2. 2
IAS 41 – Objective and Scope
Standard deals with the accounting for
agricultural activity specifically covering:
◦ Biological assets
◦ Agricultural produce at the point of harvest
◦ Related government grants
◦ Excludes land and intangible assets
In general, agricultural activities have the
following common characteristics: they are
capable of biological transformation and this
transformation is managed, facilitated,
measured, and monitored by the entity
3. Key Terms
Agricultural Activity –the biological transformation of biological
assets for sale into agricultural produce or into additional
biological assets
Agricultural Produce – the product of an enterprise’s biological
assets
Biological Asset – A living animal or plant
Biological Transformation – the processes of growth,
disintegration, production and procreation that cause qualitative
and quantitative changes in a biological asset
Group of Biological Assets – An aggregation of similar living
animals or plants
Harvest – the detachment of produce from a biological
asset/bearer plant or the cessation of a biological asset’s life
processes
Bearer plant
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
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4. 4
4
Identifying assets
An asset is:
◦ a resource controlled by the entity (as a
result of past events); and
◦ from which future economic benefits are
expected to flow to the entity
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5. 5
5
Classifying assets
Why are assets classified further and,
based on their classification, accounted
for differently?
◦ “Different types of economic resources
affect a user’s assessment of the reporting
entity’s prospects for future cash flows
differently” (paragraph OB14 of the
Conceptual Framework)
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6. Recognition
Biological assets/bearer plants may not be recognised
unless the following conditions are met:
(a) the enterprise controls the asset as a result of
past events;
(b) it is probable that the future economic benefits
will flow to the enterprise; and
(c) the fair value or cost can be measured reliably.
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7. Measurement
at initial recognition
Measurement Item
Historical cost Most inventory, PPE, intangibles and investment
property. Some non-produce part of bearer plants
(from 2016)
Fair value less
costs to sell
Biological assets in agricultural activity:
• All except non-produce part of bearer plants
(from 2016)
Fair value Any inventory, PPE, intangibles, investment
property etc acquired in:
• a business combination; or
• exchanges of non-financial asset
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8. Measurement after initial
recognition
Cost–based
models
Item
Historical
cost
Unimpaired inventory, unimpaired non-
depreciable PPE (alternative) and
unimpaired indefinite-life intangible assets
and goodwill; possibly the non-produce
part of some unimpaired bearer plants.
Historical
cost less
depreciation
(proportion
of cost
consumed
through use)
Alternative for depreciable unimpaired
PPE and most intangibles. Also non-
produce part of most bearer plants
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9. Measurement after initial
recognition
Fair value–
based
measureme
nts
Item
Revaluation
model
• Alternative for PPE, some intangibles
and (from 2016) for the non-produce
part of some bearer plants
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10. Measurement after initial
recognition
Fair value–
based
measureme
nts
Item
Fair value
less costs to
sell
• Biological assets in agricultural activity
(except non-produce part of bearer
plants); some non-current assets held
for sale; inventories of many
commodity broker traders; and
impaired PPE, goodwill, intangibles
etc (if recoverable amount not value in
use)
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11. Measurement after initial
recognition
Entity specific
measurements
Item
Net realizable
value (expected
selling price less
costs to complete
and sell)
Most impaired inventories and
• all inventories of some producers
of agricultural and forest products
(an industry practice exception)
Value in use
(discounted
expected future
cash flows)
Impaired PPE, goodwill and
intangibles (if recoverable amount
not fair value less costs to sell).
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12. Measurement of biological assets at FV less cost to
sell
As biological assets grow and mature through biological
transformation, they increase in value
Biological assets are measured at fair value less estimated costs
to sell on initial recognition (and subsequently), unless fair value
cannot be reliably measured
◦ Costs to sell include commissions, taxes, and duties
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, should be reported in arriving
at net profit or loss for the period.
The change in fair value of biological assets may be part
physical change (i.e. growth) and part price (i.e. fair value)
change. IAS 41 encourages, but does not require, the
separate disclosure of these two components on the basis that
it assists with appraising current period performance and future
prospects.
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13. Example: Measurement of biological assets at FV
less cost to sell
A herd of 10 two-year-old animals was held at 1 January 2016. One animal,
aged 2.5 years, was purchased on 1 July 2016 for Br1,080, and one animal
was born on 1 July 2016. No animals were sold or disposed of during the
period. Per unit fair values less estimated point-of-sale costs were as
follows:
Br
2-year-old animal at 1 January 2016 1,000
Newborn animal at 1 July 2016 700
2.5-year-old animal at 1 July 2016 1,080
Newborn animal at 31 December 2016 720
0.5-year-old animal at 31 December 2016 800
2-year-old animal at 31 December 2016 1,050
2.5-year-old animal at 31 December 2016 1,110
3-year-old animal at 31 December 2016 1,200
Before separating the physical changes and the price change, it is useful to
examine the overall movement in the valuation of the herd during 2016.
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14. Example: Measurement of biological assets at FV
less cost to sell
FV less estimated point-of-sale costs of herd at 1 January 2016:
(10 x Br1,000)
Br
10,000
Purchased on 1 July 2016: (1 x Br1,080) 1,080
11,080
FV less estimated point-of-sale costs of herd at 31 December
2016: Br
11 x Br1,200 13,200
1 x Br800 800
14,000
Therefore the movement in valuation during the period is Br2,920 (Br14,000
- Br11,080).
This can be explained by:
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15. Example: Measurement of biological assets at FV
less cost to sell
Increase in fair value less estimated point-of-sale costs due to price change:
€
10 x (€105 – €100) 50
1 x (€111 – €108) 3
1 x (€72 – €70) 2
55
Increase in fair value less estimated point-of-sale costs due to physical
change:
€
10 x (€120 – €105) 150
1 x (€120 – €111) 9
1 x (€80 – €72) 8
1 x €70 70
237
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16. 16
Disclosure
IAS 1 requires biological assets to be presented separately on the
statement
of financial position
The standard requires the following disclosures:
• Recognized gains/losses (on initial recognitions and on
revaluation)
• Description of each type of biological asset
• Nature of activities relating to the assets
• Non-financial measures or estimates of the physical qualities of the
assets
• Methods and significant assumptions to determine fair value
• Fair value of harvested assets at point of harvest
• Any restrictions on title
• Commitments for the development or acquisition of biological
assets
• Financial risk management strategies
• A reconciliation of changes in the carrying amounts of biological
