(k) E65 provided the following encouragements specific to agricultural activity with regard to alternative treatments allowed in other International Accounting Standards, to achieve consistency with the accounting treatment of activities covered by E65:
(i) analysing expenses by nature, as set out in IAS 1 Presentation of Financial Statements; and
(ii) revaluing certain intangible assets used in agricultural activity if an active market exists, as set out in IAS 38 Intangible Assets.
The Board did not include these encouragements in the Standard. The Board noted that IAS 1 and IAS 38 apply to entities that undertake agricultural activity, as well as to those in other activities.
(l) New disclosure requirements include disclosing the:
(i) basis for making distinctions between consumable and bearer biological assets or between mature and immature biological assets, when an entity provides a quantified description of each group of biological assets (paragraph 43);
(ii) methods and significant assumptions applied in determining the fair value of each group of agricultural produce at the point of harvest (paragraph 47);
(iii) fair value less estimated point-of-sale costs of agricultural produce harvested during the period, determined at the point of harvest (paragraph 48);
(iv) increases resulting from business combinations in the reconciliation of the carrying amount of biological assets (paragraph 50(e)); and
(v) significant decreases expected in the level of government grants related to agricultural activity covered by the Standard (paragraph 57(c)).
(m) E65 proposed disclosing the:
(i) extent to which the carrying amount of biological assets reflects a valuation by an external independent valuer or, if there has been no valuation by an external independent valuer, that fact;
(ii) activities that are unsustainable with an estimated date of cessation of the activities;
(iii) aggregate carrying amount of an entity’s agricultural land and the basis (cost or revalued amount) on which the carrying amount was determined under IAS 16; and
(iv) carrying amount of agricultural produce either on the face of the balance sheet or in the notes.
The Standard does not include the above disclosures.
(n) The amendment to IAS 17 Leases now clarifies that IAS 17 should not be applied to the measurement by:
(i) lessees of biological assets held under finance leases; and
(ii) lessors of biological assets leased out under operating leases.
Biological assets held under finance leases and those leased out under operating leases are measured under the Standard rather than IAS 17. A lease of a biological asset is classified as a finance lease or operating lease under IAS 17. If a lease is classified as a finance lease, the lessee recognises the leased biological asset under IAS 17 and thereafter measures and presents it under the Standard. In that case, the lessee makes disclosures both under the Standard and IAS 17. A lessor of a biological asset under an operating lease measures and presents the biological asset under the Standard, and makes disclosures both under the Standard and IAS 17.
Published: Official Journal of the European Union (L 261/184, Volume 46, 13 October 2003)
INTERNATIONAL ACCOUNTING STANDARD IAS 41
Agriculture
This International Accounting Standard was approved by the IASC Board in December 2000 and becomes effective for financial statements covering periods beginning on or after 1 January 2003.
INTRODUCTION
1. IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related to
agricultural activity, a matter not covered in other International Accounting Standards. Agricultural activity is
the management by an enterprise of the biological transformation of living animals or plants (biological
assets) for sale, into agricultural produce, or into additional biological assets.
2. 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 estimated point-of-sale costs 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.
3. 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 market-determined
prices or values are not available and for which alternative estimates of fair value are determined to be clearly
unreliable. In such a case, IAS 41 requires an enterprise 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 enterprise should measure it at its fair value less estimated point-of-sale
costs. In all cases, an enterprise should measure agricultural produce at the point of harvest at its fair value
less estimated point-of-sale costs.
4. IAS 41 requires that a change in fair value less estimated point-of-sale costs of a biological asset be included
in net 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 enterprise. Under a
transaction-based, historical cost accounting model, a plantation forestry enterprise 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.
5. IAS 41 does not establish any new principles for land related to agricultural activity. Instead, an enterprise
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 estimated point-of-sale
costs separately from the land.
6. IAS 41 requires that an unconditional government grant related to a biological asset measured at its fair value
less estimated point-of-sale costs be recognised as income when, and only when, the government grant
becomes receivable. If a government grant is conditional, including where a government grant requires an
enterprise not to engage in specified agricultural activity, an enterprise should recognise the government grant
as income 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.
7. IAS 41 is effective for annual financial statements covering periods beginning on or after 1 January 2003.
Earlier application is encouraged.
8. IAS 41 does not establish any specific transitional provisions. The adoption of IAS 41 is accounted for in
accordance with IAS 8, net profit or loss for the period, fundamental errors and changes in accounting
policies.
9. Appendix A provides illustrative examples of the application of IAS 41. Appendix B, Basis for conclusions,
summarises the Board's reasons for adopting the requirements set out in IAS 41.
CONTENTS
Paragraphs
Objective
Scope 1-4
Definitions 5-9
Agriculture-related definitions 5-7
General definitions 8-9
Recognition and measurement 10-33
Gains and losses 26-29
Inability to measure fair value reliably 30-3 3
Government grants 34-38
Presentation and disclosure 39-57
Presentation 39
Disclosure 40-5 7
General 40-5 3
Additional disclosures for biological assets where fair value cannot be measured
reliably 54-56
Government grants 5 7
Effective date and transition 58-59
The standards, which have been set in bold italic type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the 'Preface to International Accounting Standards'. International Accounting Standards are not intended to apply to immaterial items (see paragraph 12 of the Preface).
OBJECTIVE
The objective of this Standard is to prescribe the accounting treatment, financial statement presentation, and disclosures related to agricultural activity.
SCOPE
1. This Standard should be applied to account for the following when they relate to agricultural activity:
(a) biological assets;
(b) agricultural produce at the point of harvest; and
(c) government grants covered by paragraphs 34 to 35.
2. This Standard does not apply to:
(a) land related to agricultural activity (see IAS 16, property, plant and equipment, and IAS 40, investment
property); and
(b) intangible assets related to agricultural activity (see IAS 38, intangible assets).
3. This Standard is applied to agricultural produce, which is the harvested product of the enterprise's biological
assets, only at the point of harvest. Thereafter, IAS 2, inventories, or another applicable International
Accounting 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.
4. The table below provides examples of biological assets, agricultural produce, and products that are the result
of processing after harvest:
Biological assets | Agricultural produce | Products that are the result of processing after harvest |
Sheep | Wool | Yarn, carpet |
Trees in a plantation forest | Logs | Lumber |
Plants | Cotton Harvested cane | Thread, clothing Sugar |
Dairy cattle | Milk | Cheese |
Pigs | Carcase | Sausages, cured hams |
Bushes | Leaf | Tea, cured tobacco |
Vines | Grapes | Wine |
Fruit trees | Picked fruit | Processed fruit |
DEFINITIONS
Agriculture-related definitions
5. The following terms are used in this Standard with the meanings specified:
Agricultural activity is the management by an enterprise of the biological transformation of biological assets for sale, into agricultural produce, or into additional biological assets.
Agricultural produce is the harvested product of the enterprise'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.
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.
6. 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:
(a) Capability to change: living animals and plants are capable of biological transformation;
(b) 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
(c) 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 is measured and
monitored as a routine management function.
7. Biological transformation results in the following types of outcomes:
(a) asset changes through
(i) growth (an increase in quantity or improvement in quality of an animal or
plant);
(ii) degeneration (a decrease in the quantity or deterioration in quality of an animal or plant); or
(iii) procreation (creation of additional living animals or plants); or
(b) production of agricultural produce such as latex, tea leaf, wool, and milk.
General definitions
8. The following terms are used in this Standard with the meanings specified:
An active market is a market where all the following conditions exist:
(a) the items traded within the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.
Carrying amount is the amount at which an asset is recognised in the balance sheet.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
Government grants are as defined in IAS 20, accounting for government grants and disclosure of government assistance.
9. The fair value of an asset is based on its present location and condition. As a result, for example, the fair value
of cattle at a farm is the price for the cattle in the relevant market less the transport and other costs of getting
the cattle to that market.
RECOGNITION AND MEASUREMENT
10. An enterprise should recognise a biological asset or agricultural produce when, and only when:
(a) the enterprise controls the asset as a result of past events;
(b) it is probable that future economic benefits associated with the asset will flow to the enterprise; and
(c) the fair value or cost of the asset can be measured reliably.
11. 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.
12. A biological asset should be measured on initial recognition and at each balance sheet date at its fair value
less estimated point-of-sale costs, except for the case described in paragraph 30 where the fair value cannot
be measured reliably.
13. Agricultural produce harvested from an enterprise's biological assets should be measured at its fair value
less estimated point-of-sale costs at the point of harvest. Such measurement is the cost at that date when
applying IAS 2, inventories, or another applicable International Accounting Standard.
14. Point-of-sale costs include commissions to brokers and dealers, levies by regulatory agencies and commodity
exchanges, and transfer taxes and duties. Point-of-sale costs exclude transport and other costs necessary to
get assets to a market.
15. The determination of fair value for 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
enterprise selects the attributes corresponding to the attributes used in the market as a basis for pricing.
16. Enterprises often enter into contracts to sell their biological assets or agricultural produce at a future date.
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. 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.
17. If an active market exists for a biological asset or agricultural produce, the quoted price in that market is the
appropriate basis for determining the fair value of that asset. If an enterprise has access to different active
markets, the enterprise uses the most relevant one. For example, if an enterprise has access to two active
markets, it would use the price existing in the market expected to be used.
18. If an active market does not exist, an enterprise uses one or more of the following, when available, in
determining fair value:
(a) the most recent market transaction price, provided that there has not been a significant change in
economic circumstances between the date of that transaction and the balance sheet date;
(b) market prices for similar assets with adjustment to reflect differences; and
(c) sector benchmarks such as the value of an orchard expressed per export tray, bushel, or hectare, and
the value of cattle expressed per kilogram of meat.
19. In some cases, the information sources listed in paragraph 18 may suggest different conclusions as to the fair
value of a biological asset or agricultural produce. An enterprise considers the reasons for those differences,
in order to arrive at the most reliable estimate of fair value within a relatively narrow range of reasonable
estimates.
20. In some circumstances, market-determined prices or values may not be available for a biological asset in its
present condition. In these circumstances, an enterprise uses the present value of expected net cash flows
from the asset discounted at a current market-determined pre-tax rate in determining fair value.
21. The objective of a calculation of the present value of expected net cash flows is to determine the fair value of
a biological asset in its present location and condition. An enterprise considers this in determining an
appropriate discount rate to be used and in estimating expected net cash flows. The present condition of a
biological asset excludes any increases in value from additional biological transformation and future activities
of the enterprise, such as those related to enhancing the future biological transformation, harvesting, and
selling.
22. An enterprise 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).
23. In agreeing an arm's length transaction price, knowledgeable, willing buyers and sellers consider the possibility
of variations in cash flows. It follows that fair value reflects the possibility of such variations. Accordingly, an
enterprise incorporates expectations about possible variations in cash flows into either the expected cash
flows, or the discount rate, or some combination of the two. In determining a discount rate, an enterprise
uses assumptions consistent with those used in estimating the expected cash flows, to avoid the effect of
some assumptions being double-counted or ignored.
24. Cost may sometimes approximate fair value, particularly when:
(a) little biological transformation has taken place since initial cost incurrence (for example, for fruit tree
seedlings planted immediately prior to a balance sheet date); or
(b) 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).
25. 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, for the biological assets, raw land, and land improvements, as a package. An
enterprise may use information regarding the combined assets to determine fair value for 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
26. A gain or loss arising on initial recognition of a biological asset affair value less estimated point-of-sale
costs and from a change in fair value less estimated point-of-sale costs of a biological asset should be
included in net profit or loss for the period in which it arises.
27. A loss may arise on initial recognition of a biological asset, because estimated point-of-sale costs are deducted
in determining fair value less estimated point-of-sale costs of a biological asset. A gain may arise on initial
recognition of a biological asset, such as when a calf is born.
28. A gain or loss arising on initial recognition of agricultural produce affair value less estimated point-of-
sale costs should be included in net profit or loss for the period in which it arises.
29. A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.
Inability to measure fair value reliably
30. 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 market-determined
prices or values are not available and for which alternative estimates of fair value are determined to be
clearly unreliable. In such a case, that biological asset should be measured 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 enterprise should measure it at its fair value less estimated point-of-sale
costs.