CHAPTER 9

AGRICULTURE
(IAS 41 and IAS 16)

AGRICULTURE
1. Overview

• IAS 41 and IAS 16 Agriculture sets out accounting for

agricultural activity – the transformation of biological assets
(living plants and animals) into agricultural produce
(harvested product of the entity's biological assets).
2. Applicable Standards
 IAS 41 – Biological Assets
 IAS 16 – Property, Plant and Equipment
 IAS 20 – Government grants
3. Objective
The objective of IAS 41 & IAS 16 is to establish
standards of accounting for agricultural activity .
3. Definitions of Key Terms (in
accordance with IAS 41)
 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.
 Biological assets. Living plants and animals.
 Agricultural produce. The product of the entity’s biological
assets, for example, milk and coffee beans.
 Biological transformation. Relates to the processes of growth,
degeneration, and production that can cause changes of
quantitative or qualitative nature in a biological asset.
Definitions Con’td….
 Biological transformation leads to various different
outcomes.
 Asset changes:
 Growth: increase in quantity and/or quality

 Degeneration: decrease in quantity and/or quality

 Creation of new assets:

 Production: producing separable non-living products

 Procreation: producing separable living animals

 Examples of Biological Assets
Products that are the
result of processing
Biological Asset Agricultural Produce 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 Carcass Sausages, cured hams
Bushes Leaf Tea, cured tobacco
Vines Grapes Wine
Fruit trees Picked fruit Processed fruit
4. Types of Biological Assets

Produce
Types of Biological Assets
(cont’d)
 Bearer biological assets:
Bearer plants are defined in IAS 41as a plant that
meets all the following criteria:
 It is used in the production or supply of agricultural
produce
 It is expected to bear produce for more than one period
 It is not intended to be sold as a living plant or harvested
as agricultural produce, except for incidental scrap sales
(i.e. for firewood at the end of the plants productive life).
Types of Biological Assets
(cont’d)
 Consumable biological assets:
 Biological assets which do not meet all of
the above requirements.
 All animals
 Identify whether each of the following
biological assets is bearer or consumable

Agricultural Bearer or
Biological Asset Produce consumable?
Sheep Wool
Trees in a plantation forest Logs
Cotton Cotton
Sugarcane Harvested cane
Dairy cattle Milk
Pigs Carcass
Bushes Leaf
Vines Grapes
Fruit trees Picked fruit
5. Exclusions
IAS 41does not apply to:
 Land related to agricultural activity (see IAS 16
Property, Plant and Equipment and IAS 40
Investment Property).
 Bearer plants related to agricultural activity (see
IAS 16). However, IAS 41 applies to the produce
on those bearer plants.
 Government grants related to bearer plants (see
IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance).
Exclusions (cont’d)
 Intangible assets related to agricultural activity
(see IAS 38 Intangible Assets).
 Harvested agricultural produce (IAS 2, Inventory).
However, it does apply to produce growing on
bearer plants.
Exercise
1. Entity A raises cattle, slaughters them at its abattoirs and sells
the carcasses to the local meat market. Which of these activities
are in the scope of IAS 41?

The cattle are biological assets while they are living.

When they are slaughtered, biological transformation ceases and the

carcasses meet the definition of agricultural produce.

Hence, Entity A should account for the live cattle in accordance with
IAS 41 and the carcasses as inventory in accordance with IAS 2
Inventories.
2. Entity B grows vines, harvests the grapes and produces
wine. Which of these activities are in the scope of IAS 41?

The grapevines are biological assets that continually generate

crops of grapes. When the entity harvests the grapes, their
biological transformation ceases and they become agricultural
produce. The grapevines continue to be living plants and
should be recognised as biological assets.

Assets such as wine that are subject to a lengthy maturation period

are not biological assets. These processes are analogous to the
conversion of raw materials to a finished product rather than
biological transformation. Therefore, the entity should account
for the grapevines in accordance with IAS 41 and the harvested
grapes and the production of wine, as inventory in accordance
with IAS 2.
3.An entity on adoption of IAS 41 has reclassified forest as
biological assets. The total value of the group’s forest assets is
$2 million comprising
 Freestanding trees …………$1,700

 Land under trees………………... 200

 Roads in forests …………………..100

Required
Show how the forests would be classified in the financial
statements.
Solution

The forests would be classified as

 Biological assets ……………….…………….….$1,700

 Noncurrent asset-land …………….………....….….200
 Noncurrent assets—other tangible assets…..…....100
6. Recognition

An entity should recognize a biological asset or agricultural

produce when :
(a) the enterprise controls the asset as a result of past events;
(b) it is probable that the future economic benefits will
flow to the enterprise; and
(c) the fair value or cost can be measured reliably.
7. Measurement
• Any biological asset should be measured initially and at
each balance sheet date, at its fair value less estimated
point-of-sale costs.
• The only exception to this is where the fair value cannot be
measured reliably.
• Agricultural produce should be measured at fair value less
estimated point-of-sale costs at the point of harvest.
• According to IAS 41, agricultural produce can always be
measured reliably.
• Point-of-sale costs include brokers’ and dealers’
commissions, any levies by regulatory authorities and
commodity exchanges, and any transfer taxes and duties.
• They exclude transport and other costs necessary to get the
assets to a market.
7. Recognition & Measurement:
Biological Assets
Consumable Biological Bearer Biological assets
Assets
At initial • Measured together with any • Measured separately from any
recognition agricultural produce attached agricultural produce attached
(i.e., one unit of account) (i.e., two units of account)
• Measured at fair value less • Measured at cost accumulated
costs to sell until maturity

Subsequent • Measured together with the Measured at:

measurement agricultural produce until a)Cost, less any subsequent
requirements the point of harvest (i.e., accumulated depreciation and
one unit of account until the impairment.
point of harvest) b) Fair value at each revaluation
• Measured at the end of date, less any subsequent
each reporting period at fair accumulated depreciation and
value less costs to sell, with impairment.
changes recognised in
profit or loss
7. Recognition & Measurement:
Agricultural Produce
Consumable Bearer Biological
Biological Assets assets
At the end of •Measured together Measured separately
each with the bearer plant from the bearer plant at
reporting •Measured at fair fair value less costs to
period prior value less costs to sell
to harvest sell, with changes
recognised in profit or
loss as the produce
grows

At the point Measured separately Measured separately

of harvest from the bearer plant from the bearer plant at
at fair value less costs fair value less costs to
Recognition and Measurements:
Bearer Biological Assets
1. Before maturity
 Equivalent to Construction - in - progress
 Measured at Accumulated costs (IAS 16)
 Entry to record costs incurred:
Dr. Bearer Immature BA… xxx
Cr. Cash/Materials etc.. xxx
Bearer Biological Assets
(cont’d)
2. On maturity
 Accumulated cost transferred to depreciable PPE (IAS
16)
 Entry to record the transfer:
Dr. Bearer Matured BA… xxx
Cr. Bearer Immature BA.. xxx
Bearer Biological Assets
(cont’d)
3. After maturity
a) Depreciation on matured BA (IAS 16)
Use acceptable depreciation method as per IAS 16
 Entry to record depreciation:
Dr. WIP-BA… xxx
Cr. Accumulated Depreciation - BA.. xxx
Bearer Biological Assets (cont’d)
3. After maturity
b) Current costs on matured Biological
Assets(IAS 16)
Standardsilent on these costs
Options: Capitalize or charge to Cost of Production
 Entry to record current costs:

Treatment Entry
Current cost capitalized Dr. Bearer Matured BA …. xxx
Cr. Cash/Materials etc …. xxx
Current cost charged to Dr. WIP – BA…….xxx
production Cr. Cr. Cash/Materials etc …. xxx
Bearer Biological Assets (cont’d)
3. After maturity
c) Agricultural produce (IAS 41)
Measured at fair value less costs to sell, with changes
recognised in profit or loss as the produce grows.
 Entry to record agricultural produce:
Treatment Entry
End of year before Dr. Standing Inventory - BA …. xxx
harvest Cr. WIP - BA…. ……….. xxx
Cr. Gain on Re-measurement …. xxx
Date of harvesting Dr. Inventory (e.g. Sugarcane)…….xxx
Cr. Standing Inventory……………. xxx
Bearer Biological Assets (cont’d)
3. After maturity
d) Subsequent measurement of BA (IAS 16)
Measured using either cost model or fair value model
Consumable Biological Assets (IAS 41)
1. Before maturity
 Measured at fair value less costs to sell, with changes
recognised in profit or loss as the produce grows.
 Entry to record costs incurred:
Dr. Consumable Biological Assets xxx
Cr. Cash/Materials etc xxx
2. On Maturity
 Measured at fair value less cost to sell(IAS 41)
 Entry to record change in fair value:
Dr. Consumable Biological Assets xxx
Cr. Gain on R-measurement xxx
Consumable Biological Assets (IAS 41)
3. After maturity - Harvesting
 Measured at fair value (IAS 41)
 Entry to record costs incurred:
Dr. Inventory (e.g. Corn) xxx
Cr. Consumable BA xxx
Cr. Gain on Re-measurement xxx
8. Presentation

 In the statement of financial position biological assets 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 that is important.
 Biological assets should also be sub-classified (either on the face
of the statement of financial position or as a note to the
accounts).
 Class of animal or plant
 Nature of activities (consumable or bearer)
 Maturity or immaturity for intended purpose
9. Disclosures

 An entity shall disclose the aggregate gain or loss that arises

on the initial recognition of biological assets and agricultural
produce and from the change in value less estimated point-of
sale costs of the biological assets.
 A description of each group of biological assets is also
required.
 The methods and assumptions applied in determining fair
value should also be disclosed.
Disclosure…
 The fair value less estimated point-of-sale costs of agricultural
produce harvested during the period shall be disclosed at the
point of harvest
 The existence and carrying amounts of biological assets whose
title is restricted and any biological assets placed as security
should be disclosed.
 The amount of any commitments for the development or
acquisition of biological assets and management’s financial risk
strategies should also be disclosed.
 A reconciliation of the changes in the carrying amount of
biological assets showing separately changes in value, purchases,
sales, harvesting, business combinations, and exchange
differences should be disclosed.
Disclosure…
 Regarding government grants, disclosures should be made as
to the nature and extent of the grants, any conditions that have
not been fulfilled, and any significant decreases in the
expected level of the grants.
END OF CHAPTER 9