Biological Asset and Agricultural Products Valuation

Biological assets:

A biological asset is a living animal or plant, e.g. Sheep, Trees in a plantation forest, Plants, Dairy cattle, Pigs, Bushes, Vines, Fruit trees..

Agricultural products:

Agricultural produce is the harvested product of the entity’s biological assets, e.g. Wool, Felled trees, Cotton, Harvested cane, Milk, Carcass, Leaf, Grapes, Picked fruit.

Accounting：

According to International Accounting Standard 41, biological asset shall be measured on initial recognition (such as date of birth of a calf or a crop day) and at the end of each reporting period at its fair value less costs to sell.
According to International Accounting Standard 2, agricultural produce harvested from an entity’s biological assets shall be measured on initial recognition (such as harvest day of fruit trees) and at the end of each reporting period at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date.

Market Approach (Preferred):

If there is an active market for the biological assets or agricultural products, the open quotation from the active market is an appropriate basis for determining the fair value of the asset.

Income Approach:

If there is no active market for the biological asset, sum of present value of the estimated net cash flow from the biological asset is used to determine the fair value.

Cost method:

Cost may sometimes approximate fair value, particularly when:

(a) little biological transformation has taken place since initial cost incurrence (for example, for fruit tree seedlings planted immediately prior to the end of a reporting period); or
(b) the impact of the biological transformation on price is not expected to be material (for example, for the initial growth in a 30-year pine plantation production cycle).

Biological assets:

A biological asset is a living animal or plant, e.g. Sheep, Trees in a plantation forest, Plants, Dairy cattle, Pigs, Bushes, Vines, Fruit trees..

Agricultural products:

Agricultural produce is the harvested product of the entity’s biological assets, e.g. Wool, Felled trees, Cotton, Harvested cane, Milk, Carcass, Leaf, Grapes, Picked fruit.

Costs to sell:

It is the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes.

Biological transformation:

It comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative changes in a biological asset.