Tuesday, December 10, 2013

[IFRS] IAS 41 Agriculture - Measurement and Recognition

Agriculture activity and its features
Agricultural activity covers a diverse range of activities. It includes, raising livestock, fish or poultry, annual or perennial cropping, forestry, cultivating vineyard, orchards and plantations, stud farms, floriculture and aquaculture (including fish farming). 

The common features of agriculture activities are: 
  • Capability to change: Living animals and plants are capable of biological transformation;
  • Management of change: Management facilitates biological transformation by enhancing, or stabilizing (like, temperature, nutrient levels, moisture, light and fertility) that is necessary for the process of biological transformation to take place.
  • Measurement of change: The change in quality of biological asset, (i.e., density, fat cover, ripeness, protein content, generic merit and fibre strength) or the quantity of biological asset (i.e., weight, cubic metres, fibre length or diameter, and number of buds), that are brought by biological transformation.
Table gives example of biological assets, agriculture produce and the product that are the result of the processing after harvest

Biological Asset
Agriculture Produce
After harvest product
Carpet, Thread, Yarn
Trees in plantation forest
Felled Trees
Logs, Lumber
Threads, Clothes
Tea, Tobacco
Grape vine
Fruit trees
Reaped fruits
Processed fruits
Dairy Cattle
Cheese, Yogurt
Sausages, cured hams


The biological assets or agriculture produce are recognized by an entity, when and only when: 
  • The entity controls the asset as a result of past events; 
The control may be evidenced by legal ownership, branding or marking of biological asset on acquisition, birth or weaning. 

  • It is probable that the future economic benefits associated with the assets will flow to the enterprises 
The future economic benefits are assessed by measuring the physical attributes of the biological assets 

  • The fair value or the cost of the assets can be measured reliably. 
The biological assets that are not used in agriculture activity are not covered by this standard. For instance, 
  • Ocean fishing: The activity related to harvesting biological assets from unmanaged sources (i.e. ocean), accordingly not considered as agriculture activities. 
  • Animals kept in Zoo, Theme Park or held for racing: Such activities are regarded as managing recreational activities and not agriculture activities, as they are not kept for the purpose of breeding or reared for sale. 
  • Organisms’ development for research purposes: It does not qualify as agricultural activity, as those organisms are not being developed with the intension to sale, transform into agricultural produce or generate additional biological assets.


A biological asset is measured on
  • initial recognition and subsequently at the end of each reporting period (i.e. balance sheet date) 
  • at its fair value less estimated cost to sell 
Exception: when the fair value cannot be measured reliably

Accounting Policies (Extract)
Associated British Foods plc, (LON:ABF), Consolidated Financial Statement Sep 2012

Biological assets are measured at fair value less costs to sell.

Cane roots and growing cane are stated at fair value on the following bases:
Cane roots – escalated average cost, using appropriate inflation-related indices, of each year of planting adjusted for remaining expected life, currently ten years in South Africa, seven years in Zambia and eight years elsewhere.
Growing cane – estimated sucrose content valued at estimated sucrose price for the following season, less estimated costs for harvesting and transport.

When harvested, growing cane is transferred to inventory at fair value less costs to sell

Agricultural produce harvested from an entity’s biological asset is measured at
  • fair value less estimated cost to sell the harvest 
This cost forms the basis for inventory valuation As per IAS 41, the active market for agriculture produce always exists and such produce can be measured reliably. So, unlike a biological asset, there is no exception for agriculture produce related to cases where fair value cannot be measured reliably.