International Accounting Standard 41
Agriculture
In April 2001 the International Accounting Standards Board (IASB) adopted IAS 41 Agriculture, which had originally been issued by the International Accounting Standards
Committee (IASC) in February 2001.
In December 2003 the IASB issued a revised IAS 41 as part of its initial agenda of technical
projects.
Other IFRSs have made minor consequential amendments to IAS 41. They include IFRS 9
Financial Instruments (issued November 2009 and October 2010) and IFRS 13 Fair Value Measurement (issued May 2011).
CONTENTS
INTRODUCTION
INTERNATIONAL ACCOUNTING STANDARD 41
AGRICULTURE
OBJECTIVE
SCOPE
DEFINITIONS
Agriculture-related definitions
General definitions
RECOGNITION AND MEASUREMENT
Gains and losses
Inability to measure fair value reliably
GOVERNMENT GRANTS
DISCLOSURE
General
Additional disclosures for biological assets where fair value cannot be
measured reliably
Government grants
EFFECTIVE DATE AND TRANSITION
FOR THE ACCOMPANYING DOCUMENTS LISTED BELOW, SEE PART B OF THIS
EDITION
BASIS FOR CONCLUSIONS
BASIS FOR IASC'S CONCLUSIONS
ILLUSTRATIVE EXAMPLES
International Accounting Standard 41 Agriculture (IAS 41) is set out in paragraphs 1-61. 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.
IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related to agricultural activity, a matter not covered in other Standards. 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.
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.
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.
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.
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.
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.
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.
International Accounting Standard 41
Agriculture
Objective
The objective of this Standard is to prescribe the accounting treatment and disclosures related to agricultural activity.
Scope
This Standard shall be applied to account for the following when they
relate to agricultural activity:
biological assets;
agricultural produce at the point of harvest; and
government grants covered by paragraphs 34 and 35.
This Standard does not apply to:
land related to agricultural activity (see IAS 16 Property, Plant and
Equipment and IAS 40 Investment Property); and
intangible assets related to agricultural activity (see IAS 38 Intangible
Assets).
This 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. 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.
The table below provides examples of biological assets, agricultural produce, and
products that are the result of processing after harvest:
Biological assets
Sheep
Trees in a plantation
forest
Plants
Dairy cattle
Agricultural produce
Wool
Felled trees
Cotton
Harvested cane
Milk
Products that are the
result of processing
after harvest
Yarn, carpet
Logs, lumber
Thread, clothing
Sugar
Cheese
Biological assets
Pigs
Bushes
Vines
Fruit trees
Agricultural produce
Carcass
Leaf
Grapes
Picked fruit
Products that are the
result of processing
after harvest
Sausages, cured hams
Tea, cured tobacco
Wine
Processed fruit
Definitions
Agriculture-related definitions
The following terms are used in this Standard with the meanings
specified:
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.
Agricultural produce is the harvested product of the entity's biological
assets.
A biological asset is a living animal or plant.
Biological transformation comprises the processes of growth,
degeneration, production, and procreation that cause qualitative or quantitative changes in a biological asset.
Costs to sell are the incremental costs directly attributable to the disposal
of an asset, excluding finance costs and income taxes.
A group of biological assets is an aggregation of similar living animals or
plants.
Harvest is the detachment of produce from a biological asset or the
cessation of a biological asset's life processes.
Agricultural activity covers a diverse range of activities; for example, raising
livestock, forestry, annual or perennial cropping, cultivating orchards and plantations, floriculture and aquaculture (including fish farming). Certain
common features exist within this diversity:
Capability to change. Living animals and plants are capable of biological
transformation;
Management of change. Management facilitates biological transformation
by enhancing, or at least stabilising, conditions necessary for the process to take place (for example, nutrient levels, moisture, temperature, fertility, and light). Such management distinguishes agricultural activity from other activities. For example, harvesting from unmanaged sources (such as ocean fishing and deforestation) is not agricultural activity; and
Measurement of change. The change in quality (for example, genetic merit, density, ripeness, fat cover, protein content, and fibre strength) or quantity (for example, progeny, weight, cubic metres, fibre length or diameter, and number of buds) brought about by biological transformation or harvest is measured and monitored as a routine management function.
Biological transformation results in the following types of outcomes:
asset changes through (i) growth (an increase in quantity
improvement in quality of an animal or plant), (ii) degeneration decrease in the quantity or deterioration in quality of an animal plant), or (iii) procreation (creation of additional living animals
plants); or
or (a
or or
production of agricultural produce such as latex, tea leaf, wool, and
milk.
General definitions
The following terms are used in this Standard with the meanings
specified:
Carrying amount is the amount at which an asset is recognised in the
statement of financial position.
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. (See IFRS 13 Fair Value Measurement.)
Government grants are as defined in IAS 20 Accounting for Government
Grants and Disclosure of Government Assistance.
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Recognition and measurement
An entity shall recognise a biological asset or agricultural produce when,
and only when:
the entity controls the asset as a result of past events;
it is probable that future economic benefits associated with the
asset will flow to the entity; and
the fair value or cost of the asset can be measured reliably.
In agricultural activity, control may be evidenced by, for example, legal ownership of cattle and the branding or otherwise marking of the cattle on acquisition, birth, or weaning. The future benefits are normally assessed by measuring the significant physical attributes.
A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell, except for the case described in paragraph 30 where the fair value cannot be measured reliably.
Agricultural produce harvested from an entity's biological assets shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying IAS 2 Inventories or
another applicable Standard.
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The fair value measurement of a biological asset or agricultural produce may be facilitated by grouping biological assets or agricultural produce according to significant attributes; for example, by age or quality. An entity selects the attributes corresponding to the attributes used in the market as a basis for pricing.
Entities often enter into contracts to sell their biological assets or agricultural produce at a future date. Contract prices are not necessarily relevant in measuring fair value, because fair value reflects the current market conditions in which market participant buyers and sellers 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. In some cases, a contract for the sale of a biological asset or agricultural produce may be an onerous contract, as defined in IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IAS 37
applies to onerous contracts.
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An entity does not include any cash flows for financing the assets, taxation, or re-establishing biological assets after harvest (for example, the cost of replanting trees in a plantation forest after harvest).
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Cost may sometimes approximate fair value, particularly when:
little biological transformation has taken place since initial cost
incurrence (for example, for fruit tree seedlings planted immediately
prior to the end of a reporting period); or
the impact of the biological transformation on price is not expected to be material (for example, for the initial growth in a 30-year pine plantation production cycle).
Biological assets are often physically attached to land (for example, trees in a plantation forest). There may be no separate market for biological assets that are attached to the land but an active market may exist for the combined assets, that is, the biological assets, raw land, and land improvements, as a package. An entity may use information regarding the combined assets to measure the fair value of the biological assets. For example, the fair value of raw land and land improvements may be deducted from the fair value of the combined assets to arrive at the fair value of biological assets.
Gains and losses
A gain or loss arising on initial recognition of a biological asset at fair
value less costs to sell and from a change in fair value less costs to sell of a biological asset shall be included in profit or loss for the period in which it arises.
A loss may arise on initial recognition of a biological asset, because costs to sell are deducted in determining fair value less costs to sell of a biological asset. A gain may arise on initial recognition of a biological asset, such as when a calf is born.
A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell shall be included in profit or loss for the period in which it arises.
A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting..
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