CHAPTER 1 TO 5

1St. Paul University Philippines

Tuguegarao City, Cagayan 3500

Chapter 1

THE PROBLEM AND REVIEW OF RELATED

LITERATURE

This chapter includes the introduction of the study, related studies,

literature relevant to the study and the statement of the problem that the

researchers sought to answer through the conduct of the study.

Introduction

Agriculture is as equally important as the other economic sectors of

the country. Agricultural activities play an important role in economic

sustainability and development of the country. The agriculture and fishery

sector contributed 15 percent of the Gross Domestic Product (GDP) in 2002,

amounting to P595.6 trillion at current prices. (Foreign Trade Statistics, NSO,

October 2002).

Agricultural enterprises had greatly evolved in the world of business

and had helped many countries to revive their losing economy. Many farmers

and common agricultural enterprises in other countries, nowadays, have been

practicing the use of accounting standards. Indeed, they realized that using

those standards generated higher income on their part. In addition, it is made



known that using standards will provide accounting knowledge for different

agricultural activities by determining and clarifying the adopted principles to

biological transformations of the biological assets and also expounding the

used bases in evaluating the biological assets of animals and plants.

In the Philippines, many agricultural sectors are not or have not been

involved in the proper recording, classifying and valuation of their biological

asserts. Most of the farmers and common hog raisers are not aware that there

are accounting principles set in the Philippine Accounting Standards on

Agriculture, (PSA 41).

Transactions are just done through the agreement of the buyer and the

seller. Most often, numerous factors are not taken into consideration which

resulted to gaining no profit and sometimes loss which therefore cannot cover

the expenses held by the seller. The incurrence of cost directly related to the

buying and selling and other costs are of great importance in determining the

value of biological assets or agricultural produce.

As a result, the researchers conducted a study on the accounting of

biological assets of selected enterprises who are practicing the standards set in

PAS 41. Most farms expressed that apart from satisfying external information



demands, they found financial accounting useful and necessary for internal

decision making. Nevertheless, some of the people interviewed wanted to

make clear that more information are needed for good farm management than

just financial accounting numbers.

Review of Related Literature

Agricultural activity is specialized activity defined as entity’s

management of the biological transformation of biological assets for sale, into

agricultural produce or into additional biological assets (IAS 41.5, 2005).

Biological transformation comprises the process of growth, degeneration,

production and procreation that cause qualitative or quantitative changes in a

biological asset (Valix and Peralta, 2007). In an agricultural environment,

biological assets are produced, sold or transformed into additional biological

assets from controlled processes that manage their growth and maturation

(Valstybes, Zinios, 2004).

Agriculture shall be applied to account for biological assets and

agricultural produce at the point of harvest. Biological assets are living

animals and living plants while agricultural produce is the harvested product

of the entity’s biological assets. Examples are sheep, trees in plantation forest,



plants, dairy cattle, pigs, bushes, vines, fruit trees and the like (PAS 41, 2005).

Harvesting from unmanaged sources such as ocean fishing and deforestation

is not an agricultural activity. After initial recognition at the point of harvest,

agricultural produce is accounted for in accordance with Business Accounting

Standard “Inventories” (Business Accounting Standard, Feature Spring 2005

perspective 1317).

The initial recognition of biological assets is subject to the general

recognition criteria for set out in the framework and International Financial

Reporting Standard (IFRS, 2005). The entity must demonstrate control over

the assets that will generate future benefits that can be measured reliably (IAS

41.10, 2005). Control over biological assets would usually be evidenced by

legal ownership (IAS 41.2). Initial recognition will occur at the point of

purchase, or when biological assets are generated from existing assets. IFRS

includes a presumption that an entity can establish a fair value for biological

assets (IAS 41.30, 2005). On initial recognition, an entity must measure

biological assets at fair value less estimated point-of-sale costs (IAS 41.12,

2005). According to IAS 41.30, an entity may rebut this presumption in rare

circumstances where a market-determined price is not available, or the entity

cannot make a reliable estimate of fair value in which case the entity

recognizes the biological assets at cost. The identification of fair value is key

to the measurement of biological assets. Where an active market for biological



asset exists, the market-determined price is the appropriate basis for

determining fair value (IAS 41.17, 2005).

The biological assets have unlimited productive age. The productive

age for animal or plant does not affect the general condition of these assets.

Animals or individual plants are able to transfer between commercial and

productive classifications depending on their biological transformations and

substituted uses. (Accounting Standards No.11).

The conventional Economic Accounts for Agriculture (Eurostat, 2000)

focus on the measurement of economic performance and growth as reflected

in market activities and their evolution over time. From these accounts,

indicators such as the gross value added (GVA) or agricultural income are

calculated.

Related Study

Under HKAS 41, it is presumed that the fair value for most biological

assets can be determined reliably in normal circumstances. For certain types

of biological assets (i.e. animals and fishes), market exists for similar, though

not identical, biological assets and prices in these markets can often provide a

basis for determining the fair values of these biological assets. In the absence



of market prices, other accepted valuation methodologies exist for estimating

fair values of biological assets such as sector benchmarks and net present

value of expected cash flows. There are instances in which fair value cannot

be determined reliably. In such cases, HKAS 41 suggests historical cost

should continue to be employed.

In spite of its relative importance in the economy of many countries

and its growing interrelationships with other sectors, agriculture has

traditionally not received much attention from accounting researchers,

practitioners and standards setters. Consequently, current accounting

principles typically do not respond very well to particular characteristics of

agricultural business and the information needs of the farmers and

stakeholders.

It is generally believed that accounting can improve farm management

and lead to better performance (Luening, 1989; Allen, 1994). Empirical work

by Garcia, Sonka, Mazzaco (1983) found that farmers who used formal record

system overtime improved their ability to use the kind of information system

produced. They observed that farmers who prepared financial statements were

more likely to make cash flow projections than those who were not involved

in financial accounting. Streeter (1990) studied five farmers who were using



electronic information systems, and observed how these farmers discovered

by themselves that accounting functions would improve their management

information systems. Thus, accounting is necessary precondition to generate

useful information for decision making, and it is a good complement for

management information systems. Furthermore, agricultural lenders often

claim more and better accounting information (Bronstein, 1995; Crane and

Leatham, 1995) which is consistent with empirical evidence that accounting

data make a significant contribution to explaining and predicting farm failure

(Argiles, 1998). Therefore, there exists an external demand for accounting

information in agriculture and that this information would also be useful for

the farmers themselves (Slof, 2000). Farmers do not get involved in

accounting, however, because current accounting rules do not adapt very well

to their type of business and are difficult and expensive to implement together

with other reasons. These include the generally lower level of managerial

sophistication and fewer economics means in a sector, the limited

appropriateness of general accounting principles which has led to a situation

in which farmers are more reluctant to prepare accounting reports and use this

kind of information than the agents in other economic sectors (Poppe, 1991;

Poppe and Breembroek, 1992). Moreover, because of their size or legal form,

most European forms have no legal obligation to publish financial statements,



and when farmers use account, they typically only do so to comply with tax ad

subsidy requirements (Kroll, 1987; Andre,1987; Sabate and Enciso, 1997).

In India, there is no accounting standard on biological assets and

agricultural produce. Accounting Standard on agriculture is the need of the

hour as many Indian companies are venturing into those businesses in big way

(Dolphy D’souza). The agricultural enterprise is a center of decisions with its

own accounting and bank account. It has relations with the outlets and supply

market from where it achieves a part of its production factors that it combines

in different proportion with the resources. The agricultural enterprise manages

its resources and production in order to obtain a maximum profit and

observing the durable development requirements (Zahiu, 1999).

The Financial Accounting Policy Committee believes that there are

many active and efficient markets for agricultural produce and some active

markets of biological assets. However, there are several examples that can be

cited to illustrate the uniqueness of side-by-side operations and many areas

where valuation is different even in a free enterprise transportation or seasonal

issues. In addition, secondary markets do not exist for all biological assets and

agricultural products. FAPC believes that historic cost should continue to be

used to measure biological assets and agricultural products.



The Farm Financial Standards Council (FFSC) has developed and

published a set of accounting guidelines provide recommendations for

standardized format and content of farm financial statements and disclosure

notes, specific farm financial ratios with standardized definitions and methods

of calculation, and suggestions for the use of standardized farm financial data

and the development of a database of farm financial information (Whelming,

2009).

Located in central North Dakota, Benson Farms is situated in the heart

of fertile and diversified farmland. The farm is owned by Richard Benson

(“Rich”) who inherited the farm headquarters consisting of 1500 acres of land

and farm buildings and other improvements. Additional land was purchased

to expand the cattle herd and consists mainly of pastureland. The farm

produces grain (mostly wheat and barley), hay, and feeder cattle. The

cowherd consists of 145 head of crossbred beef cows. The farm business is

organized as a sole proprietorship.

During the 1990's Rich has been monitoring the events concerning the

development of accounting guidelines for farm and ranch operations. In 1989

a group called the Farm Financial Standards Council (FFSC) was formed with

the mission of developing and promoting uniformity and integrity in financial

reporting and analysis for the benefit of agricultural producers, lenders, and



other interested parties. In 1997 the FFSC issued “Financial Guidelines for

Agricultural Producers” (FGAP), a set of recommendations for the preparation

and analysis of farm financial statements. FGAP describes in detail the

accounting methods and calculations that differ from Generally Accepted

Accounting Principles (GAAP) as well as pointing out where the FGAP

recommendations are similar to the methods prescribed in GAAP. Rich has

decided that he needs to begin using FGAP as the basis for producing his own

farm financial statements. Although quite educated in the agricultural field,

he has a limited understanding of accounting. He has hired Beasley Business

Services, a small local CPA firm, to assist him in understanding these new

guidelines. Nate Beasley, the owner of Beasley Business Services, has little

knowledge concerning these guidelines himself. He has asked members of his

staff to assist him in understanding the differences between GAAP and FGAP.

In the Agricultural accounting written by Aram, unaware of the

double-entry bookkeeping system, he suggested single entry bookkeeping;

however, he suggested the double-entry bookkeeping system to be learned and

used in the farms. In the book written in the old Turkish 302 Afr. J. Business

Manage language, he emphasized the importance of accounting in farm

management and suggested some accounting issues related to agricultural

activities (Guvemli, 2000).



The double-entry system was discussed in the book written by Ibrahim

Fazil in 1921 - 1922. He stated that this system was very complicated and he

said that the application of single entry system would be more advisable. He

gave some information about the bookkeeping in this system (Guvemli, 2001)

The book that was the publication of the First County and Agricultural

Progress Assembly of the Ministry of Agriculture was written by Baha Esad

Karova , who was the vice manager of the State Agricultural Enterprises of

that time. The book discussed about the applications of the chart of accounts

prepared for the State Agricultural enterprises in 1938, financial accounting

and specialty accounting related to agricultural activities.

In 1966, Sedat Unalan and Salih Ozel, who were members of Gazi

University, mainly discussed in their book the formation of the financial

accounting system in agricultural enterprises and use of the system. In book

applications of the process costing system in agricultural enterprises were

focused on discussing the rules and essentials of the direct product costing.

The agricultural accountings were analyzed in terms of small, medium

and big agricultural enterprises separately (Mehmet Ali Aktuglu, 1972). The

accounting applications of the agricultural enterprises were focused on the



output costs of agricultural activities and it is more of a practice dominated

(Hasan Dogan, 1975).

Conceptual Framework

Accounting Standards for agricultural activities are rarely known to

Filipinos. Some have knowledge but unfortunately did not apply it since it

appeared burdensome on their part to do so, probably, because they do not

know the real rationale of using the standards. The Standards are used as a

basis for comparison of measuring performance or achievement. With

standards, the value of biological assets can readily be determined. It was

observed that farmers and hog raisers who have information of accounting

standards and practices were more likely to make cash flow projections other

than those who were not involved in any financial forecasting. The success

and failure of farm crops, livestock, orchards and plantations and fish farming

will be a lot easier if accounting standards are strictly put into practice. Thus,

accounting is a necessary precondition to generate useful information for

decision making purposes in agricultural activities.



Paradigm of the Study

INPUT PROCESS OUTPUT

------------------------------------FEED DACK----------------------------------

The Demographic Profile

of Selected Enterprises in

Cagayan and Isabela

according to:

1.1 Location of the

Enterprise

1.2 Years of Service

1.3 Numbers of

employees

1.4 Nature of Business

1.5 Type of business

organization

Identification and

classification of

biological assets and

agricultural produce of

the enterprise

PAS for biological assets

Manuals or procedures in

recording biological

assets

Chart of Accounts

Assessing the

Accounting Practices for


agricultural produce of

selected enterprises in

Cagayan and Isabela

Evaluation of the

accounting practices of


agricultural produce in

accordance to accounting

standards.

The Accounting

Practices for Biological

Assets of the selected

enterprises in Cagayan

and Isabela are identified

and evaluated.



The paradigm shows the variables involved in the study. It consists of

the profile of the respondents as to the location of the enterprise, years of

service, number of employees, nature of the business and kind of business

organization. It also, includes as an input of the study are the identification

and classification of biological assets in the enterprise, Philippine Accounting

Standards for biological assets, manuals or procedures in recording biological

assets and chart of accounts.

The processes are identification of accounting practices for biological

assets of selected enterprise in Cagayan and Isabela and evaluation of the

accounting practices of biological assets in accordance to accounting

standards.

Statement of the Problem

The purpose of this research was to determine the Accounting Practices

for Biological Assets of Selected Enterprises in Cagayan and Isabela.

Specifically, it sought to answer the following questions:

1. What is the profile of the enterprise in terms of:

1.1. Location of the enterprise

1.2. Years of service



1.3. Number of employees

1.4. Nature of the business

1.5. Type of business organization

2. What are the biological assets of the enterprise?

3. What are the agricultural produce of the enterprise?

4. How are biological assets and agricultural produce recorded and valued?

5. What is the extent of implementation of the accounting standards for

biological assets and agricultural produce of the enterprise?

6. What are the problems in recording and valuation of biological assets and

agricultural produce?

Significance of the Study

The essential findings of this study shall be of great benefit for the

rapid development and occurrences of agricultural industries in Cagayan and

Isabela. Thus, the present study is significant to the following:

Hog raisers and dealers. Through the results of this study, the livestock

owners/sellers shall become aware of the correct accounting treatment of

biological assets thereby enabling them to change and/or adopt the right and

preferred accounting valuations.



Department of Agriculture. They can use the findings of this study in helping

other enterprises or organizations in fostering relevant valuation methods and

accounting for biological assets.

Customers. This study will help the potential customers to know the fair

market of the biological assets and agricultural produce they are purchasing.

Accountancy students and other business students. As future business

owners/entrepreneurs/accountants, this study will provide them significant

guidelines in the proper valuation and pricing of biological assets and

agricultural produce.

Accounting teachers. This study will enable the accounting teachers to share

more to their students about accounting for biological assets.

The Researchers. The findings of this study will impart more knowledge to

the researchers and to discover the relevance of their studies in conducting

research.



Future Researchers. The result of the study will provide information for

related studies to be conducted in the future.

Scope and Delimitation

This study is focused on identifying the profile of the enterprises and

the accounting standards applied. This study mainly focused on biological

assets and agricultural produce of private enterprises and government grants.

There was a random selection of the subjects. Only statistical test was

performed on the data gathered using survey questionnaires. The researchers

also conducted an interview and observation. No further financial or

marketing analysis was performed other than statistical treatment of the data

gathered. This study did not include land related to agricultural activity,

intangible assets related to agricultural activity and the processing of

agricultural produce after harvest.

Definition of Terms

Biological assets. These are groups of animals and plants classes which the

agricultural enterprises process either for production or trading purposes.



Agricultural Produce. It is the harvested product of the entity’s biological

assets.

Fair value. It is the price agreed upon by the willing buyer and seller.

Point-of-sale costs. These are commissions to brokers, dealers, levies to

regulatory agencies and commodity exchanges, the transfer taxes. This does

not transport and other costs necessary to get assets to the market.

Farm. It is any piece or pieces of land having a total area of at least 1,000

square meters used wholly or partly for the growing of crops such as palay,

corn, fruits, vegetables, nuts, etc., and/or tending of livestock and/or poultry,

regardless of number; or any land, regardless of area used for raising of at

least 20 heads of livestock and/or 100 heads of poultry.

Harvest. It is the detachment of produce from a biological asset.

Carrying amount. This is the amount at which asset is recognized in the

balance sheet.

Balance Sheet. It is a financial statement that presents the entity’s financial

position. It composes of assets, liabilities and owner’s equity.

Income Statement. It is a financial statement that presents the entity’s

financial operations which is composed of the revenues and expenses.



Chapter 2

METHOD

This chapter presents the research design used in the study. It likewise

describes the selection and description of respondents, data gathering

instruments and data gathering procedures.

Research Design

In order to describe systematically the assessment of the accounting

practices for biological assets of selected enterprise in Cagayan and Isabela,

the researchers used the descriptive method. Calderon and Gonzales, 1993

define this method of research as a fact-finding study with sufficient and

precise interpretation of the findings. It describes with emphasis what actually

exist such as current conditions, practices, situations or any phenomena.

Respondents of the Study

The respondents of the study include twenty selected enterprises in

Cagayan and Isabela whose business ventures are inclined in buying and

selling, retailing, dealership, manufacturing, animal production and plantation.

The respondents were the owners, managers or accountants of the business



enterprises. These include the Isabela Green Valley Orchid Farm, Integrated

Farmers Cooperatie, AMT Enterprises, Maunlad Poultry Farm, Isabela Sheep

and Goat Raisers Development Cooperative, Myrna Te Poultry, LDA

Enterprises, Olaguer Poultry Farm, Joey Penaflor Farm, Maganda Farm,

Rolando Macanang Fishery, Cobra Farm, Malmon Farm, Perez Poultry,

Edwin Decena Livestock dealer, Twinluck Flower Shop and Ornamentals,

Lance Garden, JMS Enterprise, Erwin Cafuguan Fishery and Calayan MPC.

Instrumentation

The researchers used the following data gathering instruments to

gather the data needed for this study: questionnaire, observation and

interview. The questionnaire which was the major instrument to gather data

from the respondents were constructed particularly for this study.

Furthermore, the researchers used interview guide to clarify vague responses

by the respondents. Observation of the management operations of the

respondent-enterprises was also conducted.

Data Gathering Procedure

Before the study was conducted, the researchers asked permission

from the Dean of the School of Accountancy and Business to allow them to



conduct the study. After permission was granted, the researchers personally

administered the floating of the questionnaires to the respondent-enterprises

for clearer information and for the conduct of the interview as well. The

administration of the questionnaires was done during weekdays and

weekends. There was no time limit imposed in filling out the instrument.

The questionnaires were retrieved immediately after the respondent-

enterprises finished answering the items to ensure 100 percent retrieval. The

data were read, sorted, tabulated and analyzed.

Data Analysis

The data gathered from the respondents were analyzed using different

statistical tools. To establish the profile of the respondents and other

significant results, the frequency distribution was used. The formula for

percentage according to Guilford, 1973 is:

P = f x 100 N

Where:

f = frequency

n = number of respondents

100 = constant number



The researchers used the range of values below to determine the qualitative

value of the weighted mean from the data gathered. The range of values is

computed by getting the difference between the highest and the lowest

assigned points 3-1 divided by 3.

Weighted Mean Range Qualitative Description

1

1-1.66Not Implemented

at all

2 1.67-2.33 Partially Implemented

3 2.34-3 Fully Implemented



Chapter 3

RESULTS AND DISCUSSION

Results

Table 1Profile of the Enterprise according to their Location

Location of the Enterprise Frequency Percentage

Larion Alto, Tug. City, Cagayan 3 15

Libag Sur, Tug. City, Cagayan 2 10

Namabbalan Norte, Tug. City, Cagayan 2 10

Pengue, Ruyu, Tug. City, Cagayan 2 10

Bagay, Tug. City, Cagayan 1 5

Capatan, Tug. City, Cagayan 1 5

Gosi Norte, Tug. City, Cagayan 1 5

Gosi Sur, Tug. City, Cagayan 1 5

Larion Bajo, Tug. City, Cagayan 1 5

Leonarda, Tug. City, Cagayan 1 5

Libag Norte, Tug. City, Cagayan 1 5

Centro, Gonzaga, Cagayan 1 5

Benito Soliven, Isabela 1 5

San Mariano, Isabela 1 5

Sillawit, Cauayan, Isabela 1 5



TOTAL 20 100

Table 2Profile of the Enterprise according to their Year of Service/Operations

Year of service/operations Frequency Percentage

More than 4 years to 6 years 5 25

1 month to 2 years 4 20







TOTAL 20 100

Table 3Profile of the Respondent-Enterprise according to the Number of Employees

Number of employees Frequency Percentage

1 to 5 employees 16 80





TOTAL 20 100

Table 4Profile of the Respondents according to the Nature of the Business

Nature of the business Frequency Percentage

Contract Grower 4 20

Buy and Sell 3 15

Swine Production 2 10

Fish Production 2 10

Buy and Sell, Retailing and Manufacturing 1 5

Plantation, Retailing and Wholesale 1 5

Swine and Chicken Production 1 5

Swine, Chicken,Goat Production and Plantation 1 5

Derby Production 1 5

Swine, Cattle,Chicken, Fish and Goat Production 1 5

Orchid, ornamental, Fruit trees and prawn

production

1 5

Fish and Swine Production and Fruit trees

production

1 5

Palay and Corn Production 1 5

TOTAL 20 100

Table 5Profile of the Respondents according to the Type of Business Organization

Type of business organization Frequency Percentage

Sole/Single Proprietorship 15 75

Cooperative 3 15



Partnership 2 10

TOTAL 20 100

Table 6Kinds of Biological assets of the Respondents- Enterprise

Biological assets of the enterprise Frequency Percentage

Chickens 5 25

Flowering Plants 2 10

Pigs/hogs, chickens, goats, and cows 2 10

Fishes 2 10

Pigs and Chickens 1 5

Vegetables, Fruit bearing trees, Trees in plantation 1 5

Pigs/hogs 1 5

Stag 1 5

Fruit bearing trees, goats, sheeps, cattles 1 5

Buffalo, chicken, fowls 1 5

Carabao 1 5

Flowering Plants, Herbs, Vegetables,

fruit bearing trees, fishes, ornamental prawns 1 5

Palay 1 5



TOTAL 20 100

Table 7Kinds of Agricultural Products of the Respondents-Enterprise

Agricultural products of the enterprise Frequency Percentage

Carcass 5 35.72

Flowers 2 14.30

Flowers and fruits 1 7.14

Corn, rice and carcass 1 7.14

Corn and carcass 1 7.14

Carcass and fruits 1 7.14

Corn, carcass and sugarcane 1 7.14

Corn and milk 1 7.14

Grains and corn 1 7.14

TOTAL 14 100

Table 8Responses of whether Biological assets are grouped

Responses Frequency Percentage

Yes 17 85



No 3 15

TOTAL 20 100

Table 9How biological assets are grouped in the books of the Respondent-Enterprise

Classification of biological assets Frequency Percentage

Age, quality, weight and sex 6 35.29

Age 2 11.76

Quality 2 11.76

Quality and price 2 11.76

Age, quality and weight 1 5.88

Sex and quality 1 5.88

Sex, quality and weight 1 5.88

Weight 1 5.88



Age and weight 1 5.88

TOTAL 17 100

Table 10Recording and Valuation of Biological assets and Agricultural products

Recording and valuation of biological

assets Frequency Percentage

and agricultural produce

No recording and valuation is done 9 45

Current/Recent Market Price 4 20

Priced based on 4 20

Percent of Mortality

Average Live Weight

Feed Conversion Ratio

Broiler Production Index

Priced agreed upon by the buyer and seller

less costs of selling the biological assets at

harvesting point 1 5

Price agreed upon by the members of the

Cooperative to be approved by the DA 1 5



Current/Recent Market Price and highest

bidder 1 5

TOTAL 20 100

Table 11Recognition and Measurement of Biological Assets and Agricultural Produce

Standards Weighted mean Qualitative description

Biological Assets are measured 2.05 Partially Implemented

on first recognition and following

dates at the fair value less expenses

paid. (IAS 41.12)

Agricultural produce are measured 1.60 Not implemented at all

at the fair value less expenses paid

at the harvesting period. (IAS 41.13)

A gain on first recognition of

biological assets at fair value

and changes in fair value of 1.60 Not implemented at all

biological assets during the

period are reported in net

earnings/loss. (IAS 41.26)

A gain or loss arising on first

recognition of agricultural 1.55 Not implemented at all



produce at fair value less estimated

point-of-sale costs shall be

included in profit or loss for the period

in which it arises. (IAS 41.28)

OVER ALL WEIGHTED MEAN 1.70 PARTIALLY IMPLEMENTED

Table 12 Problems in Recording and Valuing Biological assets and Agricultural produce

Problems encountered Frequency Percentage

No problem encountered since there is no recording 9 45

or valuation being done

No problem encountered in recording and valuing 6 30

What costs to include as part of the value of the

biological assets 3 15

Fair value can not be reliably determined 1 5

Can not be sure what value to use for costs 1 5

TOTAL 20 100



Discussion

For the profile of the respondents, Table 1 presents the location of the

enterprises in Cagayan and Isabela. The reaserchers have requested the list of

the agricultural enterprises from the Department of Agriculture. 15% was

taken from Isabela and 85% from Cagayan. Frequency and percentage

distribution of the respondent-enterprises when grouped according to years of

service or operations are shown in Table 2. It indicates that among the

enterprises to which the study was conducted, 25% or 5 respondent-

enterprises were already operating for more than 4 years to 6 years. This

means that majority of the owners of the agricultural enterprise have been

operating for not so long time yet. Thus, they are still in the process of

adopting to the focus of the economy, which is engaging into the agricultural

business. 5% or 1 respondent-enterprise has been operating at range of more

than 18 to 20 years and another 5% to more than 22 to 24 years. This indicates

that among the twenty respondents, there were only two which operated for



long years. These were involved in many agricultural activities, thus have

expanded their businesses.

As to the number of employees, 80% or 16 of the respondent-

enterprises have employees of 1 to 5. Most of them can operate their business

with only limited employees, which points out that they have skilled

employees who can work effectively and efficiently for the business.

With regards to the nature of the business, most of the respondent-

enterprises are contract growers. The contract growers are the entity’s

assigned persons who facilitate the raising of the contactor’s biological assets.

They are paid according to the percentage of mortality, average live weight,

feed conversion ratio and broiler production index. The contractors provide

the technical assistance for the contract growers, including the medicines

needed by the biological assets. Second to contract growers are the enterprises

who are engaging into buy and sell. This signifies that, 15% or 3 of the total

20 respondent-enterprises have chosen this kind of business because of the

simplicity of operating the business. Table 4 shows that many agricultural

enterprises are involved in the different activities such as swine production,

fish production, fruit trees production, palay and corn production, flowers and

ornamentals production and the like.



According to Table 5, the sole proprietorship has been chosen by

majority of the respondent-enterprises as their type of business organization

with 75% or 15 out of the total 20 respondents.

The major number biological assets of the respondent-enterprises are

chickens since 20% or 4 of them are contract growers of chicken production.

Also they believe that growing chickens will give them high turn-over on their

investments. Next to which are the flowering plants, pigs/hogs, goats, cows

and fishes. While the others have varieties of biological assets in their

business.

As to the information gathered, it can be seen that out of the total

respondents, there were only 14 of them who sell the agricultural products out

of their biological assets. Majority of them sell the meat or the carcass of the

biological assets with the percentage of 35.72% or 5. This is due to the

biological assets of the respondent-enterprises are focused on the production

of the consumable goods.

With regards to the responses of respondent-enterprises as to whether

they group their biological assets, table 8 shows that 85% or 17 of them are

grouping their biological assets for selling and recording purposes while 15%

or 3 do not group their biological assets anymore. These enterprises are those



who are engaged in buying and selling. Their way of selling their biological

assets are on per kilo basis wherein, sizes, sexes and ages are disregarded.

With the total number of 17 who group their biological assets, 35.29% or 6 of

them group their assets based on age, sex, weight and quality. This indicates

therefore that classifying their biological assets as to such help them to

identify the costs as well as the selling prices of their biological assets at the

harvesting point. The rest are classified based on the management policy.

Since the management policies of each enterprise vary, there are also different

ways on how they group their biological assets that depends on the needs of

the operation of the business.

As to the recording and valuation, 55% of the total respondent-

enterprises record and value their biological assets and agricultural produce.

Biological assets are valued based on current/recent market price with a

percentage of 20; contract agreement (priced on percent mortality, average

live weight, feed conversion ratio, and broiler production index) with

percentage of 20; price agreed upon by the buyer and seller less costs of

selling attributable to the asset, price agreed upon by the members of the

cooperative and highest bidder with percentage of 5% each.



As to the recognition and measurement of biological assets and

agricultural produce based on International Accounting Standards 41.12

which stated that Biological Assets are measured on first recognition and

following dates at the fair value less expenses paid, the weighted mean was

2.05 which indicates that the standards was partially implemented. While the

IAS 41.13 which states that agricultural produce are measured at the fair value

less expenses paid at the harvesting period, the weighted mean is 1.60 which

indicates that the standard was not implemented at all. With the same

weighted mean is IAS 41.26, which states that a gain on first recognition of

biological assets at fair value and changes in fair value of biological assets

during the period are reported in net earnings/loss is not also implemented at

all. While IAS 41.28 which states that a gain or loss arising on first

recognition of agricultural produce at fair value less estimated point-of-sale

costs shall be Included in profit or loss for the period in which it arises, (IAS

41.28) also had a low weighted mean of 1.55. According to the interviewed

owners, especially those whose business organization is sole proprietorship,

they only record their biological assets at first recognition and on the

harvesting period for the gain or loss.

Moreover, in Table 12, 45% or 9 of the respondent-enterprises do not

have a problem in recording and valuing their biological assets and



agricultural produce. This is because the agricultural entities implement their

own policies as to the recording and valuation of their assets but not

necessarily disregarding the standards.

Chapter 4SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS

This chapter synthesizes the findings of the study, the conclusions, and

the recommendations from the data obtained through the organization of

questionnaires, interviews and observations with the respondent-enterprises.

In this chapter, relevant concerns and questions in the statement of the

problem are resolved and answered.

Summary

The researchers conducted the study to assess the Accounting

Practices for Biological Assets of Selected Enterprise in Cagayan with 16

enterprises or 85% of the total respondents and Isabela with 4 enterprises or

15% of the total respondents.



.

The 25% or 5 respondent-enterprises were already operating for more

than 4 years to 6 years. 5% or 1 respondent-enterprise has been operating at

range of more than 18 to 20 years and 5% also to more than 22 to 24 years. As

to the number of employees, 80% or 16 of the respondent-enterprises have

employees of 1 to 5. With regards to the nature of the business, most of the

respondent-enterprises are contract growers with the percentage rate of 20%

or 4 of the 20 respondents. Second to contract growers are the enterprises who

are engaged in buy and sell. This indicates that, 15% or 3 of the total 20

respondent-enterprises have chosen this kind of business. In addition, the sole

proprietorship has been chosen by majority of the respondent-enterprises as

their type of business organization with 75% or 15 out of the total 20

respondents.

1. The major number of biological assets of the respondent-

enterprises are chickens since 20% or 4 of them are contract

growers of chicken production. With regards to the information

gathered, it can be seen that out of the total respondents, there were

only 14 of them who sell the agricultural products out of their

biological assets. Majority of them, sell the meat or the carcass of

the biological assets with the percentage of 35.72 % or 5 of the



respondent-enterprises. As to the responses of respondent-

enterprises, in terms of the grouping of their biological assets, 85%

or 17 of them are grouping their biological assets for selling and

recording purposes while 15% or 3 do not group their biological

assets anymore. With the total number of 17 who group their

biological assets, 35.29% or 6 of them group their assets based on

age, sex, weight and quality.

2. In the recording and valuation, 55% of the total respondent-

enterprises record and value their biological assets and agricultural

produce. These are, however, divided based on current/recent

market price, contract agreement (priced on percent mortality,

average live weight, feed conversion ratio, and broiler production

index), price agreed upon by the buyer and seller less costs of

selling attributable to the asset, price agreed upon by the members

of the cooperative and highest bidder.

3. As to the recognition and measurement of biological assets and

agricultural produce based on International Accounting Standards

41.12, the weighted mean of 2.05 indicates that the respondent-

enterprises partially implemented the said standard. Thus, they



record their biological assets but not in full implementation. In IAS

41.13, the weighted mean is 1.60 which indicates that the standard

was not implemented at all. With the same weighted mean is IAS

41.26 which is not also implemented at all. IAS 41.28, which

garnered the lowest weighted mean of 1.55, is also not

implemented at all. In addition, 45% or 9 of the respondent-

enterprises do not have a problem in recording and valuing their

biological assets and agricultural produce.

Conclusions

Majority of the respondent-enterprises have been operating for

more than 4 years to 6 years. It has been found out that enterprises that

belong to the said range of service years are given big opportunities in

engaging into agricultural business. Most of them prefer to be sole

proprietor and hire only few employees, which only means that though

they solely handle their business, they are still capable of managing the

operations of their business. The most predominant biological assets

and agricultural produce are chickens and their carcass.

Furthermore, it can be concluded that some of the respondent-

enterprises do not record and value their biological assets. Since the

over-all weighted mean of the standards for recognition and



measurement of biological assets is 1.70, the standards are partially

implemented. Therefore, only few of the respondent-enterprises that

were studied are implementing the accounting standard and some of

the respondent enterprises have not encountered problems in recording

and valuing their biological assets.

Recommendations

The researchers recommend that there should be seminars to be

conducted yearly or whenever there are new policies as to the accounting of

biological assets. These should be organized by concerned agencies focusing

primarily on the proper recording and valuing of biological assets and


The concerned agencies should develop an accounting process for

biological assets to encourage the agricultural enterprises who have not been

involved for the recording of the transactions of their biological assets and

agricultural produce. There should also be standard farm chart of accounts to

facilitate as well as to guide the recording of the entity’s biological assets and




APPENDICES

CHAPTER 1 TO 5

Documents

Transcript of CHAPTER 1 TO 5