chapter 1 to 5
TRANSCRIPT
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
2St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
3St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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,
4St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
5St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
6St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
7St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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,
8St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
9St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
10St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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).
11St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
12St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
13St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
biological assets and
agricultural produce of
selected enterprises in
Cagayan and Isabela
Evaluation of the
accounting practices of
biological assets and
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.
14St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
15St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
16St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
17St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
18St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
19St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
20St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
21St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
22St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
23St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
24St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
More than 16 years to 18 years 3 15
More than 2 years to 4 years 2 10
More than 6 years to 8 years 2 10
More than 8 years to 10 years 2 10
More than 18 years to 20 years 1 5
More than 22 years to 24 years 1 5
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
6 to 10 employees 2 10
11 to 15 employees 2 10
25St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
26St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
27St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
28St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
29St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
30St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
31St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
32St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
33St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
34St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
35St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
36St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
37St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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.
38St. Paul University Philippines
Tuguegarao City, Cagayan 3500
.
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
39St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
40St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
41St. Paul University Philippines
Tuguegarao City, Cagayan 3500
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
agricultural produce.
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
agricultural produce.
42St. Paul University Philippines
Tuguegarao City, Cagayan 3500
APPENDICES
43St. Paul University Philippines
Tuguegarao City, Cagayan 3500