8/17/2019 Grap 101 Faqs

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Frequently Asked Questions

1. When is GRAP 101 applicable?

GRAP 101 applies when an entity is involved in the management of theactivities to enhance, or at least stabilise the conditions necessary forprocreation (for example, when calves are born), growth (the calves grow intomature cattle), production (the calves yield milk or beef) of living plants oranimals, for sale or transformation into agricultural produce (milk or beef), or

additional biological assets (calves). GRAP 101 applies to biological assetsand agricultural produce only at the point of harvest (milk or beef from calves istreated as inventory at the point that it is harvested).

2. What is the difference between biolog ical assets, property, plant andequipment, and inventory?

•  Biological assets  are living plants or animals, such as fruit trees orsheep. (Apply GRAP 101)

•  Property, plant and equipment are tangible fixed assets (for example,an entity’s office buildings) that are held for use in the production orsupply of services, for rental to others, or for administrative purposes; and

are expected to be used during more than one year. An entity may holdcertain biological assets as property, plant and equipment for the supplyof services, for example, police dogs or horses used in the delivery ofsafety and security services by South African Police Services (SAPS).(Apply GRAP 16) 

•  Inventories are assets: held for sale in the ordinary course of operations;in the process of production for sale, or in the form of materials or suppliesto be consumed in production or in rendering services. (Apply GRAP 12). After agricultural produce has been harvested it is accounted for asinventory in terms of GRAP 12.

3. Does the definition of biolog ical assets include cultures, cells, bacteria

and viruses used in the pharmaceutical and biotechnology industries?The intention of the definition is to exclude cultures, cells, bacteria and virusesused in the pharmaceutical and biotechnology industries, as these may be aproduct of a manufacturing process rather than a biological transformationprocess.

4. When does an entity include biolog ical assets or agricultural produce inits statement of f inancial posit ion?

 An entity must include a biological asset or agricultural produce in its statementof financial position when the following criteria are satisfied:

•  The entity controls the asset as a result of past events.

•  It is probable that future economic benefits or service potential associatedwith the asset will flow to the entity.

•  The entity can measure the fair value or cost of the asset reliably.

5. At what amounts does an entity both at initial recognition and at eachsubsequent reporting date include biological assets or agriculturalproduce in its statement of financial position?

 An entity should measure biological assets both at initial recognition and ateach subsequent reporting date at fair value, less estimated point-of-sale costs.Similarly, an entity measures agricultural produce at fair value less point-of-salecosts at the point of harvest.

Issued April 2008 Executive summary GRAP 1012

8/17/2019 Grap 101 Faqs

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6. How does an entity account for gains and losses arising on initialrecognition or re-measurement of fair values of biological assets oragricultural produce?

Entities recognise gains and losses arising on initial recognition or re-measurement of fair values of biological assets or agricultural produce insurplus or deficit in the period in which they arise.

7. What surrogate methods for estimating fair values of biolog ical assets

and agricu ltural produce does the Standard suggest?Where available, an entity should base fair value on market prices. If an activemarket does not exist, an entity should use one or more of the followingmethods to estimate fair value, if such information is available:

•  The most recent market transaction price.

•  Market prices for similar assets with adjustment to reflect differences.

•  Sector benchmarks.

8. How does an entity determine fair values of biological assets wheremarket based values are not available?

Where market based prices or values are not available for a biological asset inits present location and condition, an entity should estimate fair value based onthe present value of expected net cash flows from the asset, discounted at acurrent market-based pre-tax rate.

9. How does the accounting treatment proposed for biological assets and/oragricultural produce differ from a traditional historical cost accountingmodel?

Biological assets and agricultural produce that form part of an agriculturalactivity are recognised initially at fair value rather than cost (the use of cost iscommon for almost all other assets). This is because biological assets areoften not acquired through a purchase transaction, for example, existing

biological assets may produce offspring. Where entities do acquire biologicalassets, the fair value is equal to the purchase consideration paid.

10. How does an entity account for government grants related to biologicalassets?

 An entity must refer to the Standard of GRAP on Revenue from Non-exchangeTransactions (Taxes and Transfers) on how to account for government grantsrelated to biological assets.

Issued April 2008 Executive summary GRAP 1013