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IFRS IAS 41 Agriculture

IFRS IAS 41 Agriculture

IFRS IAS 41 Agriculture, is a small standard with a wide scope and a significant impact on those entities within its scope. It applies to most entities that grow or rear biological assets for profit. The principle of the standard is that increases in value are recognised as the asset grows and not solely on harvest or sale.

The standard raises some challenges:

  • Which entities are in its scope?
  • What is the asset to be recognised and measured?
  • How is the asset measured?
  • How is agricultural activity disclosed in the entity’s financial statements?


IFRS IAS 41 Agriculture

IFRS IAS 41 Agriculture

IFRS IAS 41 Agriculture

Agricultural activities are distinguished by the fact that management facilitates and manages biological transformation and is capable of measuring the change in the quality and quantity of biological assets. Management of biological transformation normally takes the form of activity to enhance, or at least stabilise, the conditions necessary for the process of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset to take place.

IFRS IAS 41 Agriculture: Example

Examples of agricultural activity include:

  • Raising livestock, fish or poultry
  • Stud farms (for example, breeding horses or cattle)
  • Forestry
  • Cultivating vineyards, orchards or plantations
  • Floriculture

IFRS IAS 41 Agriculture

Fair value

The current definition of fair value in IAS 41 is the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. It represents a market price for the asset based on current expectations. IAS 41 includes an unofficial hierarchy of valuation measures, similar to those found in IAS 36, ‘Impairment of assets’, and IAS 39, ‘Financial instruments: Recognition and measurement’.

The Fair hierarchy summarise

  • Price for the asset in an active market.
  • Recent transaction price for the asset if there is no active market.
  • Market prices for similar assets, adjusted for the points of difference.
  • Sector benchmarks.
  • Present value of the future cash flows expected to be generated from the asset.

Many biological assets have relevant market-determined prices or values available, as biological produce in general are basic commodities that are traded actively. For example, there are usually market prices for calves and piglets, as there is an active market for these assets.

When market-determined prices or values are not available for a biological asset in its present condition, present value of expected net cash flows from the asset should be used. Consistent with the objective of estimating fair value, the cash flows should be based as far as possible on market data. For example, while there is a market for fully grown salmon, there is no market for a partly grown salmon. The fair value of a partly grown salmon is measured by projecting the cash inflows from the sale of the salmon fully grown, less the cash outflows needed to grow the salmon to its marketable weight and discounting them to a present day value.

IFRS IAS 41 Agriculture

The objective of this Standard is to prescribe the accounting treatment and disclosures related to agricultural activity. Agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Biological transformation comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative changes in a biological asset. A biological asset is a living animal or plant. Agricultural produce is the harvested product of the entity’s biological assets. Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.

IFRS IAS 41 Agriculture: 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.

The Standard is applied to agricultural produce, which is the harvested product of the entity’s biological assets, only 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.

IFRS IAS 41 Agriculture: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Costs to sell include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes and duties. Costs to sell exclude transport and other costs necessary to get assets to a market. Such transport and other costs are deducted in determining fair value (that is, fair value is a market price less transport and other costs necessary to get an asset to a market).

IFRS IAS 41 Agriculture

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.

IAS 41 does not establish any new principles for land related to agricultural activity. Instead, an entity follows IAS 16 Property, Plant and Equipment 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 that are physically attached to land (for example, trees in a plantation forest) are measured at their fair value less costs to sell separately from the land.

IFRS IAS 41 Agriculture

IAS 41 requires that 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, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance is applied.

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