What are Biological Assets? Measurement, Example

Biological assets can be held and accounted for by any business owner. However, because of their nature, they are, typically, of the utmost importance to farmers or any individuals whose primary source of profit comes from growing, selling, and shipping such goods.

Biological Assets

What are Biological Assets?

Agricultural activity differs from other activities carried out by business units to achieve profit. Agricultural activity is in comparison with other activities of business subjects dependent on the natural and environmental conditions, and therefore the agriculture specialization is narrowly connected with geographical position.

Biological Assets are assets that are living – for example, trees, animals, or cannabis. The balance sheet breaks down a company’s assets at a given point in time, classifying them by type and attributing a value to them. The International Accounting Standard 41 (IAS 41) states that a biological asset is any living plant or an animal owned by the business, and they are typically measured at fair value minus selling costs.

The Importance of Biological Assets

Biological assets generate substantial revenue or income for businesses in industries such as silviculture, cannabis, vineyards, and livestock, so this asset type is typically seen in the balance sheet of companies in these industries. They are the same as the goods produced by other companies that manufacture items made of plastic, paper, or other materials in terms of generating revenue for the seller and accounting for loss if the goods are damaged or stolen. The only qualitative difference is that the asset is living.

Biological assets change and depreciate naturally and more rapidly than other types of goods. Different types of biological assets, much like other goods, can be in high or low demand, depending on the season. Recently there has been a surge in the demand for cannabis.

They can also be lost or damaged, with the loss or damage usually due to things like unexpected periods of rain or drought, cold weather, or the spread of a disease that wipes outcrops and/or livestock.

It’s important to note that the term “biological asset” is unique to the field of accounting for the purpose of clearly categorizing and identifying assets owned by businesses, such as farms and vineyards, or produce that is a primary source of the company’s income. 

Businesses in various industries and sectors can raise plants and animals for a variety of reasons; classifying them as biological assets denote their nature and their value to the business owner.

What are Biological Assets?


Biological assets should be measured at initial recognition, and at the end of each reporting period, at fair value less estimated costs to sell.

Agricultural produce is measured, at the point of harvest, at a fair value with less estimated costs to sell at the point of harvest. The point of harvest represents the transition between accounting for agricultural produce assets under IAS 41 and IAS 2. Fair value fewer costs to selling at the point of harvest forms ‘cost’ for the purposes of IAS 2.

Costs to sell are incremental costs directly attributable to the disposal, excluding taxation and finance costs,  and would include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes and duties. They exclude transport and other costs necessary to get assets to a market (these are taken into account in arriving at fair value).

The Importance of Biological Assets

IAS 41

IAS 41 contains a rebuttable presumption that fair value can be established for all biological assets and agricultural produce. Only on the initial recognition of such assets can the presumption be rebutted because of:

  • the lack of quoted market prices, and
  • alternative estimates of fair value t are determined to be clearly unreliable.

When the presumption that fair value can be established is rebutted, and until such time as a fair value becomes measurable with reliability, the asset is carried on the statement of financial position at cost less any accumulated depreciation and any accumulated impairment losses. IAS 41 contains additional disclosure requirements in such a situation

The estimation of fair value will be determined by applying the requirements of IFRS 13 Fair Value Measurement. Fair value is the price that would be received to sell the biological asset or agricultural produce in an orderly transaction between market participants at the measurement date.

IAS 41 recognizes that fair value measurement may be arrived at more reliably by grouping assets or produce eg by age or quality if this better reflects the attributes used in the market to arrive at prices. For example, livestock would be grouped by species, age, weight, and yield in a similar manner to how they would be valued by the market.

The standard specifically requires that fair value not be determined by reference to a future sales contract. Contract prices are not necessarily relevant in determining fair value, because fair value reflects the current market in which a willing buyer and seller would enter into a transaction. As a result, the fair value of a biological asset or agricultural produce is not adjusted because of the existence of a contract.

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