Biological Assets

What are Biological Assets?

Biological Assets are assets that are living – for example, trees, animals, or cannabis. The balance sheet breaks down a company’s assets at a given point in time, classifying them by type and attributing a value to them. The International Accounting Standard 41 (IAS 41) states that a biological asset is any living plant or animal owned by the business, and they are typically measured at fair value minus selling costs.

For example, livestock such as goats, cows, sheep, pigs, and fish are all considered biological assets. Biological assets also include crops grown by farmers – e.g., corn, tomatoes – as well as grapevines, cannabis, trees, and any produce coming from trees, such as apples.

Cannabis Stocks

Cannabis Stocks have gained increased awareness due to the listing of cannabis companies in public stock exchanges. With shares in the public market, they are required by regulation to periodically release their financial statements. This has given the general public access to their Income Statements, Statements of Financial Position, and Cash Flow Statements.

A significant portion of the current assets owned by these companies is biological assets (cannabis), which is typically their primary resource for profit-generating operations. Below is an example of Canopy Growth Corporation’s balance sheet, and highlighted is their Biological Asset holdings.

Canopy Growth Corporation Statement of Financial Position

Other Industries that are known for large amounts of biological assets are:

• Paper and Forest Products (Trees)
• Dairy (Cows)
• Agriculture (Crops)
• Meat (Grazing)
• BioFuel (Energy Crops – such as Soybean)

The Nature of Biological Assets

Biological assets can be held and accounted for by any business owner. However, because of their nature, they are, typically, of the utmost importance to farmers or any individuals whose primary source of profit comes from growing, selling, and shipping such goods.

Biological assets, because they are living or have an active component that makes them difficult to maintain, are constantly under the threat of change, both qualitatively and quantitatively. It simply means that plants, animals, and the living things they produce (such as hens producing eggs or cows producing milk) have a period of time where they must grow or be produced, a useful period during which they can be harvested, and a limited amount of time during which they can be moved and sold before they rot, decay, or otherwise become useless to consumers.

The Importance of Biological Assets

Biological assets generate substantial revenue or income for businesses in industries such as silviculture, cannabis, vineyards, and livestock, so this asset type is typically seen in the balance sheet of companies in these industries. They are the same as the goods produced by other companies that manufacture items made of plastic, paper, or other materials in terms of generating revenue for the seller and accounting for loss if the goods are damaged or stolen. The only qualitative difference is that the asset is living.

Biological assets change and depreciate naturally and more rapidly than other types of goods. Different types of biological assets, much like other goods, can be in high or low demand, depending on the season. Recently there has been a surge in the demand for cannabis. They can also be lost or damaged, with the loss or damage usually due to things like unexpected periods of rain or drought, cold weather, or the spread of a disease that wipes out crops and/or livestock.

It’s important to note that the term “biological asset” is unique to the field of accounting for the purpose of clearly categorizing and identifying assets owned by businesses, such as farms and vineyards, or produce that is a primary source of the company’s income. Businesses in various industries and sectors can raise plants and animals for a variety of reasons; classifying them as biological assets denote their nature and their value to the business owner.

Additional Resources

Thank you for reading CFI’s guide to Biological Assets. The following CFI resources will be helpful in furthering your financial education:

• Accounting Fundamentals
• Balance Sheet 
• Types of Assets
• Excel Financial Modeling Fundamentals
• See all accounting resources