IAS 41 Agricultural activity

IAS 41 Definition of agriculture activity: The management by an entity of the biological transformation and harvest of biological assets for:

  • Sale;
  • Distribution at no charge or for a nominal charge; or
  • Conversion into agricultural produce or into additional biological assets for sale or for distribution at no charge or for a nominal charge.

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:

  1. Capability to change. Living animals and plants are capable of biological transformation;
  2. 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
  3. 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 or harvest is measured and monitored as a routine management function.

Biological transformation results in the following types of outcomes:

  1. 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
  2. production of agricultural produce such as latex, tea leaf, wool, and milk.

The objective of IAS 41 Agricultural activity is to prescribe the accounting treatment and disclosures related to agricultural activity.

IAS 41 is applied to account for the following when they relate to agricultural activity:

  1. biological assets;
  2. agricultural produce at the point of harvest; and
  3. government grants related to biological assets.

However, it does not apply to:

Key assumption

An entity shall recognise a biological asset or agricultural produce when and only when:

  1. the entity controls the asset as a result of past events;
  2. it is probable that future economic benefits associated with the asset will flow to the entity; and
  3. the fair value or cost of the asset can be measured reliably.

Recognition and measurement

A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell, except for when the fair value cannot be measured reliably.

Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying IAS 2 Inventories or another applicable Standard.

A gain or loss arising on initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less costs to sell of a biological asset shall be included in profit or loss for the period in which it arises. Similarly, a gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell shall be included in profit or loss for the period in which it arises.

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 quoted market prices are not available and for which alternative fair value measurements are determined to be clearly unreliable. In such a case, that biological asset shall 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 measureable, an entity shall measure it at its fair value less costs to sell.

Once a non-current biological asset meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, it is presumed that fair value can be measured reliably.

Government grants

An unconditional government grant related to a biological asset measured at its fair value less costs to sell shall be recognised in profit or loss when and only when, the government grant becomes receivable.

If a government grant related to a biological asset measured at its fair value less costs to sell is conditional, including when a government grant requires an entity not to engage in specified agricultural activity, an entity shall recognise the government grant in profit or loss when and only when, the conditions attaching to the government grant are met.

Disclosures

IAS 41 40

Has the entity disclosed the aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and the change in fair value less costs to sell of biological assets?

IAS 41 41-42

Has the entity provided a description of each group of biological assets, either in narrative or quantified form?

IAS 41 43

Has the entity provided a quantified description of each group of biological assets, distinguishing between consumable and bearer biological assets or between mature and immature biological assets, as appropriate? Has the entity also disclosed the basis for making any such distinctions?

Note this disclosure is encouraged but not mandatory.

IAS 41 46

If not disclosed elsewhere in information published with the financial statements, has the entity disclosed:

  1. the nature of its activities involving each group of biological assets; and
  2. non-financial measures or estimates of the physical quantities of:
    • each group of the entity’s biological assets at the end of the period
    • output of agricultural produce during the period?

IAS 41 49

Has the entity disclosed:

  1. the existence and carrying amounts of biological assets whose title is restricted, and the carrying amounts of biological assets pledged as security for liabilities;
  2. the amount of commitments for the development or acquisition of biological assets; and
  3. financial risk management strategies related to agricultural activity?

IAS 41 50

Has the entity presented a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period. The reconciliation shall include:

  1. the gain or loss arising from changes in fair value less costs to sell;
  2. increases due to purchases;
  3. decreases attributable to sales and biological assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5;
  4. decreases due to harvest;
  5. increases resulting from business combinations;
  6. net exchange differences arising on the translation of the financial statement into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting entity; and
  7. other changes?

IAS 41 54

Does the entity measure biological assets at their cost less any accumulated depreciation and any accumulated impairment losses at the end of the period?

If so, has the entity disclosed for such biological assets:

  1. a description of the biological assets;
  2. an explanation of why fair value cannot be measured reliably;
  3. if possible, the range of estimates within which fair value is highly likely to lie;
  4. the depreciation method used;
  5. the useful lives or the depreciation rates used; and
  6. the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period?

IAS 41 55

Did the entity measure biological assets at their cost less any accumulated depreciation and any accumulated impairment losses during the current period?

If yes, have they disclosed any gain or loss recognised on disposal of such biological assets and the reconciliation required by paragraph 50 to disclose amounts related to such biological assets separately? In addition, the reconciliation shall include the following amounts included in profit or loss related to those biological assets:

  1. impairment losses;
  2. reversals of impairment losses; and
  3. depreciation.

IAS 41 56

Has the fair value of biological assets previously measured at their cost less any accumulated depreciation and any accumulated impairment losses become reliably measurable during the current period?

If yes, has the entity shall disclose for those biological assets:

  1. description of the biological assets;
  2. an explanation of why fair value has become reliably measurable; and
  3. the effect of the change.

IAS 41 57

Has the entity disclosed the following information related to agricultural activity covered by IAS 41:

  1. the nature and extent of government grants recognised in the financial statements;
  2. any unfulfilled conditions and other contingencies attaching to government grants; and
  3. significant decreases expected in the level of government grants?

Background information on agriculture (Wikipedia)

Examples from practice

Here are some items of interest when preparing financial statements of an entity with agricultural activities [derived from Nutreco NV, the Netherlands – Financial Statements 2014]:

  • Accounting policy Biological assets

Agricultural activity


Agricultural activity raw marterials used

 


  • Note 9.2 Biological assets

Agricultural activity Biological assets


  • Operating segments reporting (partly)

Agricultural activity Operating segments

And here is a disclosure of an acquisition in these same financial statements:

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