1. CHAPTER 34
AGRICULTURE

2. 34.2 IAS 41 AGRICULTURE Key Terms
Agricultural Activity –the biological transformation of biological assets for sale into agricultural produce or into additional biological assets
Agricultural Produce – the harvested product of an enterprise’s biological assets
Biological Asset – A living animal or plant
Biological Transformation – the processes of growth, degeneration, production and procreation that cause qualitative and quantitative changes in a biological asset
Group of Biological Assets – An aggregation of similar living animals or plants
Harvest – the detachment of produce from a biological asset or the cessation of a biological asset’s life processes

3. Introduction and scope
IAS 41 published because of the economic importance of agriculture in both developed and developing countries
IAS 41 prescribes the accounting treatment, FS presentation and disclosures related to agricultural activity
But there is great diversity in practices and it is difficult to apply traditional accounting methods to agricultural activities
IAS 41 does not apply to:
Land related to agricultural activity (IAS 16 Property, Plant and Equipment) (See Chapter 6)
Intangible assets related to agricultural activity (IAS 38 Intangible Assets) (See Chapter 9)
The processing of agricultural produce after harvest (IAS 2 Inventories) (See Chapter 11)

4. Introduction and scope
IAS 41 applies to the three elements that form part of, or result from, agricultural activity:
Biological assets
Agricultural produce at the point of harvest
Government grants
See Chapter 34, Table 34.1

5. Table 34.1 Agricultural activity
Biological Asset
Agricultural Produce
Products that are the result of processing after harvest
Sheep
Wool
Yarn, carpet
Trees in a plantation forest
Logs
Lumber
Plants
Cotton, harvested cane
Thread, clothing, sugar
Dairy cattle
Milk
Cheese
Pigs
Carcass
Sausages, cured hams
Bushes
Leaf
Tea, cured tobacco
Vines
Grapes
Wine
Fruit trees
Picked fruit
Processed fruit

6. Example 34.1: Mixed businesses
Entity A raises cattle, slaughters them at its abattoirs and sells the carcasses to the local meat market. Which of these activities are in the scope of IAS 41?
The cattle are biological assets while they are living.
When they are slaughtered, biological transformation ceases and the carcasses meet the definition of agricultural produce.
Hence, Entity A should account for the live cattle in accordance with IAS 41 and the carcasses as inventory in accordance with IAS 2 Inventories (See Chapter 11).

7. Example 34.1: Mixed businesses
Entity B grows vines, harvests the grapes and produces wine. Which of these activities are in the scope of IAS 41?
The grapevines are biological assets that continually generate crops of grapes. When the entity harvests the grapes, their biological transformation ceases and they become agricultural produce. The grapevines continue to be living plants and should be recognised as biological assets.
Assets such as wine that are subject to a lengthy maturation period are not biological assets. These processes are analogous to the conversion of raw materials to a finished product rather than biological transformation. Therefore, the entity should account for the grapevines in accordance with IAS 41 and the harvested grapes and the production of wine, as inventory in accordance with IAS 2.

8. Biological assets
Recognition Biological assets may not be recognised unless the following conditions are met: (a) the enterprise controls the asset as a result of past events; (b) it is probable that the future economic benefits will flow to the enterprise; and (c) the fair value or cost can be measured reliably.

9. Biological assets
Measurement
Measured at fair value less estimated point of sale costs on the basis that fair value has greater relevance, reliability, comparability and understandability as a measure of future economic benefits
If a fair value cannot be determined because market prices are not available, cost less accumulated depreciation and impairment losses may be used
The alternative basis is only permitted on initial recognition

10. Biological assets
Measurement
The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value less costs to sell of biological assets during a period, should be reported in arriving at net profit or loss for the period.
The change in fair value of biological assets may be part physical change (i.e. growth) and part price (i.e. fair value) change. IAS 41 encourages, but does not require, the separate disclosure of these two components on the basis that it assists with appraising current period performance and future prospects.

11. Example 34.2: Measurement of biological assets
A herd of 10 two-year-old animals was held at 1 January One animal, aged 2.5 years, was purchased on 1 July 2012 for €108, and one animal was born on 1 July No animals were sold or disposed of during the period. Per unit fair values less estimated point-of-sale costs were as follows: €
2-year-old animal at 1 January 2012
100
Newborn animal at 1 July 2012 70
2.5-year-old animal at 1 July 2012
108
Newborn animal at 31 December 2012 72
0.5-year-old animal at 31 December 2012 80
2-year-old animal at 31 December 2012
105
2.5-year-old animal at 31 December 2012
111
3-year-old animal at 31 December 2012
120
Before separating the physical changes and the price change, it is useful to examine the overall movement in the valuation of the herd during 2012.

12. Example 34.2: Measurement of biological assets
FV less estimated point-of-sale costs of herd at 1 January 2012: (10 x €100) €
1,000
Purchased on 1 July 2012: (1 x €108)
108
1,108
FV less estimated point-of-sale costs of herd at 31 December 2012:
11 x €120
1,320
1 x €80 80
1,400
Therefore the movement in valuation during the period is €292 (€1,400 - €1,108).
This can be explained by:

13. Example 34.2: Measurement of biological assets
Increase in fair value less estimated point-of-sale costs due to price change: €
10 x (€105 – €100) 50
1 x (€111 – €108) 3
1 x (€72 – €70) 2 55
Increase in fair value less estimated point-of-sale costs due to physical change:
10 x (€120 – €105)
150
1 x (€120 – €111) 9
1 x (€80 – €72) 8
1 x €70 70
237

14. Biological assets
Presentation
SFP
Biological assets should also be sub-classified as follows:
(a) class of animal or plant
(b) nature of activities (consumable or bearer)
(c) maturity or immaturity for intended purpose
SPLOCI
Analysis of income and expenses based on their nature (rather than the cost of sales method)
Other
Detailed disclosures to include the measurement base used for fair value and the details of the reconciliation of the change in carrying value for the year

15. Agricultural produce
Recognise at the point of harvest (e.g. detachment from the biological asset) and this should end once the produce enters trading activities or production processes
Measure at fair value at each reporting date
Change in the carrying amount of agriculture produce held at two reporting dates should be recognised as income or expenses in the SPLOCI. However, this will be rare as such produce is usually sold or processed within a short time.
Agricultural produce that is harvested for trading or processing activities should be measured at fair value at the date of harvest. This amount is the deemed cost for application of IAS 2 (See Chapter 11).
Classify as inventory in the SFP and disclose separately either on the face of the SFP or in the notes

16. Government grants
An unconditional government grant related to a biological asset measured at fair value less estimated point of sale costs should be recognised as income when, and only when, the grant becomes receivable
If a grant requires an enterprise not to engage in agricultural activity an enterprise should only recognise the grant as income when the conditions are met. IAS 20 does not apply to such grants
However, if a biological asset is measured at cost less accumulated depreciation and impairment losses then IAS 20 does apply (See Chapter 16)

17. Disclosure
IAS 41 requires extensive disclosures in relation to biological assets, agricultural produce and government grants. In summary, these include:
Description of assets and activities
Gains and losses recognised in the period
Methods and significant assumptions applied in determining fair value
See Chapter 34, Example 34.3