CPA P1 Corporate Reporting

TOPIC 19 - IAS 41 AGRICULTURE

Agriculture

Scope:

IAS 41 applies to the following when they relate to agricultural activity:

(a) biological assets;

(b) agricultural produce at the point of harvest;

(c) government grants relating to biological assets.

Definitions

Biological Assets

Living animals or plants

e.g

sheep, dairy cattle, plants, trees in a plantation forest, fruit trees, vines.

Assets that increase in value as time passes due to natural growth (Land is not a biological
asset, merely the produce that grows on it)

Agricultural produce

Harvested products of an entity's biological assets

e.g.

wool, milk, cotton, logs, picked fruit, grapes.

Active Market

A market where the following exist:

 the items traded within the market are homogeneous;

 willing buyers and sellers can be found at any time;

 prices are available to the public.

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Accounting for Biological Assets

When to recognise a biological asset?

When 3 conditions are met:-

(1) the entity controls the asset;

(2) it is probable that future economic benefits will flow to the entity from the asset;

(3) the fair value or cost can be measured reliably.

Initial Recognition of a Biological Asset

At fair value less estimated point-of-sale costs.

Gains/losses on initial recognition

These should be included in profit or loss in the period in which they arise.

A loss on initial recognition could arise because estimated point-of-sale costs are deducted.

A gain on initial recognition could arise for example when a calf is born.

Subsequent Measurement of Biological Assets

A biological asset should be measured at each subsequent balance sheet date at fair value less
estimated point-of-sale costs.

Treatment of changes in fair value less estimated point-of-sale costs

Gains/losses arising from changes in fair value (less point-of-sale costs) are included in profit
or loss for the period in which they arise.

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NOTE

The fair value less estimated point-of-sale costs of a biological asset can change because of

(a) physical changes

and

(b) price changes

Entities are encouraged to disclose the analysis the change in fair value under the 2 headings.

Inability to Measure Fair Value

When fair value cannot be measured reliably biological assets can be measured at cost, less
any accumulated depreciation and any impairment losses.

Accounting for Agricultural Produce

(1) they should only be recognised when the same 3 conditions as for a biological
asset are met.

(2) agricultural produce should be measured at its fair value less estimated point-of
-sale costs at the point of harvest (e.g. detachment from the biological asset).
This is the cost of the inventories at that date for the application of IAS 2 Inventories.

(3) Any gain/loss on initial recognition should be included in profit/loss for the period
in which it arises. Thereafter the produce will be valued under IAS 2.

Government Grants

The standard refers to specific grants i.e.

(a) An unconditional grant which relates to a biological asset measured at fair value less
estimated point-of-sale costs. The grant should be recognised as income when the
grant becomes receivable.

(b) A conditional grant relating to a biological asset measured at fair value less estimated
point-of-sale costs. The grant should be recognised as income when the conditions
attaching to it are met.

N.B.

If a grant relates to a biological asset which is measured at cost less depreciation and
impairment (only when fair value cannot be measured reliably), the grant should be
accounted for under IAS 20.
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Disclosure Requirements

(1) gains/losses during the year on biological assets and agricultural produce;

(2) a description of each class of biological assets;

(3) reconciliation of opening and closing carrying amounts of biological assets.

PAST EXAM QUESTIONS – IAS 41

 Q3 (7) April 2012

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