AGRICULTURAL ACCOUNTING

GOVERNING STANDARDS

Philippine Public Sector Accounting Standards (PPSAS) - 27

International Public Sector Accounting Standards (IPSAS) – 27

AGRICULTURE

International Accounting Standards (IAS)- 41

Philippine Accounting Standards (PAS) - 41

PPSAS 27 - AGRICULTURE

To prescribe the accounting treatment and disclosures for agricultural activity.

OBJECTIVE:

SCOPE Accrual Basis – method of accounting to be used

A. This standard applies to the following: Biological Assets Agricultural produce at the point of harvest Government grants covered

B. This standard does not apply to: Land related to agricultural activity (PPSA 16 & 17) Intangible assets related to agricultural activity (PPSAS 31) Biological assets held for the provision of or supply of

services

CONTINUATION OF SCOPE Biological assets should not be accounted under this

standard when they are used for:a. researchb. educationc. transportationd. entertainmente. recreationf. customs controlg. other activities that are not agricultural activities

CONTINUATION OF SCOPE

This standard covers AGRICULTURE PRODUCE: which is the harvested product of the entity’s biological

assets ONLY at the point of harvest which DOES NOT deal with processing of agricultural

produce AFTER harvest

This standard applies to all public sector entities other than Government Business Enterprises (GBEs)

Table 1: Agricultural Production

DEFINITION OF TERMS Agricultural activity is the management by an entity of

the biological transformation and harvest of biological assets for:a. saleb. distribution at no charge or for nominal chargec. Conversion into agricultural produce or into additional biological assets for sale or for distribution at no charge or for nominal charge

Agricultural produce is the harvested product of the entity’s biological assets.

Biological asset is a living animal or plant.

DEFINITION OF TERMS Biological transformation comprises the processes of

growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset.

Costs to sell are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes.

A group of biological asset is an aggregation of similar living animals or plants.

Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.

AGRICULTURAL ACTIVITIES Examples are:

a. raising livestockb. forestryc. croppingd. cultivating orchards and plantationse. floriculturef. aquaculture (fish farming)

AGRICULTURAL ACTIVITIES COMMON FEATURES:

A. Capability to changeB. Management of changeC. Measurement of change

OUTCOMES OF BIOLOGICAL TRANSFORMATION:A. Asset Changes through growth, degeneration

or procreationB. Production of agricultural produce

RECOGNITION An entity shall RECOGNIZE a biological asset

or agricultural produce when, and only when: the entity controls the asset as a result of past

events; it is probable that future economic benefits

associated with the asset will flow to the entity; and

the fair value or cost of the asset can be measured reliably.

MEASUREMENT

BIOLOGICAL ASSET• Initial

Fair value less estimated point-of- sale costs; except when fair value cannot be estimated reliably (paragraph 30 of IAS 41)

If no reliable measurement of fair value, biological assets are stated at cost

BIOLOGICAL ASSET• Subsequent

Fair value less estimated point-of- sale costs; except when fair value cannot be estimated reliably (paragraph 30 of IAS 41)

If no reliable measurement of fair value, biological assets are stated at cost less accumulated depreciation and accumulated impairment losses

MEASUREMENT

AGRICULTURAL PRODUCE• Produce harvested from biological assets is

measured at fair value less cost to sell at the point of harvest

• Such measurement is the cost at the date when applying IAS 2 Inventory or another applicable IFRS

MEASUREMENT

INABILITY TO MEASURE FAIR VALUE• Once the fair value of the biological assets becomes

reliably measurable, the fair value must be used to measure the biological asset

• Once a noncurrent biological asset meets the criteria to be defined as held for sale (or as part of a disposal group classified as held for sale) then it is presumed fair value can be measured reliably.

MEASUREMENT

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.

A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell shall be included in profit or loss for the period in which it arises.

GOVERNMENT GRANTS An unconditional government grant shall be recognized

in profit or loss when and only when the government grant becomes receivable.

A conditional government grant shall be recognized in profit or loss when and only when the conditions attaching to the government grant are met.

Government grants related to biological asset measured at its cost less any accumulated depreciation and any accumulated impairment losses shall be governed by IAS 20.

JOURNAL ENTRIES Example: Beef Cattle Farm No

Slaughtering Activity Facts:

Company created as at Dec. 31, 2008 with 100 immature calves & 50 mature stock.

Cattles become mature after 1 year. All movements and transactions took place

at Dec. 31 of each year. Transportation costs are given per unit.

JOURNAL ENTRIES Fair Value of both mature & immature

cattle, and cost-to-sell are as follows:2008 2009

FV per unit (immature) 100.00 105.00 FV per unit (mature) 150.00 153.00

Cost to sell:Auctioneer's Fee (5%) 5.00 5.25 Transportation Cost (total cost to be paid for any transportation expense)

0.30 0.32

JOURNAL ENTRIES Movements & Fair Value of Cattle:

FVLCTS (total) 9,470.00 11,434.45 7,235.00 14,743.00 FVLCTS (unit) 94.70 99.43 144.70 147.43

2008 2009 2008 2009Beginning Balance - 100 - 50 Acquisitions 100 105 50 - New Born - 10 Transfer to/from Mature/Immature

- (100) - 100

Sales - - - (50) Ending Balance 100 115 50 100

Immature Cattles Mature Cattles

JOURNAL ENTRIES 2008: Acquisition

2009: New Born Calves

9,470.00 7,235.00 1,590.00

18,295.00

Biological Assets (Immature)Biological Assets (Mature)FV loss on initial recognition of Biological Assets

Cash

994.30 994.30

Biological Assets (Immature)FV gain on initial recognition of Biological Assets

JOURNAL ENTRIES 2009: New Calves Acquired

2009: Calves Sold

10,440.15 1,169.70

11,609.85

Biological Assets (Immature)FV loss on initial recognition of Biological Assets

Cash

7,371.50 278.50

7,650.00 Selling Expenses

Revenue

Cash

JOURNAL ENTRIES 2009: Re-measurement of biological

assets: 1,964.45 7,508.00

9,472.45

Biological Assets (Immature)Biological Assets (Mature)

FV gain on remeasurement of biological assets

PRESENTATION Initial gain or loss on biological assets. Changes in fair value less costs to sell of

biological assets. Initial gain or loss on agricultural

produce

PRESENTATION Statement of Comprehensive Income

PRESENTATION

PRESENTATION

PRESENTATION

DISCLOSURE• Carrying amount of biological assets• Description of an enterprise’s biological assets, by broad

group• Fair value of agricultural produce harvested during the

period• Description of the nature of an enterprise’s activities with

each group of biological assets and non-financial measures or estimates of physical quantities of output during the period and assets on hand at the end of the period

Disclosure requirements in PAS 41 include:

DISCLOSURE• Changes in fair value during the period• Information about biological assets whose title is

restricted or that are pledged as security• Commitments for development or acquisition of

biological assets• Financial risk management strategies• Methods and assumptions for determining fair value• Reconciliation of changes in carrying amount of biological

assets, showing separately changes in values, purchases, sales, harvesting, business combinations, and foreign exchange differences

DISCLOSURE

• Description of the assets• An explanation of the circumstances• If possible, a range within which fair value is most likely

to fall• Gain or loss recognized on disposal• Depreciation method• Useful lives or depreciation rates• Gross carrying amount and the accumulated

depreciation, beginning and ending

If fair value cannot be measured reliably, additional required disclosures include:

DISCLOSURE

• Nature and extent of grants• Unfulfilled conditions• Significant decreases in the expected level of

grants

Disclosures relating to government grants include: