To prescribe the accounting treatment, financial statement presentation, and disclosures related to agricultural activity.
Core Principle: Measure biological assets at fair value less costs to sell, with changes recognized in profit or loss.
This fair value model is considered to provide more relevant information than historical cost, given the nature of biological transformation (growth, procreation, etc.).
Agricultural Activity:
The management by an entity of the biological transformation and harvest of biological assets for:
Conversion into agricultural produce; or
Creation of additional biological assets (procreation).
E.g., Raising livestock for meat, farming fish, forestry, growing crops, cultivating orchards.
Biological Asset:
A living animal or plant.
E.g., Sheep, cattle, dairy cows, fish, trees in a plantation forest, fruit trees, grape vines.
Agricultural Produce:
The harvested product of the entityā€™s biological assets.
E.g., Wool (from sheep), milk (from dairy cows), carcasses (from cattle), felled trees (logs), picked fruit, harvested grapes.
Biological Transformation:
The processes (growth, degeneration, production, procreation) that cause qualitative or quantitative changes in a biological asset.
E.g., An animal growing (growth), a vine producing grapes (production), a cow giving birth (procreation).
Harvest:
The detachment of produce from a biological asset or the cessation of a biological assetā€™s life processes.
E.g., Shearing wool, milking a cow, slaughtering an animal, felling a tree, picking grapes.
Applies To:
Biological assets (e.g., the sheep, the cattle, the trees) related to agricultural activity.
Agricultural produce at the point of harvest (e.g., the wool, the milk, the logs at the moment they are sheared/milked/felled).
Government grants related to a biological asset measured at fair value less costs to sell.
Exclusions:
Land related to agricultural activity (accounted for under IAS 16 or IFRS 16).
Intangible assets related to agricultural activity (e.g., farming licenses, water rights - IAS 38).
Agricultural produce after the point of harvest (accounted for under IAS 2 Inventories).
Example: Once grapes are picked (harvested), IAS 41 measures them at that point. Immediately after, the harvested grapes become inventory (IAS 2) and are processed into wine (also IAS 2).
Bearer Plants (accounted for under IAS 16 Property, Plant and Equipment).
A bearer plant is a living plant (e.g., a grape vine, oil palm) used to grow produce over several periods, not typically sold as a biological asset itself.
While the plant itself (the vine) is PPE (IAS 16), the produce growing on it (the grapes) is a biological asset (IAS 41) until harvested.
1. The entity controls the asset as a result of past events (e.g., legal ownership of cattle, lease of land for crops).
2. It is probable that future economic benefits associated with the asset will flow to the entity (e.g., crops will grow, cattle will produce milk).
3. The fair value or cost of the asset can be measured reliably.
Biological Assets (e.g., Livestock, Standing Crops):
Initial Measurement: Recognized at fair value less costs to sell.
Subsequent Measurement: Remeasured at the end of each reporting period to fair value less costs to sell.
Gains and Losses: Any gain or loss on initial recognition (e.g., birth of a calf) and any gain or loss from a change in fair value (from physical change/growth or price change) is recognized in Profit or Loss (P&L) in the period it arises.
Example: A herd valued at $500k has calves born (FV $20k) and grows in value (FV $540k at year-end). The gain from birth ($20k) and the gain from physical/price changes are both recognized in P&L.
Agricultural Produce (e.g., Milk, Picked Fruit):
Measurement at Harvest: Measured at fair value less costs to sell at the point of harvest.
Gains and Losses: A gain or loss on this initial measurement (as the produce comes into existence) is recognized in P&L.
Subsequent Accounting: This fair value less costs to sell at harvest becomes the initial cost for the purposes of IAS 2 Inventories. The produce is then accounted for as inventory.
Example: 1,000L of milk is harvested. Its FV less costs to sell at that moment is $900. The entity recognizes $900 in P&L and $900 as inventory (IAS 2).
Costs to Sell:
Incremental costs directly attributable to disposal.
Includes: Commissions, levies, transfer taxes, duties.
Excludes: Transport to market (part of FV determination), finance costs, income taxes.
Inability to Measure Fair Value Reliably (Rare Exception):
Strong presumption FV is reliably measurable. If rebutted only at initial recognition (e.g., unique asset, no market), measure at cost less accumulated depreciation and impairment (per IAS 16).
Once FV becomes reliably measurable, must switch to FV less costs to sell model.
This exception never applies to agricultural produce at harvest (must always be measured at FV less costs to sell).
Accounting Treatment:
An unconditional government grant related to a biological asset measured at fair value less costs to sell is recognized in P&L when, and only when, the grant becomes receivable.
Example: Gov't announces $10k grant for all dairy farmers, receivable now. Recognize $10k in P&L immediately.
If the grant is conditional, it is recognized in P&L when, and only when, the conditions attaching to the grant are met.
Example: $50k grant if farmer maintains 100 cows for 5 years. Recognize $10k in P&L each year as the condition is met.
If the grant relates to a biological asset measured at cost (using the rare exception), then IAS 20 *Accounting for Government Grants* applies.
Required Disclosures:
The aggregate gain or loss recognized in P&L on initial recognition (births/harvest) and from changes in fair value less costs to sell of biological assets.
A reconciliation (roll-forward) of the carrying amount of biological assets (by group), showing changes from:
Gains/losses from fair value changes.
Increases due to purchases.
Decreases due to harvest (transferred to inventory).
Increases from procreation (births).
Effects of foreign exchange differences.
A description of each group of biological assets (e.g., dairy cattle, timber forests).
Methods and significant assumptions used in determining fair value.
The carrying amount of agricultural produce at period-end (which is held as inventory under IAS 2).
Nature and extent of government grants recognized, and any unfulfilled conditions.
Disclosures if the "cost exception" (inability to measure FV reliably) is used.
