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Ias 41
Ias 41
IAS 41 introduces a fair value model to agriculture accounting. This is a major shift
away from the traditional cost model widely applied in primary industry.
ii. are expected to bear produce for more than one period;and
iii. have a remote likelihood of being sold as agricultural produce, except for
incidental scrap.
Bearer plants would include tea bushes, grape vines and rubber trees. They will be
accounted for using IAS 16 – accumulated cost until maturity and then subject to
depreciation and impairment. The revaluation model could also be applied. The
agricultural produce from them will be accounted for using IAS 41 and IAS 2.
By contrast, in the case of an annual crop of wheat, for example, when the cultivated
plants would typically have a useful life that does not extend beyond the next year
end date, the introduction of the fair value model should not have such a major
impact.
Recognition
IAS 41 specifies the usual tests in order that a biological asset or agricultural
produce be recognised on the statement of financial position, namely:
Control: the enterprise must have ownership or rights of control akin to ownership
that result from a past event
Value: future economic benefits are expected to flow to the enterprise from its
ownership or control of the asset
Measurement: the cost or fair value of the asset can be measured reliably.
Measurement
Biological assets should be measured at initial recognition, and at the end of each
reporting period , at fair value less estimated costs to sell.
Agricultural produce is measured, at the point of harvest, at fair value less estimated
costs to sell at the point of harvest. The point of harvest represents the transition
between accounting for agricultural produce assets under IAS 41 and IAS 2. Fair
value less costs to sell at the point of harvest forms ‘cost’ for the purposes of IAS 2.
Costs to sell are incremental costs directly attributable to the disposal, excluding
taxation and finance costs, and would include commissions to brokers and dealers,
levies by regulatory agencies and commodity exchanges, and transfer taxes and
duties. They exclude transport and other costs necessary to get assets to a market
(these are taken into account in arriving at fair value).
IAS 41 contains a rebuttable presumption that fair value can be established for all
biological assets and agricultural produce. Only on the initial recognition of such
assets can the presumption be rebutted because of:
When the presumption that fair value can be established is rebutted, and until such
time as a fair value becomes measurable with reliability, the asset is carried on the
statement of financial position at cost less any accumulated depreciation and any
accumulated impairment losses. IAS 41 contains additional disclosure requirements
in such a situation
The estimation of fair value will be determined by applying the requirements of IFRS
13 Fair Value Measurement. Fair value is the price that would be received to sell the
biological asset or agricultural produce in an orderly transaction between market
participants at the measurement date.
IAS 41 recognises that fair value measurement may be aarived at more reliably by
grouping assets or produce eg by age or quality if this better reflects the attributes
used in the market to arrive at prices. For example livestock would be grouped by
species, age, weight, yield in a similar manner to how they would be valued by the
market.
The standard specifically requires that fair value not be determined by reference to a
future sales contract. Contract prices are not necessarily relevant in determining fair
value, because fair value reflects the current market in which a willing buyer and
seller would enter into a transaction. As a result, the fair value of a biological asset or
agricultural produce is not adjusted because of the existence of a contract.
The standard also addresses the situation where the biological assets are physically
attached to the land eg trees in a forestry plantation. There may be no separate
market for the biological asset separate from the land but rather the active market is
for the combined assets as a package. The standard suggests arriving at a fair value
for the combined package and deducting the fair value of the land and land
improvements to arrive at the fair value of the biological assets.
The standard also acknowledges cost can approximate to fair value when little
biological transformation has taken place since initial cost incurrence (newly
acquired livestock) or the impact of biological transformation on price is not material
(initial growth in timber plantation).
EXAMPLE 1
Establishing fair value when market-determined prices or values may not be
available for a separate biological asset in its present condition:
At initial recognition, the fair value (less estimated costs to sell) of a biological asset
is reported as a gain or loss in the statement of profit or loss. A loss may arise on
initial recognition when the estimated selling costs exceed the fair value of the asset
in its present state or a gain on initial recognition such as when livestock are born
The change in fair value (less costs to sell) of a biological asset between reporting
dates is reported as a gain or loss in the statement or profit or loss.
A gain or loss arising on initial recognition of agricultural produce at fair value less
selling costs is included in profit or loss for the period in which it arises.
Referring to the forestry example above, the difference in fair value of the plantation
between the two year end dates is 800 (4,500 – 3,700), which will be reported as a
gain in the statement or profit or loss (regardless of the fact that it has not yet been
realised).
IAS 41 requires disclosure of the aggregate gain or loss arising during the current
period on initial recognition of biological assets and agricultural produce and from the
change in fair value less costs to sell of biological assets. In recognising that
reporting the aggregate gain or loss according to its distinct causes may not be
practical in all circumstances, the standard does not require reporting of the gain or
loss on a disaggregated basis (that is, analysed between the gain and/or loss due to
price and physical factors) but encourages such disclosure because it is useful in
appraising current period performance and future prospects, particularly when there
is a production cycle of more than one year.
Presentation
Non-current assets
Disclosure
For biological assets measured at cost less any accumulated depreciation and any
accumulated impairment losses, the standard requires the following additional
disclosure:
The original article by Simon Riley, updated by ACCA DipIFR examining team