AGRICULTURE (IAS 41) INTRODUCTION The objective of IAS 41 is to stipulate the accounting treatment and disclosures in the financial

statements of operations relating to agricultural activity. SCOPE IAS 41 applies to biological assets, agricultural produce at the point of harvest, and government grants received for agricultural activity. This standard does not apply to land related to agricultural activity (covered by IAS 16, Property, Plant, and Equipment, and IAS 40, Investment Property) or to intangible assets that are related to agricultural activity (covered by IAS 38, Intangible Assets). It is applicable only to the agriculture produce, which is the entitys harvested product at the point of harvest and not to the produce after harvest. In this case, the items that are harvested become inventory, and the provisions of IAS 2, Inventories, or other related standard, are applicable. Similarly, this standard does not deal with processing of product after harvesting; for example, processing of coffee beans into coffee powder since such activities are only an extension of the agricultural activity and are not included within the definition of agricultural activity in this standard.

RECOGNITION AND MEASUREMENT A biological asset or agriculture produce must be recognized by an entity only when all the following conditions are satisfied: The entity controls the assets as a result of past events; It is probable that future economic benefits of the asset will flow to the entity; and The fair value or cost of the asset can be measured reliably.

All biological assets must be measured initially and at each subsequent reporting date at their fair value less costs to sell, except in cases where the fair value cannot be measured reliably. Agricultural produce that is harvested from the entitys biological asset must be

measured at its fair value less costs to sell at the point of harvest. Subsequent to the harvest, the produce is measured applying the principles of IAS 2, Inventories, or any another applicable standard. In determining the fair value for a biological asset or agricultural produce, it may be necessary to group together items in accordance with their significant attributes, like age or quality. When an active market based on its present location and condition exists for the biological asset or agricultural produce, the quoted price in that market is the fair value of the asset. If an entity has access to different active markets, then the entity must choose the quoted price of the market that the entity is most likely to use to sell the asset. When an active market does not exist, the entity can use, depending on its availability, either the most recent market transaction price or the market prices for similar assets, after adjustment to reflect any differences in the asset or any specified sector benchmarks, such as value of cattle expressed as meat per kilogram. In some cases, an entity may contract to sell its biological assets or produce at a future date, and these contract prices do not necessarily represent the current fair value for the biological asset or produce. If an active market exists for the asset or produce, then the price in that market should be considered as the fair value. Sometimes market prices or values may not be available for an asset in its present condition. In such cases, the entity can use the present value of the expected net cash flow from the asset discounted at a current market rate, which can either be a post- or pre-tax rate. In some circumstances, cost can be considered as the fair value; especially where little biological transformation has taken place after initial costs have been incurred or the impact of biological transformation on the price is not expected to be significant. An example of this is seedlings or trees planted immediately prior to the reporting date. There are situations where there is no separate active market for the biological assets on their own when they are physically attached to land (for example, rubber trees in a plantation). However, an active market might be available for the combined assets. In such cases, the entity should value the combined assets and then reduce the fair value by deducting the fair value of the land and land improvements to determine the fair value of the biological asset. Costs to sell include commission to brokers and dealers, levies by regulatory authorities, and commodity exchanges. Fair value of biological assets or produce at a particular location is the price for the assets in the relevant market less the transport and other costs of getting the assets to that market. GAINS AND LOSSES The gain that arises on the initial recognition of a biological asset at fair value less costs to sell and any changes in that fair value less costs to sell of the biological assets during the

reporting period is included in profit or loss for the period. An example is the gain that arises when a calf is born to a cow. Similarly, any gain or loss that arises on the initial recognition of agricultural produce at fair value less costs to sell should be included in profit or loss for the period to which it relates. An example of this is the gain or loss on initial recognition of agricultural produce, since the crop when harvested can have more value than the crop that has not been harvested. All costs related to the biological assets, other than those that related to its purchase, should be measured at fair value and recognized in profit or loss when incurred. IAS 41 presumes that the fair value of a biological asset can be measured reliably. However, it is possible that there is no quoted market price in an active market when the biological asset is first recognized and no other valuation methods are appropriate. In such cases, the asset is measured at cost less accumulated depreciation and any impairment losses. When circumstances do change and fair value becomes reliably measurable, then the entity must measure the asset at fair value less costs to sell. When a noncurrent biological asset meets the criteria to be classified as held for sale in accordance with IFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, then it is presumed that fair value can be measured reliably. To determine cost, depreciation, and impairment losses, the provisions of IAS 2, Inventories, IAS 16, Property, Plant, and Equipment, and IAS 36, Impairment of Assets, are used. GOVERNMENT GRANTS An unconditional government grant that is related to a biological asset and measured at fair value less costs to sell should be recognized as income when the grant becomes receivable. When conditions are attached to the government grant, income must be recognized only when those conditions are fulfilled. The provisions of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, are applied only to government grants that are related to biological assets that have been measured at cost less accumulated depreciation and impairment losses Disclosures The following are disclosures prescribed by IAS 41: The aggregate gain or loss that arises on the initial recognition of biological assets and agricultural produce and from the change in value less costs to sell of the biological assets; Description of each group of biological assets. If this information is not disclosed in the financial statements, the nature of its activities and nonfinancial measures or estimates of the physical quantity of each group of the entitys biological assets at period end and that of the output for agricultural produce during the period should be disclosed;

Methods and assumptions applied in determining fair value of each group of agricultural produce at the point of harvest and of each group of biological assets; Fair value less costs to sell of agricultural produce harvested during the period shall be disclosed at the point of harvest; Existence and carrying amounts of biological assets whose title is restricted and that of any biological assets that are placed as security for liabilities; Amount of any commitments for the development or acquisition of biological assets; Financial risk management strategies; Reconciliation of the changes in the carrying amount of biological assets that discloses Gain or loss arising from changes in fair value less costs to sell; Increase on purchases; Decrease on sales and biological assets classified as held for sale in accordance with IFRS 5; Decrease due to harvest; Increase resulting from business combinations; and Net exchange differences arising on translation of financial statements into different presentation and on translation of a foreign operation into the presentation currency of the reporting entity.

When biological assets that are stated at cost less accumulated depreciation and impairment losses are disposed of, the entity shall disclose any gain or loss on disposal and provide reconciliation as above, and provide the details of impairment losses and depreciation. When the fair value of biological assets cannot be measured, additional disclosure should be made relating to the description of the asset, an explanation of why fair value cannot be measured reliably, the range, if possible, of estimates within which the fair value is likely to fall, the depreciation method used, useful lives or depreciation rates used and gross carrying amount, and accumulated depreciation at the beginning and end of the period. When the fair value of the biological assets that were previously measured at cost less accumulated depreciation and impairment losses is now measurable, additional disclosures regarding description of the biological assets, explanation as to why fair value is now reliably measurable, and the effect of the change must be disclosed. 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.