Question

Briefly describe the valuation of (a) biological assets and (b) agricultural produce

Short answer

(a) Biological assets are estimated on initial recognition and recorded at the net realizable value at the end of each year.

(b) Agricultural products are recorded at the net realizable value at the time of harvesting.

Step-by-step solution

Biological assets accounting

(a) Biological assets are related to animals and plants such as cattle, fruits, trees, etc. These are recorded at an initial price, and then after the end of each reporting period, the loss is recorded due to the fluctuations in the net realizable value.

Agricultural produce accounting

(b) Agricultural produce is the products harvested after procuring it from biological assets sources. It includes cotton, milk, wool, etc. When harvesting is done, the net realizable value of the asset is treated as a cost and treated like other inventories held for sale by the business.