Biological Assets
International Accounting Standard 41 (IAS 41) defines biological asset as “a living animal or plant”.
Accounting and financial reporting practices categorize many assets such as property, machines, equipment, buildings, and other assets. “Biological assets” is one of the categories of assets. Biological assets include plants and animals. The common examples of biological assets include animals such as goats, sheep, cows, buffaloes, calves, and fish. Biological assets include plants such as vegetables, crops, vineyards, trees, and fruit orchards.
The biological assets keep on transforming. They grow, degenerate, and produce. As a result quantitative or qualitative changes occur in the nature of biological assets. Such changes are known as biological transformation. The harvested product of changes in the nature of biological assets is known as agricultural produce. The examples of agricultural produce include milk, mutton, beef, fruits, coffee beans etc.
Usually biological assets are of primary importance in the farms business. Farm businesses generate income from its biological assets therefore these biological assets need to be recognized in balance sheet and the revenues from them also need to be recognized in income statement.
According to IAS 41 the biological assets should be recognized in the balance sheet when the following criteria are fulfilled:
- The business controls the biological assets because of a past event
- It is probable that the business will get future economic benefits from them
- Fair value or cost of the biological asset can be measured reliably
IAS 41 requires that the biological assets should be recognized at their fair value minus point-of-sale costs. This method should be used when initially measuring the biological assets and then at the every balance sheet date.
Agriculture produce should also be measure by using the above method. Agriculture produce should be measured at the time of harvest.
The fair value of a biological asset is the amount at which it can be sold to a knowledgeable and willing person or party. Usually this is market value of a biological asset in a relevant and reliable active market. The point-of-sale costs include broker’s commission, transfer taxes and duties, and commodity exchanges. Transportation costs are not included in the these costs.
Why transportation costs are excluded from the poin -of -sales costs of biological assets?
what is the journal entry of baby pig.we treat as biological asset or inventory?
Can this cost then be depreciated and if yes, how?
Some bio assets such as parent chicken stock are classified as current assets in balance sheets however their life span is 1.5 years. Further these are used for egg laying purpose which are further traded
in the retail market. since bio assets are non current there should be a third category of assets in the balance sheet
Like me i have the laying chickens at point of lay now, how do i account for them in the balance sheet as well as in the income statement which value am i going to put
why transportation cost excluded from point of sale costs?
Because this is "Distribution costs" (if concerning sales but not inventory purchase).
We have flowers farm. How I'm going to treat unharvested flower during the year end?