IAS 41 – AGRICULTURE
The objective of IAS 41 is to establish standards of accounting for agricultural activity
Within scope are Biological assets, Agricultural produce at the point of harvest and Government grants related to biological assets.
Excluded from scope are Land and Intangible assets related to agricultural activity
Exists when; the items traded are homogenous, willing buyers and sellers can normally be found at any time and prices are available to the public.
The management of the transformation of a biological asset for sale into agricultural produce or another biological asset.
Biological asset: A living animal or plant.
Agricultural produce: The harvested produce of the entity‘s biological assets.
Biological transformation: The process of growth, degeneration, production, and procreation that cause an increase in the value or quantity of the biological asset.
Harvest: The process of detaching produce from a biological asset or cessation of its life.
Bearer plant: A living plant that:
- Is used in the production or supply of agricultural produce
- Is expected to bear produce for more than one period, and
- Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
Costs to sell: The incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes
Biological assets or agricultural produce are recognised when:
- Entity controls the asset as a result of a past event
- Probable that future economic benefit will flow to the entity; and Fair value or cost of the asset can be measurement reliably.
Biological assets within the scope of IAS 41 are measured on initial recognition and at subsequent reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured.
If no reliable measurement of fair value (no quoted market price in an active market and alternative fair value measurements unreliable), biological assets are stated at cost less accumulated depreciation and accumulated impairment losses.
If circumstances change and fair value becomes reliably measurable, a switch to fair value less costs is required.
Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest.
Unlike a biological asset, there is no exception in cases in which fair value cannot be measured reliably. According to IAS 41, agricultural produce can always be measured reliably because harvested produce is a marketable commodity.
Point of-sale costs include brokers‘ and dealers‘ commissions, any levies by regulatory authorities and commodity exchanges, and any transfer taxes and duties. They exclude transport and other costs necessary to get the assets to a market.
Treatment of gain/loss
- The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value less costs to sell of biological assets during a period, are included in profit or loss.
- A gain on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair value less costs to sell are included in profit or loss for the period in which it arises.
- All costs related to biological assets that are measured at fair value are recognised as expenses when incurred, other than costs to purchase biological assets.
An unconditional government grant related to a biological asset measured at fair value less estimated point-of-sale costs is recognised as income when, and only when, the government grant becomes available
A conditional government grant, including where a government grant requires an entity not to engage in specified agricultural activity, is recognised as income in profit or loss when and only when, the conditions of the grant are met.
- The change in fair value of biological assets is part physical change (growth, etc) and part unit price change. Separate disclosure of the two components is encouraged, not required.
- Agricultural produce is measured at fair value less costs to sell at harvest, and this measurement is considered the cost of the produce at that time (for the purposes of IAS 2 Inventories or any other applicable standard).
- Agricultural land is accounted for under IAS 16 Property, Plant and Equipment. However, biological assets (other than bearer plants) that are physically attached to land are measured as biological assets separate from the land. In some cases, the determination of the fair value less costs to sell of the biological asset can be based on the fair value of the combined asset (land, improvements and biological assets).