ACCOUNTING FOR BIOLOGICAL ASSETS

A biological asset is a living plant or animal. Examples are: sheep, trees in a plantation forest, dairy
cattle, pigs, vines, and fruit trees.

Agricultural produce is the harvested product of biological assets. Examples are: wool from sheep,
logs from trees, milk from dairy cattle.

Upon purchase or birth, a biological asset is recognized. It is initially recorded at fair value less cost
to sell. The price in an active market is the best basis of the asset’s fair value. Cost to sell include
broker’s commission, levies by regulatory agencies, transfer taxes and duties. Getting the biological
asset to the market is NOT part of cost to sell.

Notes:
1. At its reporting date, biological assets are to be reported at fair value less cost to sell. Any change
in fair value less cost to sell is reported as gain or loss.

2. Change in fair value less cost to sell are classified as: Change in fair value due to physical change
and change in fair value due to price change. Increase in size, weight and birth are examples of
physical change.

3. When a biological asset is purchased, it is recorded at its FV less cost to sell. A gain or loss may
arise upon purchase. when the purchase price plus any transaction costs is higher than the FV less
cost to sell there is loss on purchase of bio assets.

4. Whereas, when the purchase price plus any transaction costs is lower than the FV less cost to sell
there is gain on purchase of bio assets.

Example #1. Bruno’s Farm had the following transactions relating to its biological assets in their
ranch.

Purchase price of biological asset P 268,000

F Fair value less cost to sell of the biological asset 250,000

The entry to record the biological assets purchased is:

Biological asset (at fair value less cost to sell) 250,000

Loss on purchase at more than FV 18,000
Cash 268,000
Purchased biological assets at more than fair value.

Example #2.
Purchase price of biological asset P 268,000
F Fair value less cost to sell of the biological asset 300,000

The entry to record the biological assets purchased is:

Biological asset (at fair value less cost to sell) 300,000

Cash 268,000
Gain on purchase at less than FV 32,000
Purchased biological assets at less than fair value.

When a biological asset is born, it is also recorded at its fair value less cost to sell and is considered
an income.

The entry to record the newborn biological asset is:

Biological asset (at fair value less cost to sell) xxx
Income from birth of biological asset xxx
To record the birth of bio assets.

Labor costs of personnel tending the biological assets, costs of materials and supplies like
fertilizers, feeds and the like are recorded as expense when incurred.

Measurement after initial recognition

Biological assets should be presented in the financial statements at fair value less cost to
sell.

Change in fair value due to price change and change in fair value due to physical change
are to be reported separately.

Example #3.

Old Mc Donald Company has the following information relating to its biological assets in its
dairy farm in Bulacan.

A herd of twenty, 2-year old animal was held on January 1, 2023. Five animals aged 2.5
years old were purchased on July 1, 2023 for P20,000 each. Also on July 2023 four animals
were born. On December 31, 2023 Ten animals (age 3years) were sold for P27,000 each.
Fair value less cost to sell were as follows:

FV less
FV less FV less cost to sell
cost to sell cost to sell December
Age
January July 1, 2023 31,2023
1,2023
3 years P27,000
2.5 years P20,000 22,000
2 years P15,000 16,500
.5 year 9,200
newborn 8,000 8,500

JOURNAL ENTRIES FOR BIOLOGICAL ASSETS in 2023.

100,000
July 1, Biological assets (5 x P20,000)
2023
Cash 100,000
To record biological assets purchased.
Note: There is no gain or loss upon purchase since the purchase price of P20,000 is same with the FV
less cost to sell at date of purchase.

July 1, Biological assets (P8,000x4) 32,000

2023
Gain from increase in fair value due 32,000
to birth
increase in fair value due to birth of 4 animals.
(physical change)

Dec.31,2023 Biological assets 279,800

Gain from increase in fair value due to price change 42,000
Gain from increase in fair value due to physical 237,800
change.
To record increase in FV due to price and physical change.
Please refer to computations below.

Dec. Cash 270,000

31,2023
Biological assets 270,000
To record sale of biological assets.

COMPUTATIONS of Change in FV due to Price change and Physical change

Gain from change in fair value due to price change is determined by comparing the price on
December 31, with the price on January 1.

Age Dec. January Difference

31, 1/July, in Price Quantity Amount
price price
Newborn 8,500 8,000 500 4 P2,000
2- year 16,500 15,000 1,500 20 30,000
old
2.5 year 22,000 20,000 2,000 5 10,000
old
Change in FV due to price change P42,000

Gain from change in fair value due to physical change is determined by considering the
physical change in the bio assets. Example, the one year old on January 1, will become 2
years old on December 31. ( Consider only the price on December 31.)

Price on Price on
Age on Dec. 31, Dec. 31, Difference
Dec. of Current in Price Qty. Amount
31 previous age
age

Age on Jan.1- 3 yrs. 16,500 27,000 10,500 20 P210,000

2 yrs. old old
Age on July 1- 3 yrs. 22,000 27,000 5,000 5 25,000
2.5 yrs. old
Newborn on .5 yr. 8,500 9,200 700 4 2,800
July 1 old
Change in FV due to physical change P237,800

On December 31, 2023, the amount of biological assets that will be presented in the company’s
financial statements is P441,800 determined as follows:

January 1 – balance ( twenty, 2-year old animal x P15,000) P300,000

Ad Add(Less): 2023 transactions
July 1 Bi Biological assets purchased 100,000
July 1 Bi Born 32,000
Dec.31 Increase in FV due to price and physical change 279,800
(42,000+237,800)
Dec.31 Sold (270,000)
December 31,2023 - Balance 441,800

Alternative computation of Biological Assets balance at Dec. 31, 2023:

Age 3 yrs at Dec. 31 ( 20 + 5 – 10)=15 x P27,000 = P405,000

Age .5 yr. old (4 x P9,200)---------------------------------- 36,800
Biological Assets – Dec. 31, 2023----------------------P441,800

Example #4.
At December 31, 2023, the following information was gathered for
biological assets of Mariano’s Poultry.
Price of bio assets in an active market 3,600,000
Broker’s commission 45,000
Levies by regulatory bodies 12,000
Transport and other costs to get the assets to the 40,000
market
Market prices in the previous month for similar assets 2,900,000

At what amount should the biological assets be presented on Dec. 31, 2023? Answer- P3,543,000
Computation:
Price of bio assets in an active market 3,600,000
Less: cost to sell
Broker’s commission (45,000)
Levies by regulatory bodies (12,000)
Fair Value less cost to sell of bio assets on Dec. 31, 3,543,000
2023

Note: Transport and other costs to get the assets to the market is ignored. Because getting the biological
asset to the market is not part of cost to sell.

Example #5.
The following information is made available by Camilo’s Farms in Batangas relating to its dairy livestock
during 2023.

Carrying amount at January 1 P1,000,000

Fair value less cost to sell of livestock purchased during the year 280,000
Fair value less cost to sell of livestock Born during the year 60,000
Increase in FV less cost to sell due to price change 180,000
Increase in FV less cost to sell due to physical change 40,000
FV less cost to sell of livestock sold during the year 890,000

How much is the biological assets reported at December 31, 2023? 670,000

Computation:
January 1, balance P1,000,000
Add(less):
Fair value less cost to sell of livestock purchased during the year 280,000
Fair value less cost to sell of livestock Born during the year 60,000
Increase in FV less cost to sell due to price change 180,000
Increase in FV less cost to sell due to physical change 40,000
FV less cost to sell of livestock sold during the year (890,000)
Biological assets reported at December 31, 2023? 670,000

FOR YOUR PRACTICE SOLVING

A. A group of thirty 2-year old pigs was held by Madrigal Farms at January 1, 2023. Five one-year
old pigs were purchased on January 5, 2023 for P8,000 each and ten were born on the same
date. Five 3- year old pigs were disposed of at the end of the year. Per unit fair values less cost
to sell were as follows:
Age January 1 December 31
3 years P15,000 P16,500
2 years 11,200 11,600
1 year 8,500 8,800
Newborn 6,000 6,500

The company discloses separately the increase in fair value less cost to sell due to physical
change and change in fair value less cost to sell due to price change.
1. How much is the gain or loss on the initial recognition of biological assets upon purchased
of five pigs on January 5, 2023?
a. P2,500 gain b. 2,500 loss c. 4,000 gain d. 4,000 loss

2. How much is the gain arising from change in fair value due to physical change?
a. P184,000 b. 244,000 c. 455,000 d. 545,000

3. How much is the gain arising from change in fair value due to price change?
a. P16,000 b. 16,500 c. 18,500 d. 50,000

4. What amount was presented as biological assets by Madrigal Farms on December 31, 2023?
a. P516,000 b. 558,000 c. 558,500 d. 641,000

T The following information is made available by Camilo’s Farms in Batangas relating to its
B.
D dairy livestock during 2023
Carrying amount at January 1 900,000
Fair value less cost to sell of livestock purchased during the 170,000
year
Fair value less cost to sell of livestock Born during the year 50,000
FV less cost to sell of livestock sold during the year 780,000
Increase in FV less cost to sell due to price change 80,000
Increase in FV less cost to sell due to physical change 50,000

How much biological assets were reported by Camilo at December 31, 2023?
a.360,000 b.470,000 c. 650,000 d. 670,000

C. ABC Company has the following information pertaining to its biological assets:
A herd of 100, 2-year-old animals was held on January 1, 2023. Ten animals aged 2.5 years were
purchased on July 1, 2023 for P5,400, and ten animals were born on July 1, 2023. No animals were
sold or disposed of during the period. Per unit estimated fair values less cost to sell were as follows:
2.0-year old animal on January 1, 2023- P5,000
Newborn animal on July 1, 2023- P3,500
2.5-year old animal on July 1, 2023 - P5,400
Newborn animal on December 31, 2023- P3,600
0.5-year old animal on December 31, 2023- P4,000
2.0-year old animal on December 31, 2023- P5,250
2.5-year old animal on December 31, 2023- P5,550
3.0-year old animal on December 31, 2023- P6,000

How much is the increase in the fair value of the biological assets due to price change?
1. a. P0 b. P25,000 c. P26,500 d. P27,500
2. How much is the increase in the fair value of the biological assets due to physical change?