Chapter 8 Agriculture: Examples of Agricultural Activities Include

Chapter 8 Agriculture
Introduction
 Agriculture means farming or the process of producing crops and raising

livestock. In this chapter, we will learn the accounting principles used for assets,
liabilities, income and expenses resulting from agricultural activities.
 Agricultural Activity – is the management by an entity of the biological

transformation and harvest of biological assets for sale, including exchange or
non-exchange transactions, or for conversion into agricultural produce, or into
additional biological assets.
Examples of agricultural activities include: raising livestock, forestry, annual or

perennial cropping, cultivating orchards and plantations, floriculture, and aquaculture
(including fish farming).
The following are the common features of agricultural activities:

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.
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
c. 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.
 Biological Transformation – comprises the following processes that cause

qualitative or quantitative changes in a biological asset:
I. 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.
c. Degeneration - is a decrease in the quantity or deterioration in quality of an animal or
plant.
II. Production of agricultural produce.
 Biological Asset - is a living animal or plant

 Agricultural Produce - is the harvested product of the entity's biological assets.
"Harvest" is the detachment of produce from a biological asset or the cessation
of a biological asset's life processes.
Recognition
A biological asset or agricultural produce is recognized when it meets the asset
recognition criteria, including the reliable measurement of its fair value or cost.
Measurement
Biological assets are initially and subsequently measured at fair value less costs to
sell. The gain or loss arising from initial measurement and subsequent changes in fair
value less costs to sell are recognized in surplus or deficit.
Biological assets whose fair value cannot be reliably determined on initial

recognition are initially measured at cost and subsequently measured at cost less
accumulated depreciation and accumulated impairment losses.
Agricultural produce is initially measured at fair value less costs to sell at the point of
harvest. This will be the deemed cost when subsequently measuring the agricultural
produce using the measurement basis for inventories or other basis.
The gain arising from the initial measurement is recognized in surplus or

deficit.
 Costs to Sell – are the incremental costs directly attributable to the disposal of
an asset, excluding finance costs and income taxes.
Determination of Fair value
a. Fair value is determined as follows:
Quoted price in an active market xxx
Less: Transport Costs xxx
Fair Value xxx
 Active Market - is a market in which all the following conditions exist:
a. the items traded in the market are homogeneous;
b. willing buyers and sellers can normally be found at any time; and
c. prices are available to the public.
 If there are more than one active markets, the entity shall use the price in the
market expected to be used.
 If there is no active market, the entity shall estimate the market price based on
one of the following:
i. The most recent market transaction price, provided that there is no significant
change in economic circumstances between the date of that transaction and the
reporting date;
ii. Market prices for similar assets with adjustment to reflect differences;
iii. Sector benchmarks, such as the value of an orchard expressed per export tray,
bushel, or hectare, and the value of cattle expressed per kilogram of meat;
iv. Present value of expected net cash flows from the asset discounted at a current
market-determined rate, in circumstances where market-determined prices or
values are not available for a biological asset in its present condition.
Estimates of cash flows exclude finance costs, taxes, and costs of reestablishing
biological assets after harvest (e.g., the cost of replanting trees in a plantation forest
after harvest).
 Contract prices are irrelevant when determining fair value.

 Transport costs refer to all costs necessary in getting the asset to the market for
the sale.
b. The determination of fair value may be facilitated by grouping biological assets or
agricultural produce according to significant attributes, e.g., by age or quality.
c. Cost may sometimes approximate fair value, particularly when:
i. Little biological transformation has taken place since initial cost incurrence
(e.g., seedlings planted immediately prior to reporting date); or
ii. The impact of the biological transformation on price is not expected to be
material (e.g., the initial growth in a 30-year pine tree plantation production
cycle).
d. Biological assets attached to land (e.g., trees in a plantation forest) may not have a
separate market but an active market may exist for the combined assets (i.e., biological
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.
e. A biological asset that is previously measured at fair value less costs to sell shall be
measured at fair value less costs to sell until it is disposed.
Disclosures
The following are the peculiar disclosures related to agriculture.
a. The aggregate gain or loss on initial recognition of biological assets and agricultural
produce and from the change in fair value less costs to sell of biological assets.
b. Consumable and Bearer biological assets and biological assets held for sale and held
for distribution at no charge or for a nominal charge.
 Consumable Biological Assets – are those that are to be harvested as
agricultural produce or to be sold or distributed as biological assets. Examples:
livestock intended for production of meat, annual crops like maize and rice, and
trees being grown for lumber.
 Bearer Biological Assets – are those that are self-generating and are used
repeatedly for more than one year. Examples: dairy cattle held for the production
of milk, fruit trees, and trees from which firewood is harvested while the tree
remains.
c. Mature and immature biological assets
 Mature Biological Assets - are those that have attained harvestable specifications
(for consumable biological assets) or are able to sustain regular harvests (for
bearer biological assets).
d. The amount of change in fair value less costs to sell due to physical changes and
due to price changes.
Chapter 8 Summary:
 Biological Asset - is a living animal or plant.

 Agricultural Produce – is the harvested product of the entity's biological assets.
An agricultural produce subjected to post harvest processing is inventory.
 Biological assets are initially and subsequently measured at fair value less
costs to sell. Gain or loss arising from measurement are recognized in surplus
or deficit.
 Agricultural produce is initially measured at fair value less costs to sell at the
point of harvest.
 Fair value = Quoted price in an active market less Transport costs
 If there are more than one active markets, the entity shall use the price in the
market expected to be used.

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Chapter 8 Agriculture

 Agriculture means farming or the process of producing crops and raising

 Agricultural Activity – is the management by an entity of the biological

Examples of agricultural activities include: raising livestock, forestry, annual or

The following are the common features of agricultural activities:

 Biological Transformation – comprises the following processes that cause

I. Asset changes through:

II. Production of agricultural produce.

 Biological Asset - is a living animal or plant

Biological assets whose fair value cannot be reliably determined on initial

The gain arising from the initial measurement is recognized in surplus or

 Contract prices are irrelevant when determining fair value.

 Biological Asset - is a living animal or plant.

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