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IFRS amendments to IAS 41

IFRS amendments to IAS 41: In April 2001 the International Accounting Standards Board (the Board) adopted IAS 41 Agriculture, which had originally been issued by the International Accounting Standards Committee in February 2001. In December 2003 the Board issued a revised IAS 41 as part of its initial agenda of technical
projects.
In June 2014 the Board amended the scope of IAS 16 Property, Plant and Equipment to include
bearer plants related to agricultural activity. Bearer plants related to agricultural activity
were previously within the scope of IAS 41. However, IAS 41 applies to the produce growing
on those bearer plants. Other Standards have made minor consequential amendments to IAS 41, including IFRS 13 Fair Value Measurement (issued May 2011) and IFRS 16 Leases (issued January 2016).

IFRS amendments to IAS 41

IFRS amendments to IAS 41

IFRS amendments to IAS 41

International Accounting Standard 41 Agriculture (IAS 41) is set out in paragraphs 1–64. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 41 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

IFRS amendments to IAS 41

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Introduction

IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related to most agricultural activity. Agricultural activity is the management by an entity of the biological transformation of living animals or plants (biological assets) for sale, into agricultural produce, or into additional biological assets. Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41),
issued in June 2014, amended the scope of IAS 16 Property, Plant and Equipment to include bearer plants related to agricultural activity. However, IAS 41 applies to the produce growing on those bearer plants.
IFRS amendments to IAS 41

IAS 41 prescribes, among other things, the accounting treatment for biological assets during the period of growth, degeneration, production, and procreation, and for the initial measurement of agricultural produce at the point of harvest. It requires measurement at fair value less costs to sell from initial recognition of biological assets up to the point of harvest, other than when fair value cannot be measured reliably on initial recognition. However, IAS 41 does not deal with processing of agricultural produce after harvest; for example, processing grapes into wine and wool into yarn.

IFRS amendments to IAS 41

There is a presumption that fair value can be measured reliably for a biological asset. However, that presumption can be rebutted only on initial recognition for a biological asset for which quoted market prices are not available and for which alternative fair value measurements are determined to be clearly unreliable. In such a case, IAS 41 requires an entity to measure that biological asset at its cost
less any accumulated depreciation and any accumulated impairment losses. Once the fair value of such a biological asset becomes reliably measurable, an entity should measure it at its fair value less costs to sell. In all cases, an entity should measure agricultural produce at the point of harvest at its fair value less costs to sell.

IFRS amendments to IAS 41

IAS 41 requires that a change in fair value less costs to sell of a biological asset be included in profit or loss for the period in which it arises. In agricultural activity, a change in physical attributes of a living animal or plant directly enhances or diminishes economic benefits to the entity. Under a transaction-based, historical cost accounting model, a plantation forestry entity might report no income until first harvest and sale, perhaps 30 years after planting. On the other hand, an accounting model that recognises and measures biological growth using current fair values reports changes in fair value throughout the period between planting and harvest.

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IFRS amendments to IAS 41

IAS 41 does not establish any new principles for land related to agricultural activity. Instead, an entity follows IAS 16 or IAS 40 Investment Property, depending on which standard is appropriate in the circumstances. IAS 16 requires land to be measured either at its cost less any accumulated impairment losses, or at a revalued amount. IAS 40 requires land that is investment property to be measured at its fair value, or cost less any accumulated impairment losses. Biological assets within the scope of IAS 41 that are physically attached to land (for example, trees in a timber plantation) are measured at their fair value less costs to sell separately from the land.

IFRS amendments to IAS 41

IN6 IAS 41 requires an unconditional government grant related to a biological asset measured at its fair value less costs to sell to be recognised in profit or loss when, and only when, the government grant becomes receivable. If a government grant is conditional, including when a government grant requires an entity not to engage in specified agricultural activity, an entity should recognise the
government grant in profit or loss when, and only when, the conditions attaching to the government grant are met. If a government grant relates to a biological asset measured at its cost less any accumulated depreciation and any accumulated impairment losses, the entity applies IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

IFRS amendments to IAS 41

IAS 41 is effective for annual financial statements covering periods beginning on
or after 1 January 2003. Earlier application is encouraged.

IAS 41 does not establish any specific transitional provisions. The adoption of

IAS 41 is accounted for in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors.

The illustrative examples accompanying IAS 41 provide examples of the
application of the Standard. The Basis for Conclusions summarises the Board’s
reasons for adopting the requirements set out in IAS 41.

IFRS amendments to IAS 41

Objective
The objective of this Standard is to prescribe the accounting treatment and
disclosures related to agricultural activity.
IFRS amendments to IAS 41: Scope
This Standard shall be applied to account for the following when they
relate to agricultural activity:
(a) biological assets, except for bearer plants.
(b) agricultural produce at the point of harvest.
(c) government grants.
This Standard does not apply to:

  1. land related to agricultural activity (see IAS 16 Property, Plant and
    Equipment and IAS 40 Investment Property).
  2.  bearer plants related to agricultural activity (see IAS 16). However, this
    Standard applies to the produce on those bearer plants.
  3. government grants related to bearer plants (see IAS 20 Accounting for
    Government Grants and Disclosure of Government Assistance).
  4.  intangible assets related to agricultural activity (see IAS 38 Intangible
    Assets).
  5.  right-of-use assets arising from a lease of land related to agricultural
    activity.

IFRS amendments to IAS 41

This Standard is applied to agricultural produce, which is the harvested produce of the entity’s biological assets, at the point of harvest. Thereafter, IAS 2 Inventories or another applicable Standard is applied. Accordingly, this Standard does not deal with the processing of agricultural produce after harvest; for
example, the processing of grapes into wine by a vintner who has grown the grapes.

While such processing may be a logical and natural extension of agricultural activity, and the events taking place may bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity in this Standard.

IFRS amendments to IAS 41

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