IAS 41 AGRICULTURE

OVERVIEW
The importance of agricultural sector in a country’s economy will vary. It is reasonable
to assume , however ,that although agriculture is important in the first world countries, it
is likely to be a greater significance to the developing countries.
IAS 41 agriculture was issued in Feb.2001
The main reason for developing a standard on agriculture was because there was a
great duversity in practice in accounting for agriculture at both a transnational nd
national level. It is quit to apply traditional accounting method to agricultural activities
IAS 41 AGRICULTURE

Which explians why agriculture is excluded from many IFRSs.

A. When and how do you account for a critical events associated with biological
transformation ( growth, procreation, production and degeneration ) which alter the
substance of biological assets.
B. statement of financial position classification is made difficult by the variety and
characteristics of the living assets of agriculture.
C. The nature of the management of agricultural activities also causes problems , particularly
determination of the unit of measurement ( whether biological assets are a perpetual group
of assets or a number of limited life assets.
IAS 41 AGRICULTURE

IAS 41 seeks to improve and harminize practice in accounting for agriculture ,which
demonstrates fundamental differences in its nature and characteristics to other business
activities.
Agricultural activities Is the management by an entity of the biological transformation of
biological assets for sale,into agricultural produce or into additional biological assets.
Agricultural produce is the harvested product of an entitys biological assets.
Biological assets are living animals or plants
IAS 41 AGRICULTURE

Biological transformation Compromises the processes of growth

,degeneration ,production and procreation that cause qualitative and
quantitative changes in a biological assets.
Group of biological assets is an aggregation of similar living animals or
plants.
Harvest is the detachment of produce from a biological assets or the
cessation of a biological assets life processes.
IAS 41 AGRICULTURE

Fair value Is the price that would be received to sell an asset or paid to transfer a liability
in n orderly transaction between market participants at the measurement date ( IFRS 13 ) .
Carrying amount is the amount at which an asset is recognized in the statement of
financial position.
Key parts of the definition of agriculture
A. Biological : agriculture involves to “life phenomena” living animals and plants with an
innate capacity of biological transformation which are dependent upon a combintion of
natural resources .
IAS 41 AGRICULTURE

B. Transformation agriculture involves physical transformation ,whereby animals and plants

undergo a change in biological quantity and /or quantity over time , which is measured and
monitored as part of management control.
C. Management biological transformation is managed.
• Condition are stablished and enhance
• The transparency of the relationship between inputs and outputs is determined by the degree
of control.
• It is different from exploitation through extraction ,where no attempt is made to facilitate the
transformation.
IAS 41 AGRICULTURE

• Biological assets are managed in groups of plants or animal classes,using individual assets
to ensure the sustainability of the group.
• Sustainability of an agricultural activity is a function of quality and quantity.
D. Produce agricultural produce is diverse and may require further processings before
ultimate consumption.
SCOPE
The standard applies to the three elements that form part of, or result from , agricultural
activity.
IAS 41 AGRICULTURE

• Biological assets
• Agricultural produce at the point of harvest
• Government grants
Biological assets Are the core income producing assets of agricultural activities , held for
their transformative capabilities.
IAS 41 AGRICULTURE

Asset changes
• Growth: increase in quantity or in quality
• Degeneration: decrease in quantity or in quality
Creation of new asset
• Production: producing separable non living products
• Procreation : producing separable living animals
IAS 41 AGRICULTURE

The IAS distinguishes between two broad categories of garicultural production systems
A. Consumble : animals/ plants themselves are harvested
B. Bearer : animals / plants bearer produce for harvest
A few further points are made;
a. Biological asset are managed in groups of animalor plnt classes, with characteristics
which llow sustainability in perpetuity.
b. Land often forms an integral part of the activity itself in pastoral and other land based
agricultural activities.
IAS 41 AGRICULTURE

Bearer biological assets

An amendment has been issued to IAS 41 regarding plant based bearer biological assets ,which
would include trees grown in plantation ,such as grape vines, rubber trees and oil palms.
This plant are used solely to grow produce crops over several periods and are not in themselves
consumed. When no longer productive they are usually scrapped.
It was decided that fair value was not an appropriate measurement for these asset as, once they
reach maturity, the only economic benefit they produce come from the agricultural produce
they create. They are similar to the assets in a manufacturing activities .
IAS 41 AGRICULTURE

Recognition
The recognition criteria are very similar to those for other assets, in that animals or plants
should be recognized as asset in the following circumstances.
a. The entity controls the asset as a result of past events.
b. It is probable that the future econonic benefits associated with the asset will flow to the
entity.
c. The fair value or cost of the asset to the entity cn be measred reliably.
The signicants physical attributes of biological assets can be measured using various methods (
which are used by markets to measure value )
IAS 41 AGRICULTURE

and generally indicate the source of future economuc benefits. The certainty of the flow of
rewards can be determined by formal ownership records. The availability of both cost and
value for biological assets indicate the reliability aspects of the measurement criteria is
fullfiled.
Measurement
The IAS requires that each year end all biological assets within the scope should be
measured at fair value less estimated point of sale cost .
IAS 41 AGRICULTURE
The measurement basis used to depict the fair value of biological asset will differ
dependingon the existence of an active market , market efficiency , and use made of the
asset. It is felt that fair value ,when compared to historical cost, has greater relevance
,reliability ,comparability and understandability as a measureof future economic benefits.
Measuring fair value
The standard states that the primary indicator of fair value should be net market
value.This is reasonable as efficient market exist for most biological asset for most
locations and net market value is usually considered as providing the best evidence of fair
value where an active market may exist.
IAS 41 AGRICULTURE

Market will generally differentiate between differing qualities and quantities. Market value is
not generally predicated on management intended use, but recognize alternative uses.
An active and efficient market may not be available for a class of biological assets in a
specific location, or there may be imperfections in the market. The standard goes into some
detail about how fair value should be measured in such circumstances, but the valuation
technique should be consistent with the object of measuring fair value and should attain an
appropriate balance between relevance and reliability.
IAS 41 AGRICULTURE

Recognition
In the statement of financial position , the biological asset must be shown at fair value less
estimated point of sale coats, incorporating the consequences of all biological
transformation.
A gain or loss arising on initial recognition of biological asset at fair value less estimated
point of sale costs and from a change in fair value less estimated point of sale costs is
included in profit or loss in the period in which it arises.
IAS 41 AGRICULTURE

Changes to fair value arise due to both physical changes in the asset and price changes in
the market. Entities are encourage to make separate disclosure of these two elements in
order to facilirate the performance appraisal.
Presentation and disclosure
In the statement of financial position biological asset should be classified as a separate class
of assets falling under neither current nor non current classifications. This reflects the view
of such assets as having an unlimited life on a collective basis; it is the total exposure of the
entity to this type of asset.
IAS 41 AGRICULTURE

Biological assets should be sub – classified ( either in the statement of financial position oa
as a note to the account )
a. Class of animal or plants
b. Nature of activities ( consumable or bearer)
c. Maturity or immaturity or intended purpose
Activities are consumble ,the maturity criterion will be attainment of harvestable
specification , whereas in bearer activities, it will be attainment of sufficient maturity to
sustain economic harvest.
IAS 41 AGRICULTURE

Agricultural produce
Recognized at the point of harvest , it is incapable of biological process or such processes
remain dormant. Recognition ends once the produce enters trading activities or production
processes within integrated agribusinesses ,although processing activities that are incidental
to agricultural activities and then do not materially alter the form of the produce ,are not
counted as processing.
IAS 41 AGRICULTURE

Measurement and Presentation

Following the treatment of biological asset , the IAS state the agricultural produce should be
measured at each year end at fair value less estimated point of sale costs, to the extemd that it
is source from an entitys biological assets, which are also valued at fair value.This is logical when
you consider that ,until the harvest , the agricultural produce was valued at fair value as part of
the biological assets.
The chge in the carrying amount of the agricultural produce held at year end should be
recognize as income or expense in profit or loss. This will be rare as such produce is usually
sold or processed within a short time ,so that produce held over two reporting dates
IAS 41 AGRICULTURE

Is being held for a specific management purpose and the consequences of that should be
reflected in the current period.
Agricultural produce that is harvested for trading or processing activities within integrated
agricultural / agribusiness operations should be measure at fair value at the date of harvest
and this amount is deemed cost for application.
IAS 41 AGRICULTURE

Presentation in the statement of financial position

Agricultural produce should be classified as inventory in the statement of financial position
and disclosed separately either in the statement of financial position
Government grants
An unconditional grants related to a biological asset measured at its fair value less
estimated point of sale costs should. be recognized as income when, and only when the
grant becomes receivable