9.2 IAS 41 Agriculture

Question 1

What does IAS 41 Agriculture apply to

Answer 1

• Biological assets
• Agricultural produce at the point of harvest
• Governments grants related to biological assets

Question 2

What are biological assets

Answer 2

• A biological asset is a living plant or animal.
• All biological assets are accounted for under IAS 41, except for bearer plants

Question 3

What are the conditions for recognising a biological asset

Answer 3

1. It is probable that economic benefits will flow to the entity.
2. The cost or fair value of the asset can be reliably measured.
3. The entity controls the asset as a result of past events.

Question 4

How do you initially recognise a biological asset

Answer 4

• Fair value less any estimated ‘point of sale’ costs.
• If there is no fair value, then use the cost model less accumulated depreciation and impairment losses until fair value becomes reliably measurable.

Question 5

What are some examples of a biological asset

Answer 5

Sheep, dairy cattle, pigs, sugarcane, oil palms, rubber trees, trees in a timber plantation

Question 6

How do you subsequently measure a biological asset

Answer 6

Revalue to fair value less point of sale costs at year end, taking any gain or loss to the statement of point of sale

Question 7

How do you subsequently measure a biological asset

Answer 7

Revalue to fair value less point of sale costs at year end, taking any gain or loss to the statement of point of sale

Question 8

What are the issues with Fair Value and IAS 41 Agriculture

Answer 8

• Sometimes it is not possible to find a fair value
• Most biological assets are traded on an active market, but if there is no active market, it may be possible to estimate fair value from:
  o The most recent market price
  o The market price for a similar asset
  o The discounted cash flows from the asset
  o Net realisable value

Question 9

How do you measure fair value under IAS 41 Agriculture when there is no active market

Answer 9

If there is no active market and the alternative methods of estimating fair value are clearly unreliable:
* A biological asset is measured at cost less depreciation on initial recognition until a reliable fair value can be established

Question 10

What is a bearer plant

Answer 10

A bearer plant is a living plant that:
* Is used in the production or supply of agricultural produce
* Is expected to bear fruit for more than one period
and
* Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

Question 11

What are some examples of bearer plants

Answer 11

Fruit trees, tea bushes, vines

Question 12

How are bearer plants treated

Answer 12

Bearer plants are treated as PPE under IAS 16

Question 13

How is the produce grown on bearer plants treated

Answer 13

The produce growing on bearer plants, for example, tea leaves, grapes, oil palm fruit and latex, is within the scope of IAS 41

Question 14

What is agricultural produce

Answer 14

Agricultural produce is the harvested product from biological assets

Question 15

What are some examples of agricultural produce

Answer 15

Milk, carcass, felled trees, picked fruit, picked leaves, harvested latex

Question 16

How should agricultural produce be treated

Answer 16

• At the date of harvest the produce should be recognised and measured at fair value less estimated costs to sell e.g. commissions, levies, etc.
• Gains and losses on initial recognition are included in the profit or loss for the period.
• After produce has been harvested, IAS 41 ceases to apply.
• Agricultural produce becomes inventory, to which IAS 2 applies.
• Fair value less costs to sell at the point of harvest is taken as cost for the purpose of IAS 2 Inventories.

Question 17

How are unconditional grants treated under IAS 41 Agriculture

Answer 17

Unconditional government grants received in respect of biological assets measured at fair value are reported as income when the grant becomes receivable.

Question 18

How are conditional grants treated under IAS 41 Agriculture

Answer 18

If such a grant is conditional (including where the grant requires an entity not to engage in certain agricultural activity), the entity recognises it as income only when the conditions have been met.