IAS 41 Definition: The management by an entity of the biological transformation and harvest of biological assets for:
- 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:
- Capability to change. Living animals and plants are capable of biological transformation;
- 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
- 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:
- 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
- production of agricultural produce such as latex, tea leaf, wool, and milk.
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
- Raw material to profit or loss and in inventory
- Note 9.2 Biological assets
- Operating segments reporting (partly)
- Disclosure of business combinations