IAS 41 introduces a fair value model to agriculture accounting. This is a major shift away
from the traditional cost model widely applied in primary industry.
IAS 41 impacts those agricultural activities where the income-producing biological assets are
living animals or plants and will include the harvested produce of these assets eg if the
biological asset is dairy cattle, the agricultural produce is milk or the same distinction could
be made with trees in a plantation/felled trees or sugarcane/harvested cane Biological assets
do not include bearer plants. Bearer plants are:
i. used in the production or supply of agricultural produce;
ii. are expected to bear produce for more than one period;and
iii. have a remote likelihood of being sold as agricultural produce, except for incidental scrap.
Bearer plants would include tea bushes, grape vines and rubber trees. They will be accounted
for using IAS 16 – accumulated cost until maturity and then subject to depreciation and
impairment. The revaluation model could also be applied. The agricultural produce from
them will be accounted for using IAS 41 and IAS 2.
By contrast, in the case of an annual crop of wheat, for example, when the cultivated plants
would typically have a useful life that does not extend beyond the next year end date, the
introduction of the fair value model should not have such a major impact.
Coverage of the standard
IAS 41 applies to:
Biological assets (living plants or animals – for example, trees in a plantation or orchard,
cultivated plants, sheep, cattle) related to managed agricultural activity. (for example, raising
livestock, forestry, annual or perennial cropping, fish farming). Agricultural activity is the
management by an entity of the biological transformation (the process of growing,
degenerating, production and procreating that causes qualitative or quantitative change in the
biological asset.
Agricultural produce at the point of harvest.
Government grants related to agricultural assets
IAS 41 does not apply to:
Bearer plants related to agricultural activity (IAS 16, Property, Plant and Equipment)
Products that are the result of processing after the point of harvest, for example: yarn/carpet,
processed meats such as cured hams, tea, wine, rubber, logs – IAS 2, Inventories, applies
The land on which the biological assets grow, regenerate and/or degenerate (IAS 16,
Property, Plant and Equipment, IFRS 16, Leases, or IAS 40, Investment Properties, applies as
appropriate)
Any intangible asset associated with the agricultural activity, for example: licenses and rights
(IAS 38, Intangible Assets, applies)
Agricultural activity that is not managed, for example: harvesting from ocean fishing
Minerals, oil, natural gas and similar non-regenerative resources (not yet covered by an IAS).
The following accounting standards specifically do not apply to biological assets related to
managed agricultural activity because of the specific coverage in IAS 41:
IAS 2, until beyond the point at which agricultural produce is harvested
IAS 16, IFRS 16, IAS 40
IFRS 15, Revenue from Contracts with Customers, in respect of revenue arising from the
initial recognition of agricultural produce, and initial recognition and changes in fair value of
biological assets
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance
IAS 36, Impairment of Assets, when biological assets are measured at fair value.
The main issues addressed by IAS 41 are:
When should a biological asset or agricultural produce be recognised on the statement of
financial position?
At what value should a recognised biological asset or agricultural produce be measured?
How should the differences in value of a recognised biological asset or agricultural produce
between two year end dates be accounted for?
Recognition
IAS 41 specifies the usual tests in order that a biological asset or agricultural produce be
recognised on the statement of financial position, namely:
Control: the enterprise must have ownership or rights of control akin to ownership that result
from a past event
Value: future economic benefits are expected to flow to the enterprise from its ownership or
control of the asset
Measurement: the cost or fair value of the asset can be measured reliably.
Measurement
Biological assets should be measured at initial recognition, and at the end of each reporting
period , at fair value less estimated costs to sell.
Agricultural produce is measured, at the point of harvest, at fair value less estimated costs to
sell at the point of harvest. The point of harvest represents the transition between accounting
for agricultural produce assets under IAS 41 and IAS 2. Fair value less costs to sell at the
point of harvest forms ‘cost’ for the purposes of IAS 2.
Costs to sell are incremental costs directly attributable to the disposal, excluding taxation and
finance costs, and would include commissions to brokers and dealers, levies by regulatory
agencies and commodity exchanges, and transfer taxes and duties. They exclude transport
and other costs necessary to get assets to a market (these are taken into account in arriving at
fair value).
IAS 41 contains a rebuttable presumption that fair value can be established for all biological
assets and agricultural produce. Only on the initial recognition of such assets can the
presumption be rebutted because of:
the lack of quoted market prices, and
alternative estimates of fair value t are determined to be clearly unreliable.
When the presumption that fair value can be established is rebutted, and until such time as a
fair value becomes measurable with reliability, the asset is carried on the statement of
financial position at cost less any accumulated depreciation and any accumulated impairment
losses. IAS 41 contains additional disclosure requirements in such a situation
The estimation of fair value will be determined by applying the requirements of IFRS 13 Fair
Value Measurement. Fair value is the price that would be received to sell the biological asset
or agricultural produce in an orderly transaction between market participants at the
measurement date.
IAS 41 recognises that fair value measurement may be aarived at more reliably by grouping
assets or produce eg by age or quality if this better reflects the attributes used in the market to
arrive at prices. For example livestock would be grouped by species, age, weight, yield in a
similar manner to how they would be valued by the market.
The standard specifically requires that fair value not be determined by reference to a future
sales contract. Contract prices are not necessarily relevant in determining fair value, because
fair value reflects the current market in which a willing buyer and seller would enter into a
transaction. As a result, the fair value of a biological asset or agricultural produce is not
adjusted because of the existence of a contract.