Enquiry:

The company is engaged in poultry business i.e. breeding the birds, selling the eggs and
then bird is sold. The whole life of the bird is two years and in two years it lays eggs eighteen months. Please give your opinion regarding the followings:

1. Whether the cost of breeding the bird is to be treated as biological asset or
   inventory?
2. If it is treated as a biological asset at what cost it should be recognized?
3. How the cost of biological asset is to be charged cost of production?

Opinion:

The Committee considered your queries and its views on each question are as follows

1.  Your attention is drawn to the paragraph 10 of lAS 41 ‘Agriculture’ which says that

10     An entity shall recognise a biological asset or agricultural produce when and only when:

(a) the entity controls the asset as a result of past events;
(b) it is probable that future economic benefits associated with the asset will flow to the entity; and
(c) the fair value or cost of the asset can be measured reliably.

In view of the above, the cost of breeding the birds will be capitalized as a biological asset till such time the birds start producing eggs. Subsequent costs, incurred after production of eggs, are cost of sales and will be charged to profit and loss.

(November 08, 2013)