Biological assets

Biological assets "are non-human living assets, and include animal and plants there are controlled by an entity". Management of biological assets is one of the features of agricultural activities.

Main categories of biological assets

There are two main categories of biological assets. The first one can be characterized as bearer biological assets. This group includes either animal and plant bearers which generate income from their output more than once. Bearer biological assets include for example cattle used for milk production, sheep used for wool production, vineyards and orchards.

The second group of biological assets is defined as consumable biological assets. "They generate revenue only once when the asset is slaughtered, harvested or sold as biological assets".

Considering the realization time of revenue, consumable biological assets may be subdivided into:

• long-term consumables e.g. animals intended for sale in the future, forests,
• short-term consumables such as vegetables, flowers, and animals awaiting slaughter.

Note that goods derived from biological assets are not highlighted in any of the groups. Due to the International Accounting Standard (IAS) 41 they are classified as agricultural produce. Full classification is provided in paragraph 4 of the Standard:

• biological assets e.g. sheep, dairy cattle, vines, plants,
• agricultural produce e.g. wool, milk, grapes, cotton,
• products that are the result of processing after harvest e.g. yarn, cheese, wine, thread.

Features of biological assets

A fundamental feature of biological assets is their capability of biological transformation. They can be modified through the process of production, growth or procreation. Therefore, agricultural activity concentrates on the management of biological transformation by stabilizing and enhancing necessary conditions such as nutrient levels, temperature, moisture, and light. This potential of biological assets can be used for sale, the production of agricultural goods and/or additional biological assets.

Biological assets depend on the law of nature so their possession is associated with not only market risks but also with natural hazards such as plant and animal diseases, floods, droughts, insect pests etc..

Measurement

Because biological assets were key component of agriculture activity, choice of relevant measurement attribute for biological assets became significant for agricultural accounting.

Standards of accounting for agricultural activity are established by the International Accounting Standard (IAS) 41. "IAS 41 applies to biological assets, agricultural produce at the point of harvest, and government grants received for agricultural activity".

"As a basic rule, IAS 41 requires that biological assets shall be measured on initial recognition and at subsequent reporting dates at fair value less costs to sell, unless fair value cannot be reliably measured".

Examples of Biological assets

• Livestock: Livestock refers to animals raised for agricultural purposes. This includes cattle, sheep, goats, pigs, horses, poultry, and other farmed animals.
• Crops: Crops refer to any plants grown for agricultural purposes, including grains, vegetables, fruits, and other agricultural produce.
• Trees: Trees are any large, woody plants, such as forest trees or fruit trees, grown for their wood, fruit, or other products.
• Aquaculture: Aquaculture is the farming of aquatic organisms, such as fish, shellfish, and algae, in tanks, ponds, or other bodies of water.
• Microorganisms: Microorganisms are microscopic organisms, such as bacteria and fungi, which are used in various agricultural processes.

Advantages of Biological assets

Biological assets offer many advantages to an entity, including:

• Cost efficiency: Since biological assets require minimal upkeep and maintenance, they are an affordable way to accomplish many tasks.
• Natural resources: Biological assets are a renewable and sustainable source of natural resources that can be used to create products and services.
• Productivity: Biological assets increase production levels and help to improve overall efficiency.
• Flexibility: Biological assets can be used in a variety of ways, allowing businesses to be more flexible in their operations.
• Environmentally friendly: Biological assets are an environmentally friendly way to produce products, as they do not require the use of chemical fertilizers or pesticides.
• Reduced waste: Biological assets can help to reduce the amount of waste produced by businesses, as they require fewer inputs and create less waste.

Limitations of Biological assets

Biological assets present unique challenges as they may not be as easily measurable and managed as traditional assets. The following are some of the key limitations to managing biological assets:

• Biological assets are subject to natural variations and unpredictable events, making it difficult to accurately measure their value.
• The lifespan of biological assets may be short, which can lead to fluctuations in value and difficulty with forecasting.
• Biological assets are difficult to control, as their environment and maintenance can have significant impacts on their value.
• It can be difficult to accurately measure the value of biological assets, as their uniqueness and scarcity can make it difficult to compare them to other assets.
• Biological assets can be highly vulnerable to theft and other risks, making it difficult to protect and insure them.

Other approaches related to Biological assets

A comprehensive approach to managing biological assets may involve the following steps:

• Developing a framework to understand the dynamics between biological assets and the environment. This includes understanding the interactions between different species, the role of predators and prey, and the impact of extreme weather events.
• Establishing baseline data and monitoring of the biological asset populations in order to assess the health of the species and the environment. This includes understanding the species population growth and decline, the impact of climate change, and the impact of human activities.
• Implementing management strategies to maintain or improve the status of the biological asset populations. This may involve the use of harvesting, habitat protection and restoration, and introducing new species.
• Utilizing the data collected to inform decisions about the management of the biological asset populations. This may involve developing policies and regulations that guide the management of the species, or developing economic incentives to conserve and protect the species.

In summary, managing biological assets requires a comprehensive approach that involves understanding the dynamics between the species and the environment, establishing baseline data, implementing management strategies, and utilizing the data to inform decision-making.

Footnotes

Biological assets — recommended articles

Eco efficiency — Waste of resources — Integrated waste management — Opportunities and threats — Life cycle of technology — Green innovation — Natural environment — STEEP analysis — Control plan

References

• Ankarath N., Mehta K.J., Ghosh T.P., Alkafaji Y.A., (2010), Understanding IFRS Fundamentals: International Financial Reporting Standards, John Wiley & Sons, Hoboken,
• Du W., (2013), Informatics and Management Science IV, Springer Science & Business Media, London,
• Everingham G.K., Kleynhans J.A.E., Posthumus L.C., (2007), Principles of Generally Accepted Accounting Practice, Juta and Company, Cape Town,
• Gonçalves R., Lopes P.T., (2018), Accounting for Biological Assets, Routledge, Abingdon,
• Henderson S., Peirson G., Herbohn K., Howieson B., (2015), Issues in Financial Accounting, Pearson Higher Education AU, Frenchs Forest.

Author: Angelika Marzecka