What are Biological Assets? Recognition and Measurement


Biological assets are assets that are living in nature. It includes trees, animals, and nowadays cannabis too, as it has been made legal. The company’s management breaks down the assets side of the balance sheet and classifies them by type and attributing a value to them.

Biological assets are dealt with in International Accounting standards 41 (IAS 41). As per IAS 41, biological assets are any living plant or animal owned by the business. These are typically measured at fair values less selling costs.

Examples of biological assets include goats, fish, vegetables, corn, tomatoes, apples, etc. Biological assets are generally perishable and are like current assets in the balance sheet.

Nature of Biological assets:

Biological assets are held and can be accounted for only by the business owners. These assets are important to farmers and individuals whose primary source of profit comes from growing, selling, and shipping biological goods.

They are the active components in the environment; hence, they are always difficult to maintain. They are always under the radar of qualitative and quantitative threats.

Importance of Biological Assets:

Biological assets generate substantial revenue or income for businesses in vineyards, floriculture, silviculture, and paper products.

Biological assets are typically seen in the balance sheet of these companies in industries. The only distinguishing feature for biological assets is that it is a living thing.

The major difference of biological assets is that biological assets change naturally and depreciate naturally and more rapidly than other types of goods.

Various biological assets like other goods can be in high or low demand depending on the season of the product. Recently there has been a surge in demand for cannabis as it has been made legal in the United States of America.

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The threats suffered by biological assets include drought, cold weather, inconsistent rain, or forms of diseases. The biological asset is unique to accounting to categorize and identify assets owned by businesses clearly.

Recognition of Biological assets as per IFRS:

An entity recognizes a biological asset when the entity controls the asset as a result of past events. It is fairly reliable to say that benefit will flow to the entity, and fair value can be measured reliably.

Measurement of Biological asset:

Biological assets come within the scope of IAS 41. Initial recognition is done, and at subsequent reporting dates, the biological assets are recognized at fair value less estimated costs to sell, unless a fair value cannot be reliably estimated.

The gain on initial recognition of biological assets at fair value fewer costs to sell and changes in fair value fewer costs to selling biological assets during a period are included in profit or loss.

All other costs related to biological assets measured at fair value are recognized as expenses when incurred, other than costs to purchase biological assets.