LECTURE 4/4 : MFRS 141/ IAS 41 AGRICULTURE (BIOLOGICAL ASSETS) : FAR320 TOPIC 2-PART 4

Summary

The lecture delves into the accounting treatment of biological assets under IFRS 1-1, focusing on recognition, measurement, and examples of a Danish dairy farmer and a sheep farmer. It covers the initial recognition of assets, fair value changes, and the preparation of journal entries for transactions like asset births, sales, and gains or losses on fair value changes. The importance of distinguishing between current and non-current biological assets is highlighted, along with the disclosure requirements for agricultural activities and government grants.

Takeaways

• 📘 The lecture is focused on part four of a series covering IFRS 13 (International Financial Reporting Standard 13) on fair value measurement.
• 🐄 The example involves a Danish dairy farmer who cultivates cattle for meat and sells them, also recognizing the biological assets for future economic benefits.
• 📊 The fair value of the cattle as of December 31st of year 0X0 is given as 10,000, which is used for initial recognition in the biological asset account.
• 📈 The script discusses the accounting for changes in fair value, including the recognition of gains on initial recognition and fair value changes during the year.
• 📝 Journal entries are provided to record transactions such as the birth of calves, sales of cattle, and the recognition of gains or losses on changes in fair value.
• 💼 The concept of 'fair value less cost to sell' is central to the recognition and measurement of biological assets.
• 📉 The script includes an example of a gain on the sale of biological assets, calculated by considering the fair value at the time of sale minus selling costs.
• 📚 The importance of understanding the accounting treatment for biological assets under IFRS 13 is emphasized, including the recognition of gains and losses.
• 🌱 An example of a sheep farming activity is given, where the sheep are biological assets used for wool production, not meat.
• 📋 The script outlines the requirements for disclosures related to biological assets, including physical quantities, output, and any restrictions on title.
• 🏞️ The lecture touches on the accounting for agricultural produce, such as wool from sheep, and the distinction between biological assets and agricultural produce.

Q & A

What is the main topic of the lecture and examples discussed in the transcript?

The main topic of the lecture is the recognition and measurement of biological assets according to IFRS 13 (International Financial Reporting Standard 13), with a focus on examples related to livestock farming and sheep farming.

What is the significance of slide 39 in the lecture?

Slide 39 marks the transition to the discussion of examples, specifically starting with example two which deals with a Danish dairy farmer cultivating cattle for meat and the accounting treatment of such biological assets.

What is the purpose of cultivating cattle for the company mentioned in the transcript?

The company cultivates cattle for two main purposes: to sell the meat and to sell the cattle to the slaughterhouse, which generates future economic benefits.

What is the fair value of the cattle as of December 31st, 0X0 according to the transcript?

The fair value of the cattle as of December 31st, 0X0, is ten thousand.

What is the concept of 'fair value less cost to sell' mentioned in the transcript?

'Fair value less cost to sell' is a measurement required by IFRS 13, which refers to the amount that would be received to sell an asset in an orderly transaction between market participants at the measurement date, minus the costs that would be incurred to sell the asset.

What transactions need to be recorded in the journal entries according to the transcript?

The journal entries need to record the birth of calves, the sale of cattle, the recognition of gain on initial recognition, and the gain or loss on the change in fair value of the livestock.

What is the gain on initial recognition for the biological asset at the end of the year according to the transcript?

The gain on initial recognition for the biological asset at the end of the year is 1200.

How is the profit from farming activities reflected in the transcript?

The profit from farming activities is reflected in the transcript as revenue from the sale of biological assets and other income from the fair value gain, which is the result of the fair value changes during the period.

What is the difference between the fair value at the beginning of the year and the fair value at the reporting date for the sheep farming example?

The difference between the fair value at the beginning of the year and the fair value at the reporting date for the sheep farming example is 4,100, indicating a gain on fair value change.

What is the accounting treatment for the gain on fair value change in the sheep farming example?

The accounting treatment for the gain on fair value change in the sheep farming example is to debit the biological asset account with the gain amount and credit the fair value gain or other income account, reflecting the increase in the asset's value.

Why does the coconut tree example not meet the definition of a biological asset under IFRS 13?

The coconut tree example does not meet the definition of a biological asset under IFRS 13 because it is accounted for under IAS 16 (Property, Plant and Equipment), as it is considered a long-lived asset that does not meet the specific criteria for biological assets.

Outlines

00:00

📊 Biological Asset Accounting: Recognition and Measurement

This paragraph discusses the recognition and measurement of biological assets, specifically cattle cultivated by a Danish dairy farmer for meat. It explains the accounting treatment for these assets under IFRS 1 for 1, including the initial recognition at fair value less cost to sell, and subsequent adjustments for changes in fair value. The example illustrates the journal entries for the birth of calves, the sale of cattle, and the year-end adjustments. It emphasizes the importance of understanding the concept of fair value less cost to sell in the context of biological assets.

05:12

📈 Journal Entries for Biological Asset Transactions

The second paragraph delves into the specifics of journal entries related to biological assets, focusing on the gain on initial recognition and the sale of the asset. It outlines the process of recording transactions such as the birth of new calves and the sale of mature cattle, including the calculation of fair value less cost to sell. The summary also touches on the recognition of revenue from the sale and the cost of sales, as well as the accounting for gains or losses on changes in the fair value of the biological assets.

10:14

🐄 Fair Value Changes and Profit Calculation in Biological Asset Accounting

This paragraph examines the calculation of gains or losses on the fair value changes of biological assets, using the example of a livestock herd. It details the process of comparing the fair value at the beginning and end of the year to determine the gain or loss, and the subsequent journal entries required to reflect these changes in the financial statements. The summary highlights the importance of including both initial recognition gains and period gains in the income statement, and the impact on the net profit from farming activities.

15:16

🐑 Acquisition and Accounting of a Sheep as a Biological Asset

The fourth paragraph introduces a new example involving the acquisition of a sheep by Marsha, which is accounted for as a biological asset. It explains the initial measurement of the asset at cost and the subsequent comparison with the fair value at the reporting date to determine any gain or loss. The summary includes the journal entries for recognizing the gain on fair value change and the presentation of the biological asset in the balance sheet, emphasizing the sheep's role in agricultural activity for wool production.

20:17

🌱 Accounting for Wool Production and Biological Asset Disclosure

This paragraph discusses the accounting treatment for wool production, distinguishing it from the accounting for the biological asset of the sheep itself. It explains that wool is considered agricultural produce and not a biological asset, and therefore is accounted for differently. The summary also touches on the disclosure requirements for biological assets, including the nature of the assets, physical quantities, and any restrictions or government grants related to the assets.

25:17

📝 Comprehensive Overview of Biological Asset Accounting and Disclosure

The final paragraph provides a comprehensive overview of the accounting and disclosure requirements for biological assets, including the classification of assets as current or non-current based on their expected harvest time. It also discusses the treatment of government grants, distinguishing between unconditional grants that are recognized as income and conditional grants that are recognized as liabilities until conditions are met. The summary encourages further study and practice to fully understand the complexities of biological asset accounting.

Keywords

💡Biological Asset

A biological asset refers to a living plant or animal that is controlled by an entity and is used in the production of agricultural produce. In the video, the theme revolves around the recognition and measurement of biological assets, such as cattle cultivated for meat and sheep for wool production, according to IFRS 1 for 1.

💡Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The script discusses determining the fair value of cattle and sheep, which is crucial for the recognition and measurement of biological assets.

💡Cost to Sell

Cost to sell represents the costs that relate directly to the disposal of an asset, including selling expenses. The video script mentions 'fair value less cost to sell' as the measurement required for the cattle and sheep, indicating the actual net amount that would be realized from the sale of these biological assets.

💡Recognition

Recognition in accounting refers to the process of formally incorporating an item into the financial statements. The script explains the recognition of gains on initial recognition and changes in fair value, which are part of the accounting treatment for biological assets.

💡Measurement

Measurement in this context refers to the process of determining the monetary value of an asset or liability for financial reporting. The video discusses the measurement of biological assets at fair value, which is a key aspect of IFRS 1 for 1.

💡Agricultural Activity

Agricultural activity is the practice of cultivating plants and animals to produce food, wool, or other products. The script uses this term to describe the types of activities that biological assets are involved in, such as sheep farming for wool.

💡Journal Entry

A journal entry is a record of a transaction in the books of account, which is used to record the dual aspect of each transaction. The script provides examples of journal entries for the recognition of gains and the sale of biological assets, illustrating the accounting process.

💡Gain on Initial Recognition

Gain on initial recognition is the increase in value of an asset at the time it is first recorded in the financial statements. The video explains this concept in the context of recognizing the value of newly acquired biological assets, such as sheep.

💡Gain on Fair Value Change

Gain on fair value change is the increase in the fair value of an asset from one reporting period to the next. The script discusses this concept in relation to the increase in the value of sheep from the beginning to the end of the reporting period.

💡Agricultural Produce

Agricultural produce refers to the commodities that are grown or raised through agricultural activities. In the script, wool from sheep is an example of agricultural produce, which is distinct from the biological asset itself (the sheep).

💡Government Grants

Government grants are non-repayable injections of cash from governmental agencies that an entity receives in aid of its operating activities. The script touches on government grants related to agricultural activities, explaining how they may or may not be recognized as income depending on conditions attached.

Highlights

Continuation of a lecture series on Anna Faris, focusing on part four with examples.

Discussion on slide 39, which is about recognition and measurement of biological assets in the context of a Danish dairy farmer.

Explanation of how the dairy farmer cultivates cattle for meat and sells them to generate future economic benefits.

Accounting for the fair value of livestock on December 31st, 0X0, which is measured at cost to sell.

Journal entries for transactions involving the birth of calves and the sale of cattle.

Understanding the concept of 'fair value less cost to sell' in the context of biological assets.

Recording the gain on initial recognition and the sale of biological assets at fair value.

Calculating and recording the cost of sales and the revenue from the sale of biological assets.

The importance of recognizing gains or losses on the change in fair value of livestock.

Accounting treatment for the recognition of gains on initial recognition and fair value changes.

Practical application of IFRS 1-1 in preparing journal entries for biological assets.

The impact of government grants on the accounting of biological assets and the distinction between unconditional and conditional grants.

Differentiating between biological assets and agricultural produce, such as wool from sheep farming.

The accounting for the acquisition of a sheep as a biological asset and its subsequent fair value changes.

The presentation of biological assets in financial statements, including current and non-current assets.

Disclosure requirements for biological assets, including physical quantities, output, and government grants.

The distinction between accounting for biological assets under IFRS 1-1 and other accounting standards like MF RS.116.

The example of coconut plantations and the rationale for accounting for them under MF RS.116 instead of IFRS 1-1.

Encouragement for students to practice more questions to enhance their understanding of accounting for biological assets.

Transcripts

man very good day to everyone out there

are we gonna continue with our part four

of our lecture and examples on Anna

Faris one-for-one yeah but for we are

now at slide 39 and this spot is going

to discuss mostly examples and we will

start off with example two which is on

recognition and measurement of

biological si so ever company the Danish

dairy farmer heart cultivates cattle as

livestock for meat so it was cultivated

for meat yeah and sell the cattle to

float the house apart from selling those

meat they also sell the cattle to the

slaughterhouse so it will be those

generate those that generate future

economic benefits that's at 31st of

December to 0 X 0 the fair value which

is the measurement required by my first

one for one less cost to sell of the

entity livestock the whole livestock

yeah which is the cattle is ten thousand

right so if you look at before we start

reading more if you look at the

requirement given here you are asked to

do things for the refers of the assemble

to 0 x1 so the one that you are given

here is the figure from last year of

previous periods so this 10,000 is the

fair value less cost to sell of the

empty life now so this one will be shown

in the biological asset so if you talk

about this year which starts on 1st of

January to 0 x1 you should have already

some balance in the account of

10,000 so this is the Barry cabassa

asset brought down Berlin as at first on

January 2 0 x1 okay and that s at fair

value less cost to so and then in 2000

x1 the year that we are concerned now

they will it cuff that were born so it

tough were born on the day was born they

were born the entity also notice that in

that year they sold some - so on the day

that come was born there were no price

yet but you would see that at the end of

the year there will be price for that

changes for the it cuffed everyone so we

have sold some 10 hi first so these are

what you sold off so the - 10 of them so

there will be some reduction in the

value core asset and the figure here the

one given here this is actually the fair

value of the - at that date and you also

incur a selling costs off 10 ring it so

that 10 bring it pull - is actually your

cause to sell so you should understand

the concept of fair value less cost to

sell and again you are informed that the

fair value less cost to sell s at the

difference of December 2000 x1 is 14,000

so this one you are already given what

other biological assay measurement as at

31st of December 2000 x1 so meaning that

at the end of the year you are also

given the fair value less cost - so you

are asked to do the journal entries to

record the above transaction right

so meaning to say that you need to

record the transaction that were given

so there are few transaction here but

the first one is the calf that were born

so let us look at we erase this first so

that we can record things here yeah so

that's a record for this one first for

the 8 cuffs and you also will erase the

one related to weight yeah just bear

with me so let's look at our journal

entry now okay for the account that were

born this one year what you would do is

you will have to see what happened at

the end of the year so at the end of the

year you are informed that the 14,000 it

also includes the gain on initial

recognition so we need to say that this

is the one at the beginning of the year

but at the end of the year it is 1200 so

this is actually gained on initial

recognition so we need to record the

first translation for this one which is

for gain on initial recognition the

second transaction will be for the sale

of the - so we need to record it at the

fair value less cost to sell so for the

first transaction here there be

biological asset credit the gain on fair

value change and how much there is gain

on

show recognition and that has been given

to you you don't have to calculate it

was 1200 that was the first thing that

you need to record and then the sale of

the belgica asset which is going to be

number number two this is the one here

number two the real recordin and you

will debit it's for number two

debit bang

we will also debit our selling costs and

because that is our revenue who

work-ready revenue so what you need to

do is you need to first take the figure

given which is 10 - times 200 which is

the fair value and the less cost to sell

so if you can do it here to make you see

better okay so let's do it here okay so

we will do it here 200 minus 10 times 10

so that one is the proceed that you get

in your bank so that one will be 1904

the selling cost it would be this is for

the one in the bank but the second one

would be 10 which is the setting price

times 10 - so that will give you 100 so

the revenue that you would record would

be 2,000 and this will go to the to the

so pole at the same time when you have

recorded the revenue you are HD

recording revenue from the sale of body

KS

so therefore you need to record now the

to recognize the cost of sales we will

debit cost of seal and since you go and

dispose or sell the Biotest you need to

go and creditor be e or bazooka asset

how much it was 1909 which is at the

fair value less cost to sell so that was

number three actually and then the last

general entry would be to record the

fair where you gain or loss so we will

have to see that in our next slide let's

see the requirement even here is to

record the journal entry and we have

done three of them let's look at the

fourth one here so this is the first

entry that I have done with you which is

the recognition of gain on initial

recognition and the second one is the

journal entry related to the recognition

of sale of the value Co si the third one

relates to the recognition of cost of

sale and now we are looking at what

other gain or loss on the February

change of the livestock which is the

hurt and if you look at the figure given

you are given 14,000 to be the one at

the end of the year meaning there is a

31st of December x1 the one a beginning

of the year was 10,000 and there was as

at beginning of the year this is from

the barnacle asset account and you are

informed that there was again yeah

but the gain reduces the budget is that

so this is

1900 this is the gain on initial

recognition and our focus is to find

what other gains on fair value changes

which is on the reporting date so if we

do that you would need to also add minus

1200 sorry this one is the cost of sale

so minus 1200 which is from the entry

here this one right so the first entry

versus the third entry okay if you do

that you will get 4700 that is the gain

on fresh where you change and this is

the one that will be shown in the income

section so that was Ford again if you

get a loss you will have to do the

reverse journal entry so those are the

gain unfair a routine for the change in

terms of the logical asset and that's

another one gain on initial recognition

so let's look at the about UK asset

account even here as I say this one is

given in the question beginning balance

these are our record when we recognize

the cost of sale this is our record when

we recognize our gain on initial

recognition and the different or the

balancing figure here is as a result of

what you have as recognized as fair

value change you know gain on fair value

change please note that the entity

measure the particle asset including the

eight curve

during the period at fair value so in

this fourteen thousand here it has also

included the gain on favor you change as

well as the gain on initial recognition

so there has been included by the total

is five thousand nine hundred the gain

unfair edit throughout that year and

let's look at the ephah in the statement

of profit or loss so revenue you are

trying to find that profit from the

farming activities revenue are being

recorded there and then other income is

the fair value gain which is as a result

of four thousand seven plus one thousand

two and this is from the cost of seal

and this is from the selling expenses so

your net profit from farming is five

thousand nine hundred and that will be

added to the may be the profit from

other sources next logical asset that

will be shown here must be at fair value

less cost himself that is given in this

question you are given some question you

may have to to work out so we'll see

this kind of question if is not even

okay next is to look at this example

which will be our last example

it's about Marsha that bought a sheep so

when Marcia bought a sheep that is not

true biological transformation but

because of the purchase or new

acquisition and it was at a cost of

sixty thousand so when this happened

this is on 1st of January

so this one is acquisition of Boddicker

asset and our current period here is

31st of December to 0 x8 so for this

transaction

big biological asset 60,000 and this is

a course because maybe farewell you

cannot be measured reliably and you will

credit bang or you will credit payable

with also 60,000 and they have give rise

to have given rise to the magical a set

and the sheet that was acquired by

Marsha is engaged in a sheep farming so

she farming is an actually an

agricultural activity and the farming is

not to get the milk

but for wool so wool will be the

agriculture for produce so the ship is

the animal right living animal and this

is the budget or assay but the wool that

is shipped from the ship this is

agricultural produce right so that was

the purpose of ship farming on the

reference of December similar ship with

the same physical characteristic it has

a fair value of 67 five hundred so this

is the fair value and the cost to sell

given here is three thousand four

hundred costs to sell so what you need

to understand is you need to understand

that there are two fair value even one

is on first of January

there is no fair value so therefore our

we are going to compare this with the

carrying amount given so changes in

we're going to look at changes in fair

value but there are no fair value so the

cost now will be the carrying Amana we

will compare the care carrying a mom

with the fair value that is available

later and this is sixty sixty thousand

on 31st of December to 0x a the fair

value less

to sell so farewell he was 67 500 cause

to sell was 3400 so you'll get 64 100

right so the difference is 4,100 and you

can see that their fair value at the

reporting date is greater than the fair

value at the beginning of the year and

therefore there is a gain on fair value

change because the favor

at the end of the reporting date is

created and the fair value at the

beginning of the year or the the remote

recent reporting did for for this fair

value so this is the first you know so

the second general would be to record

the gain on fair le chien so there be

biological asset with 4,100 and credit

your farewell you gain favor you gain or

favor league in here is unfair reading

change right so this will be in your

supple and this is under income how much

4100 4100 so let's look at the prop the

requirement you asked to explain the

accounting treatment so you have to

explain that accordance with a mefaris

one-for-one and also to prepare that you

know i've already prepared the journal

for you but you have to you want to see

the proper presentation let's see that

together now right the first part is to

explain so when you are to explain you

need to mention that that is to be

recognized as value Caressa and give the

reason why so that is because it is a

living animal remember logical asset can

only be living animal or living

plans that are managed by the company

under an agricultural activity so but

here the agricultural activity near

agricultural activity in our case here

activity that is managed by the entity

is sheep farming sheep farming but more

specifically that is not for me not for

meat but for wool now maybe the wool

will later be turned into a jacket or

may be turned into a carpet whatsoever

and that was initially measured at costs

right so it was measured at cost and

then at the end of the reporting period

at the end of the reporting period you

have again in fair value get on fair

value change so let's look at what is

given so the figure here shouldn't be

120 it should be 60,000 apologize for

the mistake yeah because I have wrongly

copied so it should be 60,000 at the end

of the reporting period on 31st of

December there was again in change of a

value so you need to explain what you

have generalized this now so you need to

give the amount how much and show the

calculation I've earlier show and I

shown you the calculation and what is

the treatment recognized as an income

you need to mention that you compare

city the caring will allow given with

the fair value even and that is going to

be 4,100 and the value that you will

show in your vehicle si s carried down

balance would be sixty four thousand one

hundred so but you could asset now will

be this 60 Plus this 4100 and that one

will be shown in your

extra-soft p under non-current sa and

that is going to be how much 64 100 and

that will be your biological asset

whereas this 4100 will be shown in your

supple part of other income and there is

actually income of the for farming

activities these are the presentation

for Belgica asset and those related to

value co asset so you may have better

plans as I see it their plans is not

within the context of value que ésta in

terms of is accounting better plans are

value que si only that that is not

accounted under IFRS one for one

because better plans are accounted for

under MF rs.116 it is still about USA

only that it is not accounted for under

IFRS one for one and by jakka I said

that are going to be harvested more than

two of mine from the reporting date by

durian tree is like rubber trees those

will be a classifier as magical sa

non-current asset however if you have

magical asset that can bear produce like

perennial cropping which is for maybe

every three months or maybe every six

month or every every month right that is

to be harvested within two of mine right

so that has to be shown as current asset

let's say you have a livestock lights

you can and I have to be slaughtered

within 12 months or maybe annual crops

like wheat that will have to be

harvested within less than a year those

should be put under buy or decay asset

and then you may also need to look at

the inventory section because there will

also be inventories

produce from the agricultural produce

let's say the tea leaves the tea leaves

will be turned into finished product tea

just like boh tea plantation the tea

leaf were later manufactured in the

factory and becomes 40 and those tea

that expect being packed or being

manufactured those are actually under MF

rs10 to buy the tea leaves that will

actually attach to the tree without

being plucked from the tree bush

straight sorry the tea bush that has to

be accounted still as part of purge go

sa disclosure so these are the

disclosure requirement you need to show

what other gain or loss from both

initial recognition right and also gain

or loss from the change in fair value

during the period that you are concerned

concerned sorry you need to also

describe the entities particle asset do

you have a plan or you have a and what

types of animal do you actually manage

in your agricultural farm yeah and the

group of iogicai asset any estimation of

physical quantities or output during the

period right information about about UK

asset if you have title that is

restricted or is pledged as a security

now you can read this on your own

right financial risk management what are

the commitment for the acquisition about

us I do you have any maybe government

grounding attached to the body Caressa

if you are a felled ah or fell cross

settler so are you given that as part of

the government grant the permission to

go in have that agriculture activity is

being done next other related issues so

the government runs sometimes about your

assets are given or granted by the

government some of them with conditioner

right some are without

any condition so unconditional versus

conditional government granny

so government grant if it's

unconditional meaning that they don't

you don't have any particular condition

to be mattes and you they just give you

and he becomes receivable becomes your

income so therefore you have to debit

but you can assert and credit government

grant in the supple yeah so if that is

under your company given to your company

however if the govern grant are received

and you it is there are condition that

you need to meet before it becomes your

income so therefore the about government

grants shouldn't be treated as an income

but it will be treated as an an income

but somehow it will increase the value

KSA of your company because granted

monitor government only that one is an

income the other is not yet as an income

until the condition is big match so it

is treated as per liability but here is

an income next and so this one is for

you to read yourself and go through

regarding accounting for better plans I

have already prepared for you this

coconut plantation in bagging dato para

and has something to do with land and

the coconut tree please feel free to go

through and read and understand this

example yourself and see why coconut

tree does not meet the definition of or

cannot be accounted for under IFRS one

for one is accounted for under MF rs.116

go and check check it out that all the

conditions and the better plans are

being met right and see that coconut

tree are also being depreciated right

because coconut tree are PPE

right and then the land that is used to

grow the coconut tree is not about yuca

asset but that is

a PPE so we're inside the presentation

here and that's it we are done with our

topic go and do more questions more

questions to get those level of being

able to do question you need to go and

practice more go and reach reach and

greet so reach will help you to

understand more okay so thank you for

watching I'll see you and I will see you

now go and learn and ceremony Kumaran

total barakah