- Biological assets relating to agricultural activity
- Agricultural produce upto the point of harvest
- Government grants relating to agricultural activity
- Land relating to agricultural activity
- Intangible assets
- Bearer Plants
- Government grants w.r.t. bearer plants
It includes management of biological transformation of biological assets
- For sale or
- For conversion into additional biological assets
- For conversion into agricultural produce
Processes which causes qualitative or quantitative changes in a biological asset. Biological transformation consists of
Detachment of produce from biological asset
- Used for production of agricultural produce.
- Expected to be used for more than 12 months.
- Remote likelihood of being sold as agricultural produce.
Following are not bearer plants
Plants cultivated to be harvested as agricultural produce.
Eg: Trees grown for use as lumber
Eg: maize, wheat
Plants cultivated to produce agricultural produce when there is more than remote likelihood that entity will also harvest and sell the plant as agricultural scrap sales.
Recognition of biological assets when all of the following conditions are met.
- Entity controls the asset as a result of past events
- It is probable that future economic benefits will flow to the entity
- Fair value or cost can be measured reliably
1. Initial recognition
- At fair value
- Less: Costs to sell
2. At the end of each reporting period
- At fair value
- Less: Costs to sell.
3. There is presumption that fair value can be measured reliably for a biological asset.
4. Note: Fair value can change due to both physical changes as well as price changes in the market.
- Entities often enter inro contracts to sell their biological assets or agricultural produce at a future date.
- Contract prices are not necessarily relevant in measuring fair value because
- Fair value reflects the current market price conditions in which market participant buyers and sellers would enter into a transaction.
- All the costs incurred until the point of harvest are to be charged off to P&L since the biological asset does not exist as on date.
- The date when the biological asset comes into existence it is charged to the fair value gain.
- Entry: Biological Asset a/c Dr
- To Fair value gain
- A farmer owned a diary herd of 3 year old cattle as at April 1, 2011 with a fair value of Rs. 13,750 and the number of cattle in the herd was 250. Fair value of 3 year cattle as at March 31, 2012 was Rs. 60 per cattle.
- Fair value of 4 year old cattle as at March 31, 2012 was Rs. 75 per cattle.
- Calculate for March 31st, 2012.
April 1st, 2011
- Fair value of cattle = Rs. 13,750
- Number of cattle = 250
- Fair value of each cattle = 13750/250 = 55
March 31st, 2012
- The cattle is now 4 years old and hence fair value is Rs. 75 per cattle.
- Fair value gain = Rs. 20
- Of the fair value gain of Rs. 20, Rs. 5 is on account of market conditions and Rs. 15 is on account of physical change.
Presentation of the gain.
Biological Asset => 75 * 250 = Rs. 18,750/-
Statement to Profit and Loss Account
Fair value gain = 20 * 250 = Rs. 5,000/-
Notes to accounts
- Rs. 1250 is on account of market conditions (5 * 250)
- Rs. 3750 is on account of physical change (15 * 250)
XYZ limited on 1st December, 2013 purchased 100 sheep from a market for Rs. 500,000 with a transaction cost of 2%. On 31-03-2014, sheep fair value increased to Rs. 600,000
Expense on purchase
- 600,000 – 2% = 588,000
- Fair Value Gain => 588,000-490,000
- Rs. 98,000 is the fair value gain
Are biological assets always measured at fair value less costs to sell?
- Biological asset not a part of agricultural activity
- Eg: Guard dogs
- Bearer plants
- Note 1: Both bearer plants as well as biological assets are measured at cost less accumulated depreciation
- Note 2: In the fair value is not reliably measured, then measure at costs less accumulated depreciation. Subsequent measurement is then to be done on a fair value basis.
(a) If biological assets measured at its cost less depreciation and impairment then Ind AS 20 will apply
(b) If biological asset is measured at its fair value less costs to sell,
1. In case conditions are attached
- Recognize if there is reasonable assurance that grant will be received and reasonable assurance that all conditions attached will be fulfilled.
2. In case conditions are not attached.
- Recognize if there is reasonable assurance that grant will be received.
- Entry: Government Grant a/c Dr
- To P&L a/c
Note: The same is not to be deducted from biological asset.