IFRS/IAS Summary

IAS-41 - Agriculture

Objective of IAS 41

The objective of IAS 41 is to establish standards of accounting for agricultural activity -- the management of the biological transformation of biological assets (living plants and animals) into agricultural produce.

Key Definitions

• Biological assets are living animals and plants. [IAS 41.5]
• Agricultural produce is the harvested product from biological assets. [IAS 41.5]

Measurement

• Measure all biological assets at fair value less expected point-of-sale costs at each balance sheet date, unless fair value cannot be measured reliably. [IAS 41.12]
• Measure agricultural produce at fair value at the point of harvest less expected point-of-sale costs. Because harvested produce is a marketable commodity, there is no "measurement reliability" exception for produce. [IAS 41.13]
• The change in fair value of biological assets during a period is reported in net profit or loss. [IAS 41.26]
• 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.
• IAS 41 presumes that fair value can be reliably measured for most biological assets. However, that presumption can be rebutted for a for a biological asset that -- at the time it is initially recognised in financial statements -- does not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are determined to be clearly inappropriate or unworkable. In such a case, the asset is measured at cost less accumulated depreciation and impairment losses. But that enterprise must still measure all its other biological assets at fair value. If circumstances change and fair value becomes reliably measurable, a switch to fair value less point-of-sale costs is required. [IAS 41.30]

Fair Valuation

• The quoted market price in an active market for a biological asset or agricultural produce is the most reliable basis for determining the fair value of that asset. If an active market does not exist, IAS 41 provides guidance for choosing another measurement basis. First choice would be a market-determined price such as: [IAS 41.17-18] --the most recent market price for that type of asset, or --market prices for similar or related assets.
• If reliable market-based prices are not available, use the present value of expected net cash flows from the asset discounted at a current market-determined pre-tax rate. [IAS 41.20]
• In limited circumstances, cost is an indicator of fair value: if little biological transformation has taken place or the impact of biological transformation on price is not expected to be material. [IAS 41.24]

Other Issues

• 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.
• Fair value measurement stops at harvest. IAS 2, Inventories, applies after harvest. [IAS 41.13]
• A contract for the sale of biological assets and agricultural produce is recorded at fair value when (a) it is entered into and continues to meet the enterprise's expected sales; (b) it is designated for that purpose at inception; and (c) it is expected to be settled by delivery. A gain or loss arising from a change in fair value of a contract is included in net profit or loss.
• Agricultural land: follow IAS 16. However, biological assets that are physically attached to land are measured as biological assets separate from the land.
• Intangible assets relating to agricultural activity (example: milk quotas): follow IAS 38.
• Unconditional government grants received in respect of biological assets measured at fair value are reported as income when the grant becomes receivable. [IAS 41.34]

Disclosure

Disclosure requirements in IAS 41 include:

• carrying amount of biological assets [IAS 41.39]
• description of an enterprise's biological assets, by broad group [IAS 41.41]
• change in fair value during the period [IAS 41.40]
• fair value of agricultural produce harvested during the period [IAS 41.48]
• description of the nature of an enterprise's activities with each group of biological assets and non-financial measures or estimates of physical quantities of output during the period and assets on hand at the end of the period [IAS 41.46]
• information about biological assets whose title is restricted or that are pledged as security [IAS 41.49]
• commitments for development or acquisition of biological assets [IAS 41.49]
• financial risk management strategies [IAS 41.49]
• methods and assumptions for determining fair value [IAS 41.47]
• reconciliation of changes in the carrying amount of biological assets, showing separately changes in value, purchases, sales, harvesting, business combinations, and foreign exchange differences [IAS 41.50]

Disclosure of a quantified description of each group of biological assets, distinguishing between consumable and bearer assets or between mature and immature assets, is encouraged but not required. [IAS 41.43]

If fair value cannot be measured reliably, additional required disclosures include: [IAS 41.54-55]

• description of the assets
• an explanation of the circumstances
• if possible, a range within which fair value is highly likely to fall
• gain or loss recognised on disposal
• depreciation method
• useful lives or depreciation rates
• gross carrying amount and the accumulated depreciation, beginning and ending

If the fair value of biological assets previously measured at cost now becomes available, certain additional disclosures are required. [IAS 41.56]

Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions, and significant decreases in the expected level of grants. [IAS 41.58]

Transition

A change in accounting policy to adopt IAS 41 may be accounted for in accordance with either of the treatments for changes in accounting policies allowed in IAS 8, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. The choices are:

• the benchmark treatment: restatement
• the allowed alternative treatment: cumulative effect in earnings in the period of change, with pro forma disclosures as if restated

Note:  Please note that these summaries are only for reference purposes and are not a substitute for the entire IFRS/IAS. Kindly read the whole text of IFRS/IAS before consulting these summaries.

Summaries are courtesy of Deloitte.

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More Summaries

• IAS-01 - Presentation of Financial Statements (Revised Dec 2003)
• IAS-02 - Inventories (Revised Dec 2003)
• IAS-07 - Cash Flow Statements
• IAS-08 - Net Profit or Loss for The Period, Fundamental Errors and Changes in Accounting Policies (Revised)
• IAS-10 - Events after the Balance Sheet date (Revised Dec 2003)
• IAS-11 - Construction Contracts
• IAS-12 - Income Taxes
• IAS-14 - Segment Reporting
• IAS-15 - Information reflecting the effect of changing prices (Withdrawn Dec 2003)
• IAS-16 - Property, Plant and Equipment (Revised Dec 2003)
• IAS-17 - Leases (Revised Dec 2003)
• IAS-18 - Revenue
• IAS-19 - Employee Benefits
• IAS-20 - Accounting for Government grants
• IAS-21 - The effects of changes in foreign exchange rates (Revised Dec 2003)
• IAS-22 - Business Combinations
• IAS-23 - Borrowing Costs
• IAS-24 - Related Party Disclosures (Revised Dec 2003)
• IAS-26 - Accounting and reporting by defined benefit plans
• IAS-27 - Consolidated Financial Statements and Accounting for Investment in Subsidiaries (Revised Dec 2003)
• IAS-28 - Accounting for Investment in Associates (Revised Dec 2003)
• IAS-29 - Financial Reporting in Hyperinflationary Economies
• IAS-30 - Disclosures in Fin. Statements of Banks in Similar Fin. Institutions
• IAS-31 - Financial Reporting of Interests in Joint Ventures (Revised Dec 2003)
• IAS-32 - Financial Instruments: Disclosure and Presentation (Revised Dec 2003)
• IAS-33 - Earnings Per Share (Revised Dec 2003)
• IAS-34 - Interim Financial Reporting
• IAS-38 - Intangible Assets
• IAS-39 - Financial Instruments: Recognition and Measurement (Revised Dec 2003)
• IAS-40 - Investment Property (Revised Dec 2003)
• IAS-41 - Agriculture