have scoped out the treatment for biological assets. Hence, there is no guidance available under IGAAP for the accounting of biological assets.
However if an organization wants to follow IAS 41, for better reporting and transparency, it shall have to disclose that the treatment is done as per IAS 41 and not, as per IGAAP.
Other standards applicable to Biological Assets
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance ;
IAS 36, Impairment of Assets, when biological assets are measured at fair value.
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