What is the primary basis for valuing biological assets?

The primary basis for valuing biological assets is fair value less costs to sell. This approach is rooted in both the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (GAAP) for agricultural activity.

Biological assets, which include living plants and animals, often fluctuate in value over time as they grow, mature, or face risks associated with their environment or market conditions. Therefore, using fair value provides a more accurate representation of the asset's current worth. Fair value less costs to sell accounts for any costs that would be incurred to sell the asset, ensuring that the value reflects the net amount that could be obtained from the asset in the market.

This valuation method captures the economic realities of biological assets, making it preferable over historical cost, which only reflects the price paid at acquisition and does not account for the changes in market conditions, or replacement cost, which does not consider the potential sale value in its current state. Book value also fails to reflect the current market dynamics affecting biological assets.