Chapter 3

3. Accounting for Agriculture

Introduction
IFRS provides guidance concerning agricultural activities, which span livestock, forestry, crops,
orchards, fish farming, and related activities. The guidance in this chapter applies to biological
assets on an ongoing basis, as well as to agricultural produce when it is harvested. Agriculture
covers many activities involving the enhancement of living animals and plants, in order to
increase their quantity or quality. A business should recognize a biological asset only if all of the
following conditions are true:
• The business controls the asset;
• Future economic benefits related to the asset will flow to the business; and
• Either the fair value or cost of the asset can be measured in a reliable manner.
3.2. The Nature of Biological Assets
A biological asset should be measured when it is initially recognized, as well as at the end of
each reporting period. The measurement should use the fair value of the asset, less any costs to
sell. Fair value may not differ appreciably from cost when little biological transformation has yet
taken place, or if the biological transformation has little impact on price. For example, the initial
growth of a hardwood tree may be minimal, resulting in no real change in value for a number of
years.
When agricultural produce is harvested, the measurement should also be at the fair value of the
asset, less any costs to sell. This measurement only takes place when the produce is harvested.
Subsequent to harvesting, produce is treated as inventory. For these measurements, fair value is
considered to be based on the current market conditions in which market participants are willing
to enter into transactions. Thus, the fair value of a biological asset or agricultural produce is not
necessarily the price at which an entity may have contracted to sell its assets at some point in the
future.
When a biological asset is initially recognized at its fair value less costs to sell, any related gain
or loss is recognized in profit or loss. The same accounting applies when there is a change in fair
value from period to period.
EXAMPLE
A calf is born at Cud Farms, so Cud recognizes a gain of £500 that reflects the market value of a
newborn calf. One year later, the price of the cow has risen to £2,200, so Cud recognizes a gain

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of £1,700 to account for the increase in fair value. One year after that, a glut of cows on the
market
drops the fair market value to £1,900, so Cud recognizes a loss of £300.
EXAMPLE
Spud Potato Farms harvests its Fall crop of potatoes, and recognizes a gain of £150,000 in profit
or loss as soon as the harvest is complete. It may not be possible to measure the fair value of a
biological asset upon its initial recognition. If so, measure the asset at its cost, less any
accumulated depreciation and accumulated impairment losses. If a fair value later becomes
available on a reliable basis, the asset should be revalued at the fair value. If a biological asset
was initially measured at its fair value less costs to sell, it must continue to be measured in that
manner until the asset is disposed of. In all cases, agricultural produce must be measured at its
fair value less
costs to sell; this requirement is based on the assumption that fair values are always available for
agricultural produce. A government grant related to a biological asset should be recognized in
profit or loss only when the following conditions are met:
• The grant is unconditional;
• All conditions associated with the grant have been met;
• The grant is measured at fair value less costs to sell; and
• The grant becomes receivable.
EXAMPLE
The local government issues a £100,000 grant to any farmer willing to operate a farm in an area
formerly zoned for heavy industrial use. The grant stipulates that a farmer will be paid in full
after having documented at least three consecutive years of farming on the same land. Given this
condition, a farmer cannot recognize the grant until the required three-year period has elapsed.
Bearer Plants
A bearer plant is a plant that generates produce, such as an apple tree. The plant itself is not an
agricultural product. A bearer plant has the following
characteristics:
• Is used in the production of agricultural produce;
• Is expected to bear agricultural products for more than one season; and
• Is not likely to be sold as agricultural produce.
Thus, wheat is not a bearer plant, since it is routinely harvested. Trees can be treated as
agricultural produce, if the intent is to cut them down to during the period.
• Reconciliation. A reconciliation of the carrying amounts of biological assets between the
beginning and end of the period, including gains and losses on changes in fair value less costs to
sell, increases caused by purchases, decreases caused by sales and items held for sale, decreases

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caused by harvests, increases caused by business combinations, foreign exchange differences,
and other issues.
• Restricted title. The carrying amounts of those biological assets whose titles are restricted,
and those amounts pledged as security.
• Risk management. Any financial risk management strategies applied to agricultural activity.
EXAMPLE
Cud Farms discloses the following information in the notes accompanying its financial
statements: Cud Farms produces goat milk for a number of local school districts. At year-end,
Cud held 320 goats able to produce milk and 150 kids being raised to produce milk in the future.
During the year ended 20X2, the company produced 88,000 gallons of goat milk, with a fair
value less costs to sell of £230,000. The fair value of milk is based on quoted prices in the local
area. The company is exposed to changes in the price of goat milk. There is no expectation of
reduced milk prices in the near future, so the company does not engage in derivative transactions
to offset this risk. The management team reviews the milk price forecast on a weekly basis to
determine the ongoing need for more active financial risk management.
If the fair values of biological assets cannot be measured reliably, disclose the following
information:
• Conversion to fair value. If it becomes possible to measure assets at fair value during the
period, describe these assets, explain why fair value can now be measured, and the impact of the
change.
• Depreciation. The depreciation method used to ratably reduce the cost of the assets.
• Description. A description of the assets produce lumber. An apple tree is considered a bearer
plant, even though it may eventually be cut down and sent to a lumber mill; since its use as
lumber is a secondary application.
3.4. Presentation and Disclosure Issues
A business engaged in agriculture should disclose the following information in the notes
accompanying its financial statements:
• Commitments. Any commitments to develop or acquire biological assets.
• Gain or loss. The aggregate gain or loss recognized in the reporting period from the initial
recognition of biological assets and agricultural produce, and from changes in the fair value less
costs to sell of biological assets.
• Groupings. Describe each group of biological assets, such as groups of mature and immature
assets. Mature assets have reached a state in which they can be harvested or can sustain ongoing
harvests. IFRS encourages a quantified description that can help in assessing the timing of future

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cash flows. A suggested grouping is for consumable biological assets, which are those assets to
be harvested or sold. Another possible grouping is bearer biological assets, which are self-
regenerating assets, such as fruit trees and grape vines.
• Nature of activities. The nature of the activities required for each group of biological assets.
• Quantities. The physical quantities of each group of biological assets at the end of the
reporting period, as well as the amount produced
• Estimates. The range of estimates within which the fair value is likely to be (if possible).
• Explanation. An explanation of why fair value cannot be measured in a reliable manner.
• Gains or losses. The gains or losses recognized on the disposal of biological assets measured
at cost, as well as a reconciliation for the period that includes impairment losses, reversals of
impairment losses, and depreciation.
• Gross amounts. The gross carrying amount and accumulated depreciation as of the beginning
and end of the reporting period.
• Useful lives. The useful lives incorporated into depreciation calculations.
If the entity has received government grants, disclose the nature of these grants recognized in the
period; any unfulfilled conditions related to outstanding grants, and any significant decreases that
are expected in the amount of future government grants.