1. Definition and Classification according to NIF E-1
The NIF E-1 It establishes the accounting and treatment for agricultural activities, focusing on the measurement, valuation, and presentation of biological assets and biological production assets. This regulation is crucial for agricultural companies, since the correct classification and measurement of these assets directly impacts financial statements.
What are Biological Assets?
The biological assets are those that, by their nature, undergo biological transformations such as growth, reproduction or degeneration. These assets are intended for the direct sales wave harvest, and in many cases, are considered agricultural inventories.
- Valuation: Biological assets are valued at Fair Value Less Costs to Sell (FVCDS), provided there is an active market that allows determining the selling price. If there is no reliable market, they are valued at acquisition cost and transformation cost.
- Common examples:
- Agricultural crops such as corn, wheat or soybeans
- Broiler chickens
- Fish in hatcheries
- Pigs for marketing
- Shelf life: Short term, since their life cycle is not extensive and they are expected to be harvested or sold in less than a year.
- Accounting treatment:
- It is recognized that change in value of the biological asset throughout its production cycle (according to the VRMCD) until it is sold or harvested.
- Income from the sale of biological assets is recognized when the sale is made.
What are Biological Producer Assets?
The producing biological assets are those intended to generate agricultural products in a manner continuously and over several production cyclesThese assets are not sold directly, but remain in production for years.
- Valuation: The producing biological assets are recorded at acquisition cost and transformation until they are ready to produce. These assets are then depreciate throughout its productive lifespan.
- Common examples:
- Fruit trees (avocados, mangoes, citrus fruits)
- Vines for grape production
- Dairy cattle
- Laying hens
- Shelf life: Long term, since these assets are expected to be productive for several years or even decades.
- Accounting treatment:
- Initially, they are recognized at acquisition cost and capitalized as fixed assets.
- Depreciation: It is calculated and recognized periodically as the producing biological asset is used for the production of goods or services.
2. Accounting Comparison and Distinction
| Feature | Biological Assets | Biological Active Producers |
|---|---|---|
| Main Objective | Direct sale or harvest | Production over several production cycles (long-term) |
| Valuation | Fair Value Less Costs to Sell (FVCDS) or cost if there is no market | Acquisition cost plus depreciation |
| Shelf life | Short term (life cycle less than one year) | Long term (life cycle greater than one year) |
| Recognition in Results | Changes in value (revaluations) | Periodic depreciation (according to useful life) |
| Common Examples | Crops, chickens, fattening fish | Fruit trees, dairy cows, laying hens |
3. Practical Example with Accounting Entries
Case 1: Avocado Plantation (Biological Asset Producer)
Situation: The company Agropecuaria El Encino SA de CV has acquired 1,000 avocado trees to start a plantation. The acquisition value is $800,000 pesos, and the plantation is expected to begin producing in 3 years.
- Initial Accounting Entry:
The initial recording is made at its acquisition cost, since this is a productive biological asset. ConceptPostPassBiological asset producer – Avocados 1TP 4T 800,000 Banks or Accounts payable 1TP 4T 800,000 - Depreciation Accounting Entry:
Once the plantation begins to produce, depreciation is calculated and recorded annually. If the useful life is 15 years, the accounting entry for each year would be: ConceptPostPassDepreciation Expense$53,333Accumulated Depreciation$53,333 This entry will be repeated each year until the trees reach the end of their useful life.
Case 2: Chicken Fattening (Biological Asset)
Situation: The same company buys 5,000 broiler chickens for a value of $150,000 pesosThe chickens are expected to be sold within 4 months.
- Initial Accounting Entry:
Chickens are biological assets intended for direct sale, so they are recorded as biological assets. ConceptPostPassBiological Asset – Broiler Chickens 1TP 4T 150,000 Banks or Accounts Payable 1TP 4T 150,000 - Revaluation to VRMCD:
If at the end of the month the value of chickens increases to $170,000 pesos, the following revaluation entry is made to reflect the change in its value: ConceptPostPassBiological Asset – Broiler Chickens$20,000Profit from Valuation of Biological Assets$20,000
4. Conclusion
The proper accounting treatment of biological assets and the producing biological assets According to NIF E-1, it is essential to accurately reflect a company's agricultural activity. Correct classification allows the financial statements to present a true picture of the company's financial position and performance.
- Biological Assets: They are intended for sale or direct harvest, and are valued at Fair Value Less Costs to Sell (FVCDS).
- Biological Active Producers: They generate products during several production cycles, and are valued at acquisition cost and then depreciate during its productive lifespan.
Applying these principles correctly allows agricultural companies to comply with tax and accounting regulations, maintaining the transparency in their financial reports and ensuring the compliance of current Mexican legislation.
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