CHAPTER 5

MALAYSIAN FINANCIAL REPORTING STANDARDS (MFRS 141):

Agriculture
Learning Objectives:
At the end of this chapter, the students should be able to:
1.
2.
3.
4.
5.

Define agriculture-biological assets.

Determine the recognition criteria of agriculture-biological assets.
Determine the initial measurement of agriculture-biological assets
To account for government grant in relation to agriculture-biological assets
Prepare the relevant accounting entries and disclosure in the statement of profit or loss
and statement of financial position

5.0 Introduction
MFRS 141 prescribes the accounting treatment, financial statement presentation, and
disclosures related to most agricultural activity, a matter not covered in other Standards.
Agricultural activity is the management by an entity of the biological transformation of
living animals or plants (biological assets) for sale, into agricultural produce, or into
additional biological asset.

5.1 Scope
MFRS 141 should be applied to the following agricultural activities:
(i)
biological assets,except for bearer plants;
(ii)
agricultural produce at the point of harvest; and
(iii)
certain government grants (covered by paragraphs 34 and 35).
5.1.1 Assets Excluded from the SCOPE of MFRS 141:
(a) Land related to agricultural activity (see MFRS 116 Property, Plant and Equipment
and MFRS 140 Investment Property).; and

(b) Bearer plants related to agricultural activity (see MFRS 116). However, this
Standard applies to the produce on those bearer plants.
(c) Government grants related to bearer plants (see MFRS 120 Accounting for
Government Grants and Disclosure of Government Assistance).
(d) Intangible assets related to agricultural activity (see MFRS 138 Intangible Assets).
Biological assets, except for bearer plants, are accounted for under MFRS 141. The
standard also excluded livestock from the scope of the amendment.

5.1.2 Not Biological Assets

(a) Animals or plants that are used primarily for non-productive purposes such as
recreational parks or game farms, or in delivering a service to the public, for
example:
dogs and horses used for policing and racing
animals like pony, elephant and tigers used in circus show and theme parks
(b) Does not include management of native forest, private game farms, wild life
conservancies and agro-tourism.
(c) Natural transformation, such as :
trees and animals in a wild forest;
fishing in the deep seas;
collection of wild rattans
(d) Processing of agricultural produce refers to any artificial process after the point of
harvest
(e) The biological categorized as viruses, bacteria and blood cells.

Effective 1 January 2016

Agriculture: Bearer Plants (Amendments to MFRS 116 and MFRS 141), issued
in June 2014,stipulates that the Standard does not deal with the processing of
agricultural produce after harvest; for example, the processing of grapes into wine
by a vintner who has grown the grapes. While such processing may be a logical
and natural extension of agricultural activity, and the events taking place may bear
some similarity to biological transformation, such processing is not included within
the definition of agricultural activity in this Standard.

5.2 Agriculture-Related Definitions

Agricultural activity is the management by an entity of the biological transformation and
harvest of biological assets for sale or for conversion into agricultural produce or into
additional biological assets.
Agricultural produce is the harvested product of the entitys biological assets.
A biological asset is a living animal or plant.

Biological transformation comprises the processes of growth, degeneration, production,

and procreation that cause qualitative or quantitative changes in a biological asset.
Costs to sell are the incremental costs directly attributable to the disposal of an asset,
excluding finance costs and income taxes.
A group of biological assets is an aggregation of similar living animals or plants.
Harvest is the detachment of produce from a biological asset or the cessation of a
biological assets life processes.
Bearer Plant is defined as "a living plant that:
a. is used in the production or supply of agricultural produce;
b. is expected to bear produce for more than one period; and
c. has a remote likelihood of being sold as agricultural produce, except for incidental
scrap sales."
Note 1
Agriculture: Bearer Plants (Amendments to MFRS 116 and MFRS 141), issued in
June 2014, amended the scope of MFRS 116 Property, Plant and Equipment to
include bearer plants related to agricultural activity. However, MFRS 141 applies to
the produce growing on those bearer plants.
Biological assets, except for bearer plants, are accounted for under MFRS 141.
The IASB also excluded livestock from the scope of the amendment.

5.3 General Definitions

An active market is a market where all the following conditions exist:
(a) the items traded within the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.
Carrying amount is the amount at which an asset is recognized in the statement of
financial position after deducting any accumulated depreciation and accumulated
impairment losses.
Government grants are as defined in MFRS 120 Accounting for Government Grants and
Disclosure of Government Assistance.
Fair value depends on location, and condition, so the same cow in Tapah has a different
fair value than in Penang.

5.4

a.
b.

Examples of biological assets, agricultural produce, and products that are

the result of processing after harvest
Biological assets

Agricultural produce

(MFRS 141)

(MFRS 141 at the

point of harvest)
Wool
Felled trees

Sheep
Trees in a timber
plantation
Plants
Cotton plants
Dairy cattle
Pigs
Tea bushes
Tobacco plants
Grape vines
Fruit trees
Oil palm
Rubber trees
Cacao trees

Products that are the

result of processing
after harvest
(beyond MFRS 41)
Yarn, carpet
Logs, Lumber

c.
Harvested beet
Sugar
d.
Harvested cotton
Thread, Clothing
e.
Milk
Cheese
f.
Carcass
Sausages, cured hams
g.
Picked Leaves
Tea
h.
Picked Leaves
Cured tobacco
i.
Picked Grapes
Wine
j.
Picked fruit
Processed fruit
k.
Oil palm picked fruit
Palm oil
l.
Harvested latex
Rubber products
m
Cacao pods and beans Chocolate liquor,
.
chocolate
Some plants, for example, tea bushes, grape vines, oil palms and rubber trees,
usually meet the definition of a bearer plant and are within the scope of MFRS 116.
However, the produce growing on bearer plants, for example, tea leaves, grapes,
oil palm fruit and latex, is within the scope of MFRS 141.
After Harvesting
MFRS 141 is applied to agricultural produce at the point of harvest.The harvested product
is the output of the undertakings biological assets. After harvesting, MFRS 102
Inventories, or another Standard is applied.
Biological asset- at the point of harvest

Harvested product

MFRS 141 Agriculture applies

MFRS 102 Inventory applies

EXAMPLE 1 Products after the harvest

Jagung Manis Bhd has harvested the corn. The harvested corn is now accounted for as
inventory, and Jagung Manis Bhd will now apply MFRS 102- Inventories.

Accordingly, MFRS 141 does not deal with the processing of agricultural produce after
harvest.
EXAMPLE 2 - Processing strawberries
Strawberry Delight Bhd has grown the strawberry plant in Cameron Highland, harvested
them and is going to process the harvested strawberries into strawberry jams. The
strawberry jams are now beyond the agricultural activity of MFRS141, and should be
accounted for as a production process, and valued under MFRS 102.
Biological assets (MFRS 141)

Agricultural produce at
the point of harvest
(MFRS 141)

Products that are the result

of processing after harvest
(beyond MFRS 141)

)
Strawberry trees

Picked strawberry

Processed fruit

Note:
While such processing may be a logical extension of agricultural activity, and the events
taking place may bear some similarity to biological transformation, such processing is not
included within the agricultural activity in MFRS141.
Agricultural activity includes a diverse range of activities for example (para 6):
a. raising livestock,
b. forestry,
c. annual or perennial cropping,
d. cultivating orchards and plantations,
e. floriculture and
f. aquaculture (including fish farming).
In each case, living animals and plants perform a biological transformation that takes
place in a managed environment. Management is the key issue that differentiates
agricultural activity from other activities such as sea fishing, or harvesting virgin forest,
neither of which are classified as agricultural activities.
The extent of change in the biological asset can be measured in a wide variety of ways,
ripeness, dimensions, fat content etc.
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Biological transformation results in:

a. Change in the asset through an increase or decrease in quantity, or quality.

b. Additional assets may result from procreation

Biological asset

Additional Biological Asset

Sheep
Calf
Management of the biological transformation of biological asset,
living animals into additional biological asset

c. Agricultural produce ( beef, milk, wool)

Biological asset

Agricultural Produce
(at the point of harvest)

Wool
Sheep
Management of the biological transformation of biological asset
(sheep), living animals into agricultural produce (wool)
5.4

OBJECTIVE OF FINANCIAL REPORTING (STEP 1):

(regarding agricultural activity)

Step 1:
What is information about entitys biological assets and agricultural produce would
primary users ie. existing and potential investors and creditors find useful?
To consider what information about an entitys biological assets and agricultural produce,
and any changes in that agricultural activity would be useful to the decision making of
existing and potential investors and creditors, the following questions could be asked:
a. What is the economic rationale for acquiring biological assets and agricultural
produce?
b. Why do customers buy biological assets (eg.sheep) and agricultural produce
(eg.wool)?
c. Why do consumer product manufacturers buy harvested products (eg. milk) of a
biological asset (eg. dairy cattle)?
d. Why do many in the theme park operator buy the animals used in the show?
e. How do those entities generate net cash inflows from the processing of agricultural
produce after harvest?
f. When existing and potential investors, lenders and other creditors make decisions
about the reporting entity, with regards to buying, selling or holding equity and debt
instruments and providing or settling loans and other forms of credit, what
information about an entitys agricultural activities do you think would be capable
making a difference?
g. Can that information be faithfully represented (i.e. the information is complete,
neutral and free from error)?
5.5

IDENTIFYING ASSET (STEP 2)

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This involves exercising judgment on whether there is any element of financial

statement that is an asset.

Step 2:
Does the reporting entity have an asset?

The following questions could be asked:

a. Is the agricultural produce (eg. wool) an asset?
b. Are the living plants (eg. rubber trees) assets?
c. Do animals (a flock of bird) satisfy the definition of an asset?

5.5.1

Definition of assets

An asset is defined in the Conceptual Framework as:

a resource controlled by the entity

as a result of a past event
from which future economic benefits are expected to flow to the entity

5.5.2 Judgments and estimates

To determine whether a reporting entity has an asset, this requires:

Identifying whether an entity has control over a resource;

Identifying whether there are future economic benefits which are expected to
flow to the entity.

EXAMPLE 3
Objective and Identification of Asset: Oil Palm Plantation
Puncak Getah Plantation Bhd involves and
legally owns an oil palm tree plantation in
Tapah in the last ten years. It undertakes
agricultural activity by effectively manages the
biological transformation of the palms within
the plantation and the fresh fruit bunches in
the form of harvested palm fruits The growing
of oil palm trees that are attached to the
plantation land takes several years before the
crops come to bearing for harvest. The oil
palm fruits are then sold for profit to the
customers in their current condition for profit
in the local market.
No.
1.

Question
Discuss why information about the companys oil palm tree plantation is
useful to the potential investors.

Ref
Step 1

2.

Are the oil palm trees an asset of the entity, Puncak Getah Bhd?
Explain.

Step 2

3.

Are the harvested palm fruits outside the area owned by Puncak Getah
an asset of the harvesting entity?

Step 2

4.

Is plantation land related to agricultural activity a biological asset in

terms of MFRS 141?

Step 2

No

Solution

Definition of Asset
9

1.

A potential investor must decide whether to buy

shares in the entity that owns the oil palm tree as
an agricultural activity.
To inform that decision, the potential investor
assesses the potential returns from investing in
the entity that grows and manages the biological
transformation of the palm tree into harvested
palm fruits to be sold to third parties. Those
potential returns depend on the Puncak Getahs
prospects for future net cash inflows.
Consequently, the potential investor assesses the
amount, timing and uncertainty of (or the
prospects for) future net cash inflows Puncak
Getah.

2.

Yes. They are physical resource controlled by

Puncak Getah Bhd since they are legally owned by
the company.
The oil palm plantation has been in the business for
more than ten years (past events).
It will result in cash inflow to company since the
harvested oil palm fruits will be sold to customers
(future economic benefits).

3.

4.

5.6

No the harvested fruit not within the area owned by

the entity are not controlled resources of the
harvesting entity.
No. Land owned by the entity and used for
agricultural activity is subject to the recognition and
measurement principles of MFRS116 Property, plant
and equipment.

(reference as per
Conceptual Framework)
Not applicable

a resource controlled by the

entity
as a result of a past event
from which future economic
benefits are expected to
flow to the entity

Point to note:
If the land owned by a third
party and rented to the
ereporting entity , Puncak
Getah Bhd for the purposes
of agricultural activity is
likely to be the third partys
investment property and is
accounted
for
in
accordance with MFRS 140
Investment Property.

CLASSIFICATION OF ASSET INTO RELEVANT MFRS (STEP 3)

Step 3: Which MFRS classification of asset?

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The classification of asset is relevant to determine which MFRS the entity must apply.
After the definition of asset is met, it is important to determine whether or not the asset
identified is within the scope of MFRS 141 Agriculture

The following questions could be asked:

a. If it is an asset, state the classification according to the relevant MFRS.
b. Consider whether an asset identified in step 2 meets the definition of biological
asset and agricultural produce as per MFRS 141 Agriculture.

Items which did not satisfy the agriculture-related definitions of are explicitly
excluded from the scope of MFRS 141. Consequently MFRS 141 does not apply.
EXAMPLE 4: Identification (Step 1) and
Classification (Step 2)
Information is the same as in EXAMPLE 3.

Question 1:
Is the palm fruit an asset of the entity? (Step 2)
Solution
The palm fruit is an asset as it is a resource controlled by the entity as a result of past
event and from which future economic benefits are expected to flow to the entity
(paragraph 4.4(a) of the Conceptual Framework).
The palm fruit is an asset it is a physical resource (texture) by Puncak Getah in the last
ten years (past event). It is a resource owned at the discretion of the company (control) to
be sold for profit of which is expected to result in the flow of cash (future economic
benefits) from the potential customers.

Question 2:
State the classification of Oil palm trees and oil palm fruit at the point of harvest. (Step 3)
Solution
Oil palm trees
The oil palm trees ( within the plantation land owned by

Definition as per MFRS 141

A biological asset is a living
11

the entity) satisfy the definition of biological assets

in the form of living plants in accordance with MFRS
141 Agriculture, because they are related to
agricultural activity.

animal or plant.

The entity mange the biological transformation and

chages of the growth of biological assets (oil palm fruit
bearing tree)into agricultural produce (harvested palm
fruit) for sale.

Biological transformation
comprises the processes of
growth, degeneration,
production, and procreation that
cause qualitative or quantitative
changes in a biological asset.

Picked palm fruits

The picked palm fruits satisfy the definition of
agricultural produce, that is the harvested product of
biological assets,(oil palm tree), in accordance with
MFRS 141 Agriculture, because they are related to
agricultural activity.

Agricultural activity is the

management by an entity of the
biological transformation and
harvest of biological assets for
sale or for conversion into
agricultural produce or into
additional biological assets.

Agricultural produce is the

harvested product of the entitys
biological assets.

The scope of the standard for agricultural produce is

up to the point of harvest.Harvest is defined as the
detachment of produce from a biological asset, or the
end of a biological assets life processes.

5.7

RECOGNITION (STEP 4)

5.7.1 Recognition Criteria

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.

Agricultural produce is accounted for in accordance with MFRS 141 only at the point of
harvest, and subsequently in accordance with MFRS 102 Inventories or another
applicable MFRS.
12

Products that are the result of processing agricultural produce after harvest are outside
the scope of MFRS 141 both during and after processing. They are accounted for in
accordance with MFRS 102 Inventories or another applicable MFRS.

The following questions can be raised:

a. Can the biological asset be initially recognized?
b. How to determine whether the agricultural produce can be recognised and
included in the financial statements.
c. When must the reporting entity recognize its biological asset and agricultural
produce?

Future economic benefits of biological assets shall normally be measured by the

significant physical attributes of the assets. (refer chap 15, p 1188 of textbook). It may be
based on:
Size;
Weight;
Protein or fat content;
Bud sampling;
Age or circumference of trees,
Pregnancy scanning etc.
are the potentials to contribute directly or indirectly to the flow of cash and
cash equivalent to the reporting entity.
The Presence of Control may be evidenced by:
Legal ownership( for example, a freehold land title in a plantation);
Lease(for example, a lease of a State land in an aquaculture or horticulture
farm);
Joint venture in respect of the land on which a crop, plantation or herd is
raised
Branding of livestock on acquisition, birth or weaning ( for example, broiler,
layer, deer or cattle farming);
Licence or concession to harvest (for example a timber concession), with
associated conditions attaching to the restocking or reforestation
Accounting issues arise as a result of the unique attributes of biological assets.
5.8 MEASUREMENT
- INITIAL (STEP 5)
- SUBSEQUENT (STEP 6)
5.8.1

Measurement Criteria

a. Biological asset
It shall be measured on initial recognition and at the end of each reporting period at its
Fair value less Costs to sell (estimated- point -of -sale- cost) except (for the case
described in paragraph 30) where the fair value cannot be measured reliably.
13

Biological assets should be shown at its carrying amount as non-current assets in

the statement of financial position if they last for more than one year. Dairy cattle and
trees are examples of non-current assets.
Rather than being depreciated, they are re-measured at their fair value less
estimated point-of-sale costs at each reporting period date. For examples, whilst
trees for lumber will appreciate in value, fruit trees or dairy cattle will tend to fall in
value in their later years.
Other products with a short life, such as milk and wheat, will be classified as
inventory as per MFRS 102 and transferred to cost of sales.
For convenience, similar assets may be grouped (by age, quality etc) and fair values
established for the group.

b. Agricultural Produce
For agricultural produce that are harvested from the biological assets, the
measurement is at Fair value less Cost to sell at the point of harvest. Such value
will be the cost at the date of applying MRS102 Inventories or another applicable
standard.
5.8.2 Fair value
Fair value is the price that would be received to sell an asset, or paid to transfer a liability,
in an orderly transaction between market participants at the measurement date. (definition
as per MFRS 13: Fair Value Measurement).
MFRS 141 clarifies that the fair value of the biological asset or an agricultural produce is
based on its present location and condition that is the fair value price in the relevant
market less cost to sell.
A. Ability to Measure the Fair Value Reliably
This imply that there is a presumption the fair value is reiably measured and there is an
active market

For convenience, similar assets may be grouped (by age, quality etc) and fair values
established for the group.
EXAMPLE 5:
You are involved in an agricultural business. There may be no market for your wood,
but buyers may want to buy for the trees (biological assets), raw land, and land
improvements, as a package.

When biological assets are measured in accordance with the fair value model, the
change in fair value less costs to sell is recognised in profit or loss during the period in
which the change occurs.

If an entity has access to different active markets, the entity shall use the price existing
in the market that it expects to use.

B. Inability to Measure the Fair Value Reliably

14

When the fair value cannot be measured reliably initially, the biological assets are
measured at cost less any accumulated depreciation and impairment, if any).
EXAMPLE 6: No fair value
Your crop is about to be harvested. The market for your crop has been suspended, the
future of which the government is considering. Currently there are no buyers. No
reliable market price can be calculated. You are confident of finding foreign buyers, but
have not yet agreed terms of sale. Until buyers are found, your crop should be valued
at its cost, less any accumulated depreciation and any accumulated impairment losses

5.8.3 Active market

Presence of an active market
An active market is a market where all the following conditions exist:
a. the items traded within the market are homogeneous;
b. willing buyers and sellers can normally be found at any time; and
c. prices are available to the public.
In the absence of an active market
Where no active market exists, the following may be used to estimate fair value:
a. The most recent market price
provided that there has not been a significant change in economic circumstances
between the date of that transaction and the end of the reporting period.
b.

In reference to similar assets, adjusted to reflect any differences

EXAMPLE 7
There may be a market for a mature animal but no market for a young animal. It may
be possible to determine the fair value of the young animal reliably by projecting the
cash inflows from the sale of a mature animal, less the cash outflows needed to grow
the animal to its marketable weight.

c. Sector benchmarks
for example, such as:
i.
the value of an orchard expressed per export tray,
ii.
bushel, or hectare, and
iii.
the value of animal, eg. cattle expressed per kilogram of meat.
5.8.4 Carrying amount
This is the amount at which an asset is recognized in the statement of financial position
after deducting any accumulated depreciation and accumulated impairment losses.

15

5.8.5 Estimated Cost to sell (Point-of-sale) costs

They are the incremental costs associated with the sale transaction of the asset itself.
They include:
- commissions to brokers and dealers,
- charges by regulatory agencies and commodity exchanges, and
- transfer taxes and duties.
Estimated Cost to sell (point-of-sale) costs exclude :
- transport, and other costs, necessary to transport assets to a market (as this is
included in its fair value). Transport is the cost of getting the produce to the market
prior to sale.

EXAMPLE 8
The fair value of a chicken situated at the Ayam Sihat farmland situated in Tronoh Rasi is
measured at the market price of the chicken in the relevant market less the transport and
other costs of getting the chicken to the market. As costs to transporting the chicken to the
market are deducted in measuring fair value they cannot also be counted as costs to sell
the asset (ie a double-counting error).
Costs to sell are deducted from fair value when biological assets are first recognised and
so they can give rise to an immediate loss.
Transport costs are taken into account in fair values. As costs, they reduce the fair values.
EXAMPLE 9: Initial measurement
Facts are the same as per EXAMPLE 3. At the start of the reporting period, the oil palm
crops market value of Puncak Getah Bhd is estimated at RM50,000,000. Transportation
cost to market will be RM4,000,000. Selling agents commission will be RM1,000,000.
Solution
RM000
Oil palm crops market price
Transport cost ( to market)
Fair Value of crops
Less: Cost to sell
Selling agent commision

50,000
(4,000)
46,000

Fair Value less cost to sell

45,000

Explanation/ Reason

(1,000)

5.8.6 Gains and losses

Income under MFRS 141 can be classified into:
- Initial gain or loss on biological assets.
- Changes in fair value less costs to sell of biological assets.
16

Initial gain or loss on agricultural produce.

A. Biological Asset
Initial losses on biological assets typically arise when a biological asset is
purchased. The cost of the biological asset is often higher than the fair value less
costs to sell, as the latter represents an exit price, and transaction expenses
therefore create a loss.
Initial gains on biological assets arise when new biological assets are generated
for example, when a calf or a piglet is born.
All these gains and losses are recognised as income in the statement of profit or
loss for the period in which it arises.

EXAMPLE 10
On 1 January 2015, a calf is born. The estimated fair value less point-of-sale costs of a
day old calf is RM500. As at 31 December 2015, the calf is about a year old and has an
estimated fair value less estimated point-of- sale costs of RM1,400
Required: Explain how the gain or loss shall be recognized.

Solution:
1 January 2015
Dr Biological asset

RM500

Cr Gain in SOPL
-

RM500

To record gain on initial recognition of biological asset

31 December 2015
Dr Biological asset
Cr Gain in SOPL
-

RM900
RM900

To recognize gain from a change in fair value of biological asset

(Refer Example 3, p.1192 of text book)

B. Agricultural Produce
Initial gains or losses on agricultural produce represents the difference between the
change in carrying value of the biological assets due to harvest and the fair value
less costs to sell of the harvested agricultural produce.
17

For example, in oil palm cultivation, a gain will arise on harvesting of the fresh fruit
brunches. Similarly, in rubber cultivation, a gain will arise when the trees are
tapped and latex is collected.
It reflects the last stage of the value creation of the biological process, and the
harvested produce is transferred to inventory. There may be further costs involved
in preparing the inventory for market.

The different stages in the accounting life of a biological asset are shown in the simple
diagram below.

(Refer Example 4, p.1192 of text book)

5.8.7 Subsequent Measurement
MFRS 141 does not prescribe the treatment of subsequent expenditure.
However, such a treatment would still be permissible under MFRS 141. This is done by
taking the analogy from MFRS 116 with regards to the policy of capitalising such costs.
a. it is probable that future economic benefits associated with the item will flow to the
entity; and
b. the cost of the item can be measured reliably
Nevertheless, difficulties may be encountered in defining what should be capitalised and
what should be expensed; many entities now adopt a policy of treating all such
expenditure as a cost of production. This is also permissible.
Cost like feeding costs, fertiliser, pesticide, farm clearing, cleaning, etc. are treated as cost
of production.

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EXAMPLE 11

5.8.8 Government Grants

An unconditional grant should be recorded as income when the grant becomes receivable.
EXAMPLE 12 - Grant becomes receivable
In January, you negotiate a grant for your dragon fruit crop. The condition of the grant is
that your crop will be ready for harvest. Your dragon fruit crop is ready for harvest in
August. You receive the grant in November. When does the grant become receivable?
Solution:
The grant becomes receivable in August, when you have met the condition of the grant. A
conditional grant should be recorded as income when all the conditions are met.

EXAMPLE 13- Grant for set-aside land

In January, you negotiate a grant for your land. The condition of the grant is that your land
will not be used for crops. Your last crop is harvested in August. The land is cleared and
set aside in September. You receive the grant in November.
Solution
The grant becomes receivable in September, when you have met the condition of the
grant
a. Terms and conditions of grants vary:
EXAMPLE 14- Long-term grant

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A grant requires you to farm in a particular location for five years, and requires the return
of the entire grant, if you farm for less than five years. The total grant is RM50,000,
receivable in equal installments.
Required: Show journal entries.
Solution
a Each year (from Year 1 to Year 5) the entry in the books
.
would be:
Cash
Deferred Government grant income
Initial recognition of Grant
b
.

The grant is not recorded as income until the five years

have passed, when the accounting entries in Year 5 would
be:
Deferred Government grant income
Grant Income
Recognition of total Grant income in the statement
profit or loss (RM10,000 x 5 years)

DR

CR

RM10,000
RM10,00

RM50,000
RM50,000

b. The conditions allowed retention of the grant in proportion the elapsed part of the
five years then the grant would be recorded proportionately.

EXAMPLE 15-Long-term grant-proportional basis

A RM20m grant requires you to farm in a particular location for ten years, and requires the
return of part of the grant, if you farm a shorter period. Each year that you farm, you will
record 10% of the grant as income.
Required: Show Initial Journal Entries
Solution
a
.

Cash

DR
RM20m

Deferred Government grant income

Initial recognition of Grant
b
.

Deferred Government grant income

Grant Income
Annual recognition in the statement profit or loss of
1/10 of grant.

CR
RM20m

RM2m
RM2m

6.0 Presentation and disclosure (Step 8)

20

An entity shall disclose the aggregate gain or loss arising during the current period on
initial recognition of biological assets and agricultural produce and from the change in fair
value less costs to sell of biological assets. Para 40
An entity shall provide a description of each group of biological assets. Para 41
(Refer p.1215 of text book for example of disclosure)

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