Professional Documents
Culture Documents
Dimalibot, Danica A.
PAS 41 - AGRICULTURE
Objective of PAS 41
The objective of PAS 41 is to establish standards of accounting for agricultural activity -- the
management of the biological transformation of biological assets (living plants and animals) into
agricultural produce (harvested product of the enterprise's biological assets).
PAS 41 shall be applied to account for the following when they relate to agricultural activity:
Biological assets
Agricultural produce
PAS 41 does NOT deal with processing of agricultural produce AFTER HARVEST.
Key Definitions:
Biological Asset
Sheep
Trees in a plantation
forest
Plants
Dairy cattle
Pigs
Bushes
Vines
Fruit trees
Agricultural Produce
Wool
Logs
Example: Production of agricultural produce such as latex, tea, leaf, wool and milk.
Initial Recognition
An enterprise should recognize a biological asset or agriculture produce only when the enterprise
controls the asset as a result of part events, it is probable that future economic benefits will flow to
the enterprise, and the fair value or cost of the asset can be measured reliably.
Measurement
Biological assets should be measured on initial recognition and at subsequent reporting dates at
fair value less estimated point-of-sale costs, unless fair value cannot be reliably measured.
Agricultural produce should be measured at fair value less estimated point-of-sale costs at the
point of harvest. Because harvested produce is a marketable commodity, there is no 'measurement
reliability' exception for produce.
The gain on initial recognition of biological assets at fair value, and changes in fair value of
biological assets during a period, are reported in net profit or loss.
A gain on initial recognition of agricultural produce at fair value should be included in net profit or
loss for the period in which it arises.
All costs related to biological assets that are measured at fair value are recognized as expenses
when incurred, other than costs to purchase biological assets.
PAS 41 presumes that fair value can be reliably measured for most biological assets. However,
that presumption can be rebutted for a biological asset that, at the time it is initially recognized in
financial statements, does not have a quoted market price in an active market and for which other
methods of reasonably estimating fair value are determined to be clearly inappropriate or
unworkable. In such a case, the asset is measured at cost less accumulated depreciation and
impairment losses. But the enterprise must still measure all of its other biological assets at fair
value. If circumstances change and fair value becomes reliably measurable, a switch to fair value
less point-of-sale costs is required.
Market price for similar asset with adjustment to reflect any differences
Sector benchmark, such as value of a farmland per hectare or value of cattle per kilogram
100
70
108
72
80
105
111
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 2016.
FV less estimated point-of-sale costs of herd at January 1, 2016: (10 x 100)
Purchased on July 1, 2016: (1 x 108)
1,000
108
1,108
1,320
80
1,400
Therefore the movement in valuation during the period is 292 (1,400 - 1,108).
Increase in fair value less estimated point-of-sale costs due to price change:
10 x (105 100)
50
1 x (111 108)
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)
1 x (80 72)
1 x 70
70
237
An unconditional government grant related to a biological asset measured at its fair value
less costs to sell shall be recognized in profit or loss when, and only when, the government
grant becomes receivable.
If a government grant related to a biological asset measured at its fair value less costs to
sell is conditional, including when a government grant requires an entity not to engage in
specified agricultural activity, an entity shall recognize the government grant in profit or loss
when, and only when, the conditions attaching to the government grant are met.
If a government grant relates to a biological asset measured at its cost less any
accumulated depreciation and any accumulated impairment losses, PAS 20 on government
grant is applied.
Other Issues
a. The change in fair value of biological assets is part physical change (growth, etc.) and part unit
price change. Separate disclosure of the two components is encouraged, not required.
b. Fair value measurement stops at harvest. PAS 2, Inventories, applies after harvest.
c. Agricultural land is accounted for under PAS 16, Property, Plant and Equipment. However,
biological assets that are physically attached to land are measured as biological assets
separate from the land.
d. Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for
under PAS 38, Intangible Assets.
e. Unconditional government grants received in respect of biological assets measured at fair
value are reported as income when the grant becomes receivable.
Disclosures
Disclosure requirements in PAS 41 include:
If the fair value of biological assets previously measured at cost now becomes available, certain
additional disclosures are required.
Disclosures relating to government grants include the nature and extent of grants, unfulfilled
conditions, and significant decreases in the expected level of grants
Amendments
Effectivity: For annual periods beginning on or after January 1 2016
"IASB issues amendments to IAS 16 and IAS 41 for bearer plants 30 June 2014
The International Accounting Standards Board (IASB) today published amendments that change
the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. IAS 41
Agriculture currently requires all biological assets related to agricultural activity to be measured at
fair value less costs to sell. This is based on the principle that the biological transformation that
these assets undergo during their lifespan is best reflected by fair value measurement. However,
there is a subset of biological assets, known as bearer plants, which are used solely to grow
produce over several periods. At the end of their productive lives they are usually scrapped. Once
a bearer plant is mature, apart from bearing produce, its biological transformation is no longer
significant in generating future economic benefits. The only significant future economic benefits it
generates come from the agricultural produce that it creates.
The IASB decided that bearer plants should be accounted for in the same way as property, plant
and equipment in IAS 16 Property, Plant and Equipment, because their operation is similar to that
of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead
of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. Entities
are required to apply the amendments for annual periods beginning on or after 1 January 2016.
Earlier application is permitted."