Ind AS 41 Agriculture Accounting for Bearer Plants under Ind AS 16 Dr. Avinash Chander Technical Director The Institute of Chartered Accountants of India

Agricultural Activity Agricultural activity involves biological transformation and harvest of biological assets for sale, or for conversion into agricultural produce, or for conversion into additional biological assets.

Agricultural Activity (contd…) Biological transformation - comprises the process of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset. Biological asset is a living animal or plant.

Agricultural Activity (contd…) Agricultural activity covers a diverse range of activities; raising livestock, forestry, annual or perennial cropping, cultivating orchards and plantations, floriculture and aquaculture Biological assets used not as agricultural activity, for instance, for transportation, recreation etc. are not covered.

Examples of biological assets, agricultural produce, and products that are the result of processing after harvest Biological assets Agricultural produce Products that are the result of processing after harvest Sheep Wool Yarn carpet Trees in a timber plantation Felled Trees Logs Lumber Dairy Cattle Milk Cheese Sugarcane Harvested cane Sugar Tea bushes Picked leaves Tea Grape vines Picked grapes Wine Rubber trees Harvested latex Rubber products

Biological assets held for produce, e.g., tea bushes and sheep. Examples of biological assets, agricultural produce, and products that are the result of processing after harvest contd.. Biological assets held for produce, e.g., tea bushes and sheep. Produce growing on biological assets for consumption, e.g., tea leaves and wool Products that are results of processing, e.g., tea, governed by other standards.

Biological Assets classification Biological assets are classified as Bearer biological assets; Consumable biological assets (CBAs). CBAs are those biological assets that are harvested as agricultural produce or sold as biological assets. Examples: livestock intended for the production of meat, livestock held for sale, fish in farms, crops such as maize and wheat, produce on a bearer plant and trees being grown for lumber.

Biological Assets classification (contd..) Bearer biological assets are those other than consumable biological assets. Example: livestock from which milk is produced and fruit trees from which fruit is harvested.

Accounting for Biological Assets Bearer Biological Assets Consumable Biological Assets Plants Ind AS 16 Ind AS 41 Living Animals

Bearer Plants under Ind AS 16 Property, Plant and Equipment (PPE)

Applicability to Bearer Plants Ind AS 16 applicable to bearer plants as self- constructed items of PPE. References to ‘construction’ covers activities necessary to cultivate bearer plants. Produce growing on bearer plants is not covered.

Bearer Plants: Definition Bearer plant is living plant that is used in the production or supply of agricultural produce, expected to bear produce for more than one period and has remote likelihood of being sold as agricultural produce, except for incidental scrap sales. Roots, retained to bear produce for more than one period, meet the definition of a bearer plant. Example: Sugar cane, its roots remain in the ground to sprout for the next period’s crop.

Bearer plants: Definition contd… Following are not bearer plants plants cultivated to be harvested as agricultural produce plants held for use in the production or supply of agricultural produce that are also intended to be harvested as agricultural produce or sold as living plants other than as incidental scrap sales plants cultivated for sale only annual crops and produce growing on a bearer plant

Accounting for Bearer Plants Initial measurement at cost Subsequent measurement at cost or revaluation model. Consequently after recognition, cost model may be followed for bearer plants. Depreciation to be provided To be tested for impairment under Ind AS 36 Impairment of Assets.

Accounting for Bearer Plants contd.. Before reaching production stage, i.e. before maturity, bearer plants Would be treated as a self-constructed property, i.e., cost accumulated on ongoing basis until the plant reaches maturity.

Classification of PPE As per Ind AS 16, a class of PPE is grouping of assets of a similar nature and used in an entity’s operations. As per Ind AS 16, bearer plants and land on which they are planted are separate classes of PPE. Accordingly, bearer plants and land are accounted separately.

Depreciation on Bearer Plants Ind AS 16 provides for component accounting, i.e. where cost of a part is significant in relation to the total cost of the item and has different useful life, it shall be depreciated separately. Example, in tea plantation, there are tea bushes and shade trees. life of the shade trees differs from the life of tea bushes for which it was grown accordingly, tea bushes and shade trees are depreciated separately.

Biological Assets under Ind AS 41 Agriculture

Biological Assets under Ind AS 41 Ind AS 41 applicable to Biological Assets (consumable plants and living animals) and agricultural produce - which is the harvested produce. Ind AS 41 also applicable to produce growing on bearer plants.

Biological Assets under Ind AS 41 (contd..) Agricultural produce - harvested product of the entity’s biological assets. Harvest - detachment of produce from a biological asset or the cessation of a consumable agricultural plant’s life processes.

Accounting for Biological Assets under Ind AS 41 Biological assets are measured on initial recognition at fair value less costs to sell. increases and decreases in the fair values recognised in the statement of profit and loss. Agricultural produce harvested from biological assets is measured at fair value less costs to sell at the point of harvest.

Accounting for Biological Assets under Ind AS 41 contd… Plants maintained for both to bear produce and for sale as living plants or agricultural produce, apart from incidental scrap sales, are accounted for at fair value less costs to sell in their entirety. Example, trees that are cultivated for their lumber as well as their fruit.

Fair Value under Ind AS 41 Fair value measurement is facilitated by grouping biological assets or agricultural produce according to significant attributes; example, by age or quality. An entity selects the attributes corresponding to the attributes used in the market as a basis for pricing, e.g., age or quality.

Fair Value under Ind AS 41 contd. Contracts entered to sell biological assets or agricultural produce at a future date: contract prices are not necessarily relevant in measuring fair value, as fair value reflects the current market conditions in which market participant buyers and sellers would enter into a transaction. fair value of a biological asset or agricultural produce is not adjusted because of the existence of a contract.

Fair Value under Ind AS 41 contd. Cost approximates fair value when: little biological transformation has taken place since initial cost incurrence, e.g., seedlings planted immediately prior to the end of a reporting period or newly acquired livestock; or impact of the biological transformation on price is not expected to be material, e.g., initial growth in a 30 year pine plantation.

Fair Value under Ind AS 41 contd… Biological assets physically attached to land- (for example, trees in a plantation forest). no separate market for biological assets that are attached to land. active market may exist for the combined assets, that is, the biological assets, raw land, and land improvements, as a package. information regarding the combined assets may be used to measure the fair value of the biological assets.

Fair Value under Ind AS 41 contd… Example, to arrive at the fair value of biological assets fair value of raw land deducted from fair value of the combined assets.

Gains and Losses On initial recognition at FV less costs to sell Change in FV less costs to sell Recognised in profit or loss

Inability to measure fair value reliably Presumption under Ind AS 41 fair value can be measured reliably for a biological asset. Presumption rebutted only on initial recognition when quoted market prices are not available and alternative fair value measurements are determined to be clearly unreliable. If presumption rebutted biological asset is measured at cost less any accumulated depreciation and any accumulated impairment losses until reliable fair value becomes available.

Questions