IAS 41 : Agriculture

Question 1

Agriculture-related definitions 1

IAS 41 defines agricultural activity as ‘the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets’. [IAS 41.5].

Answer 1

IAS 41 defines agricultural activity as ‘the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets’. [IAS 41.5].

Question 2

Agriculture-related definitions 2

The standard states that ‘agricultural activity’ covers a wide range of activities, e.g. ‘raising livestock, forestry, annual or perennial cropping, cultivating orchards andplantations, floriculture, and aquaculture (including fish farming)’. [IAS 41.6]

Answer 2

The standard states that ‘agricultural activity’ covers a wide range of activities, e.g. ‘raising livestock, forestry, annual or perennial cropping, cultivating orchards andplantations, floriculture, and aquaculture (including fish farming)’. [IAS 41.6]

Question 3

Agriculture-related definitions 3

Agricultural activities have certain common features:
(a) Capability to change. Living animals and plants are capable of biological transformation;
(b) Management of change. Management facilitates biological transformation by enhancing, or at least stabilising, conditions necessary for the process to take place (for example, nutrient levels, moisture, temperature, fertility, and light). Such management distinguishes agricultural activity from other activities. For example, harvesting from unmanaged sources (such as ocean fishing and deforestation) is not agricultural activity; and
(c) Measurement of change. The change in quality (for example, genetic merit, density, ripeness, fat cover, protein content, and fibre strength) or quantity (for example, progeny, weight, cubic metres, fibre length or diameter, and number of buds) brought about by biological transformation or harvest is measured and monitored as a routine management function.’
[IAS 41.6].

Answer 3

Agricultural activities have certain common features:
(a) Capability to change. Living animals and plants are capable of biological transformation;
(b) Management of change. Management facilitates biological transformation by enhancing, or at least stabilising, conditions necessary for the process to take place (for example, nutrient levels, moisture, temperature, fertility, and light). Such management distinguishes agricultural activity from other activities. For example, harvesting from unmanaged sources (such as ocean fishing and deforestation) is not agricultural activity; and
(c) Measurement of change. The change in quality (for example, genetic merit, density, ripeness, fat cover, protein content, and fibre strength) or quantity (for example, progeny, weight, cubic metres, fibre length or diameter, and number of buds) brought about by biological transformation or harvest is measured and monitored as a routine management function.’
[IAS 41.6].

Question 4

Agriculture-related definitions 4

Biological transformation under IAS 41 ‘comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative
changes in a biological asset’. [IAS 41.5].

Answer 4

Biological transformation under IAS 41 ‘comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative
changes in a biological asset’. [IAS 41.5].

Question 5

Agriculture-related definitions 5

Biological transformation results in the following types of outcomes:
‘(a) asset changes through (i) growth (an increase in quantity or improvement in quality of an animal or plant), (ii) degeneration (a decrease in the quantity or deterioration in quality of an animal or plant), or (iii) procreation (creation of additional living
animals or plants); or
(b) production of agricultural produce such as latex, tea leaf, wool, and milk.’ [IAS 41.7].

Answer 5

Biological transformation results in the following types of outcomes:
‘(a) asset changes through (i) growth (an increase in quantity or improvement in quality of an animal or plant), (ii) degeneration (a decrease in the quantity or deterioration in quality of an animal or plant), or (iii) procreation (creation of additional living
animals or plants); or
(b) production of agricultural produce such as latex, tea leaf, wool, and milk.’ [IAS 41.7].

Question 6

Agriculture-related definitions 6

IAS 41 defines the following additional terms that are used throughout the standard: [IAS 41.5]
• A biological asset is a living animal or plant.
• A group of biological assets is an aggregation of similar living animals or plants.
• Agricultural produce is the harvested product of the entity’s biological assets.
• Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.
• Costs to sell are the incremental costs directly attributable to the disposal of an asset excluding finance costs and income taxes.

Answer 6

IAS 41 defines the following additional terms that are used throughout the standard: [IAS 41.5]
• A biological asset is a living animal or plant.
• A group of biological assets is an aggregation of similar living animals or plants.
• Agricultural produce is the harvested product of the entity’s biological assets.
• Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.
• Costs to sell are the incremental costs directly attributable to the disposal of an asset excluding finance costs and income taxes.

Question 7

Definition of bearer plants 1

A bearer plant is defined as ‘a living plant that:

(a) is used in the production or supply of agricultural produce;
(b) is expected to bear produce for more than one period; and
(c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales’. [IAS 41.5].

Determining whether an asset meets the definition of a bearer plant may not be entirely intuitive. Careful assessment will, therefore, be important. We believe that judgement is needed in the following areas:

Answer 7

A bearer plant is defined as ‘a living plant that:

(a) is used in the production or supply of agricultural produce;
(b) is expected to bear produce for more than one period; and
(c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales’. [IAS 41.5].

Determining whether an asset meets the definition of a bearer plant may not be entirely intuitive. Careful assessment will, therefore, be important. We believe that judgement is needed in the following areas:

Question 8

Definition of bearer plants 1a

• Used in the production or supply of agricultural produce.
Judgement may be needed to determine whether a plant is used in the production or supply of agricultural produce, rather than consumed in the process. For example, some plants that are generally thought of as consumable are harvested twice, but with the first harvest having the principal purpose of improving the yield of the second harvest. It is not clear whether the fact that there are two harvests is sufficient to make these plants bearer assets. For certain plants, new produce may be capable of being grown from various parts of the plant (e.g. pineapples). For others, the plant itself may be cut back and regrown. For example, after a harvest of bananas, the banana plant may be cut down to its base and re-grown the next year to produce more bananas. In such situations, judgement may be needed to determine which part of the plant might be the bearer plant (e.g. the banana palm or
the base).

Answer 8

• Used in the production or supply of agricultural produce.
Judgement may be needed to determine whether a plant is used in the production or supply of agricultural produce, rather than consumed in the process. For example, some plants that are generally thought of as consumable are harvested twice, but with the first harvest having the principal purpose of improving the yield of the second harvest. It is not clear whether the fact that there are two harvests is sufficient to make these plants bearer assets. For certain plants, new produce may be capable of being grown from various parts of the plant (e.g. pineapples). For others, the plant itself may be cut back and regrown. For example, after a harvest of bananas, the banana plant may be cut down to its base and re-grown the next year to produce more bananas. In such situations, judgement may be needed to determine which part of the plant might be the bearer plant (e.g. the banana palm or
the base).

Question 9

Definition of bearer plants 1b

• Expected to bear produce for more than one period.
The definition of a bearer plant requires that a plant be expected to bear produce for more than one period. It would seem appropriate to think of an annual period in this context. However, the standard does not use this term, so an entity needs to consider if an interim period, a season or a production cycle (i.e. through to harvest) might also be appropriate.

Answer 9

• Expected to bear produce for more than one period.
The definition of a bearer plant requires that a plant be expected to bear produce for more than one period. It would seem appropriate to think of an annual period in this context. However, the standard does not use this term, so an entity needs to consider if an interim period, a season or a production cycle (i.e. through to harvest) might also be appropriate.

Question 10

Definition of bearer plants qc

• Incidental scrap sales.
Whether the likelihood of the plant being sold as agricultural produce is remote is also a matter of judgement. However, it is intended to be a high hurdle. The standard does allow for the fact that there may
be some ‘incidental scrap sales’, but this term is not defined. The standard notes that bearer plants might be cut down and sold as scrap, (e.g. for firewood) at the end of their productive life and states that ‘such incidental scrap sales would not prevent the plant from satisfying the definition of a bearer plant’. [IAS 41.5B]. However, in the example given in the standard (i.e. firewood), it is reasonably evident that such sales would be ‘incidental’. Since no further guidance is given in the standard, entities need to apply judgement in determining what constitutes ‘scrap sales’ (e.g. would it include ad-hoc sales before the productive life has ended, such as selling trees removed while thinning?). Furthermore, the standard does not clarify at what level sales cease to be incidental and whether this is a qualitative or quantitative assessment. Therefore, judgement may
be needed.

Answer 10

• Incidental scrap sales.
Whether the likelihood of the plant being sold as agricultural produce is remote is also a matter of judgement. However, it is intended to be a high hurdle. The standard does allow for the fact that there may
be some ‘incidental scrap sales’, but this term is not defined. The standard notes that bearer plants might be cut down and sold as scrap, (e.g. for firewood) at the end of their productive life and states that ‘such incidental scrap sales would not prevent the plant from satisfying the definition of a bearer plant’. [IAS 41.5B]. However, in the example given in the standard (i.e. firewood), it is reasonably evident that such sales would be ‘incidental’. Since no further guidance is given in the standard, entities need to apply judgement in determining what constitutes ‘scrap sales’ (e.g. would it include ad-hoc sales before the productive life has ended, such as selling trees removed while thinning?). Furthermore, the standard does not clarify at what level sales cease to be incidental and whether this is a qualitative or quantitative assessment. Therefore, judgement may
be needed.

Question 11

Definition of bearer plants 2

All of the above criteria need to be met for a plant to be considered a bearer plant.

The definition captures plants that would intuitively be considered to be bearers, for instance, grape vines. Some plants that may appear to be consumable, such as the root systems of perennial plants (e.g. sugar cane, bamboo or asparagus), but due to the perennial
nature of their root systems, they are expected to meet the definition of a bearer plant.

Answer 11

All of the above criteria need to be met for a plant to be considered a bearer plant.

The definition captures plants that would intuitively be considered to be bearers, for instance, grape vines. Some plants that may appear to be consumable, such as the root systems of perennial plants (e.g. sugar cane, bamboo or asparagus), but due to the perennial
nature of their root systems, they are expected to meet the definition of a bearer plant.

Question 12

Definition of bearer plants 3

Annual crops and other plants that are held solely to be harvested as agricultural produce (e.g. many traditional arable crops such as maize, wheat and soya, as well as trees grown for lumber), are explicitly excluded from the definition of a bearer plant. In
addition, plants that have a dual use (i.e. plants cultivated to bear agricultural produce, but for which there is more than a remote likelihood that the plant itself will be harvested and sold as agricultural produce, beyond incidental scrap sales) are not bearer
plants. [IAS 41.5A]. This may be the case when, for example, an entity holds rubber trees to sell both the latex as agricultural produce and the trees as lumber.

Answer 12

Annual crops and other plants that are held solely to be harvested as agricultural produce (e.g. many traditional arable crops such as maize, wheat and soya, as well as trees grown for lumber), are explicitly excluded from the definition of a bearer plant. In
addition, plants that have a dual use (i.e. plants cultivated to bear agricultural produce, but for which there is more than a remote likelihood that the plant itself will be harvested and sold as agricultural produce, beyond incidental scrap sales) are not bearer
plants. [IAS 41.5A]. This may be the case when, for example, an entity holds rubber trees to sell both the latex as agricultural produce and the trees as lumber.

Question 13

Definition of bearer plants 4

Bearer animals, like bearer plants, may be held solely for the produce that they bear. However, when IAS 41 was amended to exclude bearer plants from its scope, bearer animals were explicitly excluded from the amendments and continue to be accounted for under IAS 41 on the basis that the measurement model would become more complex if applied to such assets.

Answer 13

Bearer animals, like bearer plants, may be held solely for the produce that they bear. However, when IAS 41 was amended to exclude bearer plants from its scope, bearer animals were explicitly excluded from the amendments and continue to be accounted for under IAS 41 on the basis that the measurement model would become more complex if applied to such assets.

Question 14

Definition of bearer plants 5

In addition to the considerations above, an entity may also need to reassess whether a plant meets the definition of a bearer plant after initial recognition. If a plant initially meets the definition of a bearer plant, but this subsequently changes, would IAS 41 then apply
instead of IAS 16? Neither IAS 16 nor IAS 41 address this question or specify how to transfer such assets between IAS 16 and IAS 41 (or vice versa). Once again, management will need to apply judgement in developing an accounting policy in these situations.

Answer 14

In addition to the considerations above, an entity may also need to reassess whether a plant meets the definition of a bearer plant after initial recognition. If a plant initially meets the definition of a bearer plant, but this subsequently changes, would IAS 41 then apply
instead of IAS 16? Neither IAS 16 nor IAS 41 address this question or specify how to transfer such assets between IAS 16 and IAS 41 (or vice versa). Once again, management will need to apply judgement in developing an accounting policy in these situations.

Question 15

General definitions 1

IAS 41 defines the general terms it uses throughout the standard as follows: [IAS 41.8]
• Carrying amount is the amount at which an asset is recognised in the statement of financial position.
• Government grants are as defined in IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance

Consumable biological assets are those biological assets that are to be harvested as agricultural produce or sold as biological assets, for example, where cows are bred as a food source, the resulting beef is agriculture produce. Such assets embody future
economic benefits. Bearer biological assets are self-regenerating assets other than consumable biological assets, for example dairy cattle rather than beef cattle, grape vines and fruit trees. Consumable and bearer biological assets generate net cash inflows for an
entity and therefore embody future economic benefits.

Answer 15

IAS 41 defines the general terms it uses throughout the standard as follows: [IAS 41.8]
• Carrying amount is the amount at which an asset is recognised in the statement of financial position.
• Government grants are as defined in IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance

Consumable biological assets are those biological assets that are to be harvested as agricultural produce or sold as biological assets, for example, where cows are bred as a food source, the resulting beef is agriculture produce. Such assets embody future
economic benefits. Bearer biological assets are self-regenerating assets other than consumable biological assets, for example dairy cattle rather than beef cattle, grape vines and fruit trees. Consumable and bearer biological assets generate net cash inflows for an
entity and therefore embody future economic benefits.

Question 16

General definitions 2

IFRS 13 – Fair Value Measurement – defines fair value as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date’. [IAS 41.8, IFRS 13.9]. Measuring fair value in
accordance with IFRS 13

Answer 16

IFRS 13 – Fair Value Measurement – defines fair value as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date’. [IAS 41.8, IFRS 13.9]. Measuring fair value in
accordance with IFRS 13

Question 17

Scope 1

IAS 41 applies to most biological assets, agricultural produce at the point of harvest and government grants involving biological assets measured at fair value less costs to sell.

However, to be within the scope of IAS 41, these items must relate to agricultural activity. [IAS 41.1].

Answer 17

IAS 41 applies to most biological assets, agricultural produce at the point of harvest and government grants involving biological assets measured at fair value less costs to sell.

However, to be within the scope of IAS 41, these items must relate to agricultural activity. [IAS 41.1].

Question 18

Scope 2

Agricultural activity refers to ‘the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological
assets’. [IAS 41.5]. It is important to note that this definition does not focus on the primary purpose of holding such assets or the number of sales that may result. In fact, the definition refers to ‘sale or conversion’; therefore, an entity need not intend to sell the biological assets or agricultural produce in order for the entity to be undertaking agricultural activity. Furthermore, the standard contemplates an entity applying IAS 41 to assets that it will use itself; the Basis for Conclusions refers, as an example, to an entity
accounting for trees as biological assets within IAS 41 when it intends to use the harvested logs in the construction of a building for its own use. [IAS 41.B8].

Answer 18

Agricultural activity refers to ‘the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological
assets’. [IAS 41.5]. It is important to note that this definition does not focus on the primary purpose of holding such assets or the number of sales that may result. In fact, the definition refers to ‘sale or conversion’; therefore, an entity need not intend to sell the biological assets or agricultural produce in order for the entity to be undertaking agricultural activity. Furthermore, the standard contemplates an entity applying IAS 41 to assets that it will use itself; the Basis for Conclusions refers, as an example, to an entity accounting for trees as biological assets within IAS 41 when it intends to use the harvested logs in the construction of a building for its own use. [IAS 41.B8].

Question 19

Scope 3

IAS 41 explicitly excludes the following assets from its scope: [IAS 41.2]

• bearer plants (see 2.2.1.A above), which are within the scope of IAS 16 however, produce growing on a bearer plant is still within the scope of IAS 41;
• government grants that relate to bearer plants, to which IAS 20 applie;
• land related to agricultural activity, which should be accounted for under either IAS 16 or IAS 40 – Investment Property ; [IAS 41.B55-B57]
• intangible assets related to agricultural activity, for instance the costs of developing new disease resistant crops, which should be accounted for under IAS 38 –
Intangible Assets (see Chapter 17); [IAS 41.B58-B60] and
• right-of-use assets arising from a lease of land related to agricultural activity, which is accounted for under IFRS 16

Answer 19

IAS 41 explicitly excludes the following assets from its scope: [IAS 41.2]

• bearer plants (see 2.2.1.A above), which are within the scope of IAS 16 however, produce growing on a bearer plant is still within the scope of IAS 41;
• government grants that relate to bearer plants, to which IAS 20 applie;
• land related to agricultural activity, which should be accounted for under either IAS 16 or IAS 40 – Investment Property ; [IAS 41.B55-B57]
• intangible assets related to agricultural activity, for instance the costs of developing new disease resistant crops, which should be accounted for under IAS 38 –
Intangible Assets (see Chapter 17); [IAS 41.B58-B60] and
• right-of-use assets arising from a lease of land related to agricultural activity, which is accounted for under IFRS 16

Question 20

Biological assets outside the scope of IAS 41

Biological assets may be outside the scope of IAS 41 when they are not used in agricultural activity. For example, animals in a zoo (or game park) that does not have an active breeding programme and rarely sells any animals or animal products would be outside the scope of the standard. Another example is activities in the pharmaceutical industry that involve the culture of bacteria. Such activity would not fall within the scope of IAS 41. While the bacteria may be considered a biological asset, the development of a culture by a pharmaceutical company would not constitute agricultural activity. Biological assets outside the scope of IAS 41 will normally fall within the scope of either
IAS 16 or IAS 2 – Inventories.

Answer 20

Biological assets may be outside the scope of IAS 41 when they are not used in agricultural activity. For example, animals in a zoo (or game park) that does not have an active breeding programme and rarely sells any animals or animal products would be outside the scope of the standard. Another example is activities in the pharmaceutical industry that involve the culture of bacteria. Such activity would not fall within the scope of IAS 41. While the bacteria may be considered a biological asset, the development of a culture by a pharmaceutical company would not constitute agricultural activity. Biological assets outside the scope of IAS 41 will normally fall within the scope of either
IAS 16 or IAS 2 – Inventories.

Question 21

Agricultural produce before and after harvest 1

IAS 41 only applies to agricultural produce (i.e. harvested produce) at the point of harvest; not prior or subsequent to harvest. Under IAS 41, unharvested agricultural produce is considered to be part of the biological asset from which it will be harvested. Therefore, before harvest, agricultural produce should not be accounted for separately from the biological asset from which it comes. For example, milk is accounted for as part of the dairy cow right up to
the moment at which the cow is milked.

Answer 21

IAS 41 only applies to agricultural produce (i.e. harvested produce) at the point of harvest; not prior or subsequent to harvest. Under IAS 41, unharvested agricultural produce is considered to be part of the biological asset from which it will be harvested. Therefore, before harvest, agricultural produce should not be accounted for separately from the biological asset from which it comes. For example, milk is accounted for as part of the dairy cow right up to the moment at which the cow is milked.

Question 22

Agricultural produce before and after harvest 2

Subsequent to harvest, agricultural produce is accounted for under IAS 2 or another standard, if applicable. [IAS 41.3]. Under IAS 2, agricultural produce is initially recognised as inventory at its fair value less costs to sell (measured in accordance with IAS 41), which becomes its cost for IAS 2 purposes.
[IAS 41.B41, B45].

Answer 22

Subsequent to harvest, agricultural produce is accounted for under IAS 2 or another standard, if applicable. [IAS 41.3]. Under IAS 2, agricultural produce is initially recognised as inventory at its fair value less costs to sell (measured in accordance with IAS 41), which becomes its cost for IAS 2 purposes.
[IAS 41.B41, B45].

Question 23

Bearer plants and produce growing on a bearer plant 1

IAS 41 explicitly excludes bearer plants from its scope; instead IAS 16 applies to these assets.
However, the produce growing on a bearer plant remains within the scope of IAS 41. [IAS 41.2(b)].

Answer 23

IAS 41 explicitly excludes bearer plants from its scope; instead IAS 16 applies to these assets.
However, the produce growing on a bearer plant remains within the scope of IAS 41. [IAS 41.2(b)].

Question 24

Bearer plants and produce growing on a bearer
plant 2

Entities will need to carefully assess which of its plants meet the definition of a bearer plant. This is because the scope exclusion, while focused on the definition of a bearer plant, also affects the accounting treatment for the produce growing on a bearer plant and any related government grants.

Bearer plants and their agricultural produce are considered to be two separate assets for accounting purposes (i.e. two units of account), with different measurement models being applied under different standards.

Answer 24

Entities will need to carefully assess which of its plants meet the definition of a bearer plant. This is because the scope exclusion, while focused on the definition
of a bearer plant, also affects the accounting treatment for the produce growing on a bearer plant and any related government grants.

Bearer plants and their agricultural produce are considered to be two separate assets for accounting purposes (i.e. two units of account), with different measurement models being applied under different standards.

Question 25

Bearer plants and produce growing on a bearer plant 3 In developing the requirements for bearer plants, the Board noted that bearer plants are held by an entity solely to grow produce over their productive life, similar to plant and equipment and, therefore, do not directly affect the entity’s future cash flows. As a result, it decided that bearer plants should be treated as property, plant and equipment in accordance with IAS 16. However, the IASB believes that ‘the same argument is not true for the produce growing on the bearer plants that is undergoing biological transformation until it is harvested (for example, grapes growing on a grape vine).

Answer 25

In developing the requirements for bearer plants, the Board noted that bearer plants are held by an entity solely to grow produce over their productive life, similar to plant and equipment and, therefore, do not directly affect the entity’s future cash flows. As a result, it decided that bearer plants should be treated as property, plant and equipment in accordance with IAS 16. However, the IASB believes that ‘the same argument is not true for the produce growing on the bearer plants that is undergoing biological transformation until it is harvested (for example, grapes growing on a grape vine).

Question 26

Bearer plants and produce growing on a bearer plant 4 The Board observed that the produce is a consumable biological asset growing on the bearer plant and the growth of the produce directly increases the expected revenue from the sale of the produce. Consequently, fair value measurement of the growing produce provides useful information to users of financial statements about future cash flows that an entity is expected to realise’. [IAS 41.BC4B]. The Board also indicated that such produce ultimately has a market value on its own, whereas the bearer plants on which they grow generally do not. As such, the Board decided that produce growing on a bearer plant should remain within the scope of IAS 41, which is expected to keep consistency between produce growing in the ground and produce growing on a bearer plant. [IAS 41.BC4A-BC4D]

Answer 26

The Board observed that the produce is a consumable biological asset growing on the bearer plant and the growth of the produce directly increases the expected revenue from the sale of the produce. Consequently, fair value measurement of the growing produce provides useful information to users of financial statements about future cash flows that an entity is expected to realise’. [IAS 41.BC4B]. The Board also indicated that such produce ultimately has a market value on its own, whereas the bearer plants on which they grow generally do not. As such, the Board decided that produce growing on a bearer plant should remain within the scope of IAS 41, which is expected to keep consistency between produce growing in the ground and produce growing on a bearer plant. [IAS 41.BC4A-BC4D]

Question 27

Products that are the result of processing after harvest IAS 41 does not deal with the processing of agricultural produce after harvest. The standard makes it clear that, even if the processing is considered ‘a logical and natural extension of agricultural activity, and the events taking place ... bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity’. [IAS 41.3]. For example, the process of brewing beer – in which yeast (a fungus) converts sugars into alcohol – would not meet the definition of agricultural activity in the standard. Similarly, cheese production would fall outside the definition of agricultural activity.

Answer 27

IAS 41 does not deal with the processing of agricultural produce after harvest. The standard makes it clear that, even if the processing is considered ‘a logical and natural extension of agricultural activity, and the events taking place ... bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity’. [IAS 41.3]. For example, the process of brewing beer – in which yeast (a fungus) converts sugars into alcohol – would not meet the definition of agricultural activity in the standard. Similarly, cheese production would fall outside the definition of agricultural activity.

Question 28

Leases of biological assets (excluding bearer plants) Leases involving biological assets are common in many jurisdictions, for example, the leasing of a sheep farm, where the lessee rents the farm, including the land, sheep and other assets, tends the sheep and sells the wool. Whether or not a leased biological asset (other than a leased bearer plant) is within the scope of IAS 41 will depend on the specific facts and circumstances of each arrangement. It will also depend on whether an entity is applying IFRS 16.

Answer 28

Leases involving biological assets are common in many jurisdictions, for example, the leasing of a sheep farm, where the lessee rents the farm, including the land, sheep and other assets, tends the sheep and sells the wool. Whether or not a leased biological asset (other than a leased bearer plant) is within the scope of IAS 41 will depend on the specific facts and circumstances of each arrangement. It will also depend on whether an entity is applying IFRS 16.

Question 29

Leases of biological assets under IFRS 16 1 IFRS 16 excludes from its scope the lessee accounting for leases of biological assets that are within the scope of IAS 41. [IFRS 16.3(b)]. The scope exemption in IFRS 16 does not specify whether the asset would be recognised in accordance with IAS 41; only that it is an asset that would be within the scope of IAS 41. Nor does it explain how an entity would account for its lease liability since it is outside the scope of IFRS 16. Entities affected by this scope exemption will need to use judgement to develop and appropriate accounting policy.

Answer 29

IFRS 16 excludes from its scope the lessee accounting for leases of biological assets that are within the scope of IAS 41. [IFRS 16.3(b)]. The scope exemption in IFRS 16 does not specify whether the asset would be recognised in accordance with IAS 41; only that it is an asset that would be within the scope of IAS 41. Nor does it explain how an entity would account for its lease liability since it is outside the scope of IFRS 16. Entities affected by this scope exemption will need to use judgement to develop and appropriate accounting policy.

Question 30

Leases of biological assets under IFRS 16 2 It is important to note that leases of bearer plants that are within the scope of IAS 16 are not excluded from the scope of IFRS 16. ‘Consequently, leases of bearer plants such as orchards and vineyards held by a lessee are within the scope of IFRS 16’. [IFRS 16.BC68(b)]. For lessors, leases of biological assets, including those within the scope of IAS 41, are within the scope of IFRS 16. A lessor would account for its leases as either operating or finance leases in accordance with IFRS 16. [IFRS 16.67-97]. When a lease of biological assets within the scope of IAS 41 is accounted for as an operating lease, the lessor continues to account for such biological assets under IAS 41.

Answer 30

It is important to note that leases of bearer plants that are within the scope of IAS 16 are not excluded from the scope of IFRS 16. ‘Consequently, leases of bearer plants such as orchards and vineyards held by a lessee are within the scope of IFRS 16’. [IFRS 16.BC68(b)]. For lessors, leases of biological assets, including those within the scope of IAS 41, are within the scope of IFRS 16. A lessor would account for its leases as either operating or finance leases in accordance with IFRS 16. [IFRS 16.67-97]. When a lease of biological assets within the scope of IAS 41 is accounted for as an operating lease, the lessor continues to account for such biological assets under IAS 41.

Question 31

Concessions 1 A concession typically involves a government, or other controlling authority, granting land to an entity, but requiring that the land be used for a specific purpose, for example, growing certain crops for a minimum period of time.

Answer 31

A concession typically involves a government, or other controlling authority, granting land to an entity, but requiring that the land be used for a specific purpose, for example, growing certain crops for a minimum period of time.

Question 32

Concessions 2 The treatment of each concession will be dependent on the specific facts and circumstances. However, if the concession requires an entity to undertake agricultural activity, as defined in IAS 41, the biological assets (other than bearer plants) and agriculture produce will be within the scope of IAS 41. The grant received may also be within the scope of the standard. However, the land granted would be within the scope of IAS 16 or IAS 40.

Answer 32

The treatment of each concession will be dependent on the specific facts and circumstances. However, if the concession requires an entity to undertake agricultural activity, as defined in IAS 41, the biological assets (other than bearer plants) and agriculture produce will be within the scope of IAS 41. The grant received may also be within the scope of the standard. However, the land granted would be within the scope of IAS 16 or IAS 40.

Question 33

Recognition An entity recognises a biological asset (including produce growing on a bearer plant) or agricultural produce that is within the scope of IAS 41 only when: [IAS 41.10] (a) it controls the asset as a result of past events; (b) it is probable that future economic benefits associated with the asset will flow to the entity; and (c) the fair value or cost of the asset can be measured reliably.

Answer 33

An entity recognises a biological asset (including produce growing on a bearer plant) or agricultural produce that is within the scope of IAS 41 only when: [IAS 41.10] (a) it controls the asset as a result of past events; (b) it is probable that future economic benefits associated with the asset will flow to the entity; and (c) the fair value or cost of the asset can be measured reliably.

Question 34

Recognition - Control In agricultural activity, an entity may evidence control by, for example, ‘legal ownership of cattle and the branding or otherwise marking of the cattle on acquisition, birth, or weaning’. [IAS 41.11].

Answer 34

In agricultural activity, an entity may evidence control by, for example, ‘legal ownership of cattle and the branding or otherwise marking of the cattle on acquisition, birth, or weaning’. [IAS 41.11].

Question 35

Measurement - Biological assets within the scope of IAS 41 : Initial and subsequent measurement A biological asset that is within the scope of IAS 41 (i.e. excluding bearer plants, but including produce growing on a bearer plant) is measured on initial recognition and at the end of each reporting period (subsequent) at its fair value less costs to sell, unless an entity can demonstrate at initial recognition that fair value cannot be measured reliably. [IAS 41.12]. In the latter case, the entity measures the biological asset at historic cost less any accumulated depreciation and any accumulated impairment losses, unless fair value becomes reliably measureable.

Answer 35

A biological asset that is within the scope of IAS 41 (i.e. excluding bearer plants, but including produce growing on a bearer plant) is measured on initial recognition and at the end of each reporting period (subsequent) at its fair value less costs to sell, unless an entity can demonstrate at initial recognition that fair value cannot be measured reliably. [IAS 41.12]. In the latter case, the entity measures the biological asset at historic cost less any accumulated depreciation and any accumulated impairment losses, unless fair value becomes reliably measureable.

Question 36

Measurement - Biological assets within the scope of IAS 41 : Subsequent expenditure 2 Such expenditure may be expensed as incurred or capitalised as additions to the related biological asset. However, under the fair value model, the biological asset will be remeasured at the end of each reporting period. As such, any amounts capitalised will only result in a reallocation between expenses and the fair value gain or loss for the biological asset.

Answer 36

Such expenditure may be expensed as incurred or capitalised as additions to the related biological asset. However, under the fair value model, the biological asset will be remeasured at the end of each reporting period. As such, any amounts capitalised will only result in a reallocation between expenses and the fair value gain or loss for the biological asset.

Question 37

Measurement - Biological assets within the scope of IAS 41 : Subsequent expenditure 3 Therefore, an entity’s policy in relation to subsequent expenditure will have no effect on its equity or net profit or loss, although it will affect: • the reconciliation of changes in the carrying amount of biological assets; • the classification of the expenditure in the income statement as either an expense or as part of the net gain or loss on biological assets; and • the presentation of investments in biological assets in the statement of cash flows.

Answer 37

Therefore, an entity’s policy in relation to subsequent expenditure will have no effect on its equity or net profit or loss, although it will affect: • the reconciliation of changes in the carrying amount of biological assets; • the classification of the expenditure in the income statement as either an expense or as part of the net gain or loss on biological assets; and • the presentation of investments in biological assets in the statement of cash flows.

Question 38

Measurement - Biological assets within the scope of IAS 41 : Subsequent expenditure 4 In our view, an entity should select an accounting policy for subsequent expenditure that is broadly consistent with the principles in other standards, such as IAS 16 and IAS 38. For example, in the case of livestock, an entity may expense maintenance costs, such as routine vaccinations, while treating costs that increase the originally expected yield of the asset as capital expenditure. For example, an entity must consider whether it is appropriate to add costs that improve initially anticipated yields (such as additional vaccinations or feed supplements) to the carrying value of the asset.

Answer 38

In our view, an entity should select an accounting policy for subsequent expenditure that is broadly consistent with the principles in other standards, such as IAS 16 and IAS 38. For example, in the case of livestock, an entity may expense maintenance costs, such as routine vaccinations, while treating costs that increase the originally expected yield of the asset as capital expenditure. For example, an entity must consider whether it is appropriate to add costs that improve initially anticipated yields (such as additional vaccinations or feed supplements) to the carrying value of the asset.

Question 39

Measurement - Biological assets within the scope of IAS 41 : Subsequent expenditure 5 However, such additions would be adjusted at each period end when the biological asset concerned is revalued to its new fair value. Judgement may be required to determine whether costs that take place after maturity (e.g. vaccinations or feed supplements) would be maintenance costs or improvements. Furthermore, care will be needed when costs are related to both bearer plants and produce growing on a bearer plant or when it is not clear to which of those assets it relates.

Answer 39

However, such additions would be adjusted at each period end when the biological asset concerned is revalued to its new fair value. Judgement may be required to determine whether costs that take place after maturity (e.g. vaccinations or feed supplements) would be maintenance costs or improvements. Furthermore, care will be needed when costs are related to both bearer plants and produce growing on a bearer plant or when it is not clear to which of those assets it relates.

Question 40

Measurement - Biological assets within the scope of IAS 41 : Subsequent expenditure 5 However, such additions would be adjusted at each period end when the biological asset concerned is revalued to its new fair value. Judgement may be required to determine whether costs that take place after maturity (e.g. vaccinations or feed supplements) would be maintenance costs or improvements. Furthermore, care will be needed when costs are related to both bearer plants and produce growing on a bearer plant or when it is not clear to which of those assets it relates.

Answer 40

However, such additions would be adjusted at each period end when the biological asset concerned is revalued to its new fair value. Judgement may be required to determine whether costs that take place after maturity (e.g. vaccinations or feed supplements) would be maintenance costs or improvements. Furthermore, care will be needed when costs are related to both bearer plants and produce growing on a bearer plant or when it is not clear to which of those assets it relates.

Question 41

Measurement - Agricultural produce 1 Agricultural produce harvested from an entity’s biological assets should initially ‘be measured at its fair value less costs to sell at the point of harvest’. [IAS 41.13]. The standard presumes that an entity can always reliably measure this amount and hence does not permit valuation at historical cost. [IAS 41.32, B43].

Answer 41

Agricultural produce harvested from an entity’s biological assets should initially ‘be measured at its fair value less costs to sell at the point of harvest’. [IAS 41.13]. The standard presumes that an entity can always reliably measure this amount and hence does not permit valuation at historical cost. [IAS 41.32, B43].

Question 42

Measurement - Agricultural produce 2 The value resulting from initial measurement is subsequently used as cost in applying IAS 2 (if the agricultural produce is to be sold), IAS 16 (if harvested logs are used for the construction of a building. [IAS 41.13, B8]. An important reason for requiring agricultural produce at the point of harvest to be measured at fair value was to ensure that the basis of measurement would be consistent with that of biological assets and to avoid inconsistent and distorted reporting of current period performance upon harvest of agricultural produce. [IAS 41.B42].

Answer 42

The value resulting from initial measurement is subsequently used as cost in applying IAS 2 (if the agricultural produce is to be sold), IAS 16 (if harvested logs are used for the construction of a building. [IAS 41.13, B8]. An important reason for requiring agricultural produce at the point of harvest to be measured at fair value was to ensure that the basis of measurement would be consistent with that of biological assets and to avoid inconsistent and distorted reporting of current period performance upon harvest of agricultural produce. [IAS 41.B42].

Question 43

Requirements for bearer plants in the scope of IAS 16 .1 Bearer plants are subject to all of the recognition and measurement requirements in IAS 16, including the following : • before maturity, bearer plants must be measured at their accumulated cost, similar to the accounting treatment for a self-constructed item of plant and equipment before it is available for use; [IAS 16.22A] and • after the bearer plant is mature, entities have a policy choice to measure the bearer plants using either the cost model or the revaluation model. [IAS 16.29]. It is important to note that : (see below)

Answer 43

Bearer plants are subject to all of the recognition and measurement requirements in IAS 16, including the following : • before maturity, bearer plants must be measured at their accumulated cost, similar to the accounting treatment for a self-constructed item of plant and equipment before it is available for use; [IAS 16.22A] and • after the bearer plant is mature, entities have a policy choice to measure the bearer plants using either the cost model or the revaluation model. [IAS 16.29]. It is important to note that : (see below)

Question 44

Requirements for bearer plants in the scope of IAS 16 .2 - if the revaluation model is selected, revaluations need to take place with sufficient regularity to ensure the carrying amount does not differ materially from the asset’s fair value had it been measured at the end of the reporting period; [IAS 16.22A] - entities following either model need to determine the useful life of the bearer plant in order to depreciate it. The useful life needs to be re-evaluated each year; [IAS 16.51] and - unlike biological assets within the scope of IAS 41, items of property, plant and equipment within the scope of IAS 16 are not scoped out of IAS 36 – Impairment of Assets. Entities, therefore, need to assess whether there are indicators that a bearer plant is impaired at the end of each reporting period. If such indicators exist, the bearer plant will be subject to an impairment test in accordance with IAS 36. [IAS 16.63, IAS 36.8-9]. An impairment loss will be recognised if the carrying value is higher than the bearer asset’s recoverable amount (being the higher of the asset’s fair value less costs of disposal and its value in use). [IAS 36.60].

Answer 44

- if the revaluation model is selected, revaluations need to take place with sufficient regularity to ensure the carrying amount does not differ materially from the asset’s fair value had it been measured at the end of the reporting period; [IAS 16.22A] - entities following either model need to determine the useful life of the bearer plant in order to depreciate it. The useful life needs to be re-evaluated each year; [IAS 16.51] and - unlike biological assets within the scope of IAS 41, items of property, plant and equipment within the scope of IAS 16 are not scoped out of IAS 36 – Impairment of Assets. Entities, therefore, need to assess whether there are indicators that a bearer plant is impaired at the end of each reporting period. If such indicators exist, the bearer plant will be subject to an impairment test in accordance with IAS 36. [IAS 16.63, IAS 36.8-9]. An impairment loss will be recognised if the carrying value is higher than the bearer asset’s recoverable amount (being the higher of the asset’s fair value less costs of disposal and its value in use). [IAS 36.60].

Question 45

Requirements for bearer plants in the scope of IAS 16 .3 Figure 38.2: Measurement requirements for bearer plants (assuming fair value can be reliably measured) screenshot on OneNote

Answer 45

Figure 38.2: Measurement requirements for bearer plants (assuming fair value can be reliably measured) screenshot on OneNote

Question 46

Requirements for bearer plants in the scope of IAS 16 .4 The requirements for bearer plants do not completely eliminate volatility in profit or loss, as entities still need to recognise any changes in the fair value of agricultural produce growing on the bearer plant. IAS 16 is written with property, plant and equipment in mind. As such, entities may need to use judgement to apply its requirement to bearer plants and we note the following areas for consideration. (a) Unit of account for bearer plants (b) Determining when a bearer plant is mature (c) Determining initial cost for bearer plants (prior to maturity (d) Costs incurred after maturity (e) Depreciation and impairment considerations (f) Revaluation model in IAS 16

Answer 46

The requirements for bearer plants do not completely eliminate volatility in profit or loss, as entities still need to recognise any changes in the fair value of agricultural produce growing on the bearer plant. IAS 16 is written with property, plant and equipment in mind. As such, entities may need to use judgement to apply its requirement to bearer plants and we note the following areas for consideration. (a) Unit of account for bearer plants (b) Determining when a bearer plant is mature (c) Determining initial cost for bearer plants (prior to maturity (d) Costs incurred after maturity (e) Depreciation and impairment considerations (f) Revaluation model in IAS 16

Question 47

Requirements for bearer plants in the scope of IAS 16 - Unit of account for bearer plants 1 IAS 16 does not specify the unit of account for bearer plants. Therefore, entities need to use judgement in light of the general requirements of IAS 16 and may need to consider that IAS 41 applies to each item of produce growing on a bearer plant.

Answer 47

IAS 16 does not specify the unit of account for bearer plants. Therefore, entities need to use judgement in light of the general requirements of IAS 16 and may need to consider that IAS 41 applies to each item of produce growing on a bearer plant.

Question 48

Requirements for bearer plants in the scope of IAS 16 - Unit of account for bearer plants 2 The Basis for Conclusions to IAS 16 notes that ‘IAS 16 does not prescribe the unit of measure, or the extent to which items can be aggregated and treated as a single item of property, plant and equipment. Consequently, applying the recognition criteria in IAS 16 to bearer plants will require judgement. This would give an entity flexibility, depending on its circumstances, to decide how to aggregate individual plants for the purpose of determining a measurable unit of bearer plants’. [IAS 16.BC81].

Answer 48

The Basis for Conclusions to IAS 16 notes that ‘IAS 16 does not prescribe the unit of measure, or the extent to which items can be aggregated and treated as a single item of property, plant and equipment. Consequently, applying the recognition criteria in IAS 16 to bearer plants will require judgement. This would give an entity flexibility, depending on its circumstances, to decide how to aggregate individual plants for the purpose of determining a measurable unit of bearer plants’. [IAS 16.BC81].

Question 49

Requirements for bearer plants in the scope of IAS 16 - Determining when a bearer plant is mature 1 IAS 16 requires an entity to determine when a bearer plant reaches maturity – that is, when it is in the ‘location and condition necessary for it to be capable of operating in the manner intended by management’. [IAS 16.16(b)]. This determination is important because it is when an entity must cease capitalising costs as part of the initial cost of the asset. The requirements for bearer plants seem to assume that the point in time when a plant is capable of producing (which is referred to as ‘maturity’) marks a distinct end to all bearer plants’ biological transformation. However, the life cycles of plants can vary widely and it may be difficult, in practice, to identify when maturity has been reached.

Answer 49

IAS 16 requires an entity to determine when a bearer plant reaches maturity – that is, when it is in the ‘location and condition necessary for it to be capable of operating in the manner intended by management’. [IAS 16.16(b)]. This determination is important because it is when an entity must cease capitalising costs as part of the initial cost of the asset. The requirements for bearer plants seem to assume that the point in time when a plant is capable of producing (which is referred to as ‘maturity’) marks a distinct end to all bearer plants’ biological transformation. However, the life cycles of plants can vary widely and it may be difficult, in practice, to identify when maturity has been reached.

Question 50

Requirements for bearer plants in the scope of IAS 16 - Determining when a bearer plant is mature 2 Determining at what stage during biological transformation a bearer plant would be considered mature could, therefore, be challenging. Alternatives could include: when the bearer plant is capable of producing its first crop; when the produce is expected to be of sufficient quality to be sold (e.g. macadamia trees start producing fruit after 3-4 years, but only reach commercial levels when the trees are 7 years old); or when the growth phase of biological transformation is complete for the bearer plant (and is thereafter expected to degenerate or for its productive capacity to decline). The Board decided not to provide specific application guidance for bearer plants. As such, entities need to apply judgement to determine when a bearer plant is mature for accounting purposes.

Answer 50

Determining at what stage during biological transformation a bearer plant would be considered mature could, therefore, be challenging. Alternatives could include: when the bearer plant is capable of producing its first crop; when the produce is expected to be of sufficient quality to be sold (e.g. macadamia trees start producing fruit after 3-4 years, but only reach commercial levels when the trees are 7 years old); or when the growth phase of biological transformation is complete for the bearer plant (and is thereafter expected to degenerate or for its productive capacity to decline). The Board decided not to provide specific application guidance for bearer plants. As such, entities need to apply judgement to determine when a bearer plant is mature for accounting purposes.

Question 51

Requirements for bearer plants in the scope of IAS 16 - Determining initial cost for bearer plants (prior to maturity) 1 IAS 16 requires that bearer plants be ‘accounted for in the same way as self-constructed items of property, plant and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to “construction” should be read as covering activities that are necessary to cultivate the bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management’. [IAS 16.22A

Answer 51

IAS 16 requires that bearer plants be ‘accounted for in the same way as self-constructed items of property, plant and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to “construction” should be read as covering activities that are necessary to cultivate the bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management’. [IAS 16.22A

Question 52

Requirements for bearer plants in the scope of IAS 16 - Determining initial cost for bearer plants (prior to maturity) 2 While IAS 16 provides guidance (see Chapter 18) that entities need to consider for bearer plants, there are differences between traditional plant and equipment and biological assets. As such, entities need to apply judgement in determining which costs can be capitalised. For example, as a plant is growing, an entity will incur costs related to water, fertiliser, greenhouses, etc. The entity needs to assess whether these costs are directly attributable to the bearer plant reaching maturity.

Answer 52

While IAS 16 provides guidance (see Chapter 18) that entities need to consider for bearer plants, there are differences between traditional plant and equipment and biological assets. As such, entities need to apply judgement in determining which costs can be capitalised. For example, as a plant is growing, an entity will incur costs related to water, fertiliser, greenhouses, etc. The entity needs to assess whether these costs are directly attributable to the bearer plant reaching maturity.

Question 53

Requirements for bearer plants in the scope of IAS 16 - Determining initial cost for bearer plants (prior to maturity) 3 Another example is the cost of abnormal amounts of wasted material, labour and other resources. IAS 16 does not permit these costs to be included in the cost of a selfconstructed asset. [IAS 16.22]. Entities need to determine what constitutes a normal level of wastage means for bearer plants. For example, many bearer plants die before maturity (e.g. due to disease or adverse weather) and are subject to planned thinning. Whether either or both of these is normal wastage requires judgement.

Answer 53

Another example is the cost of abnormal amounts of wasted material, labour and other resources. IAS 16 does not permit these costs to be included in the cost of a selfconstructed asset. [IAS 16.22]. Entities need to determine what constitutes a normal level of wastage means for bearer plants. For example, many bearer plants die before maturity (e.g. due to disease or adverse weather) and are subject to planned thinning. Whether either or both of these is normal wastage requires judgement.

Question 54

Requirements for bearer plants in the scope of IAS 16 - Costs incurred after maturity A number of costs, such as fertilising, pruning and thinning are incurred after maturity and can improve the quality of the produce or extend the productive life of a bearer plant. Entities need to use judgement to determine whether these costs are maintenance costs or are considered to be improvements. In addition, after maturity many costs are incurred to benefit both the bearer plant and the produce growing on the bearer plant. Entities need to carefully consider the basis on which to allocate costs between a bearer plant and the produce growing on a bearer plant when the costs are incurred in relation to both assets (e.g. fertilising costs).

Answer 54

A number of costs, such as fertilising, pruning and thinning are incurred after maturity and can improve the quality of the produce or extend the productive life of a bearer plant. Entities need to use judgement to determine whether these costs are maintenance costs or are considered to be improvements. In addition, after maturity many costs are incurred to benefit both the bearer plant and the produce growing on the bearer plant. Entities need to carefully consider the basis on which to allocate costs between a bearer plant and the produce growing on a bearer plant when the costs are incurred in relation to both assets (e.g. fertilising costs).

Question 55

Requirements for bearer plants in the scope of IAS 16 - Depreciation and impairment considerations 1 Entities need to carefully consider an appropriate depreciation rate for their bearer plants. Similar considerations are discussed at The cost model below in relation to biological assets for which the cost model is used under IAS 41. The model in IAS 16 generally assumes that improvements in productivity and quality of produce do not occur after maturity without additional expenditure to improve the asset. However, many plants mature with age and cultivation. As discussed above, biological transformation continues after a bearer plant begins to produce and includes degeneration. [IAS 41.5, 7]. A decline in productivity might, therefore, occur only at the end of a plant’s productive life, which differs from wear and tear on an item of machinery.

Answer 55

Entities need to carefully consider an appropriate depreciation rate for their bearer plants. Similar considerations are discussed at The cost model below in relation to biological assets for which the cost model is used under IAS 41. The model in IAS 16 generally assumes that improvements in productivity and quality of produce do not occur after maturity without additional expenditure to improve the asset. However, many plants mature with age and cultivation. As discussed above, biological transformation continues after a bearer plant begins to produce and includes degeneration. [IAS 41.5, 7]. A decline in productivity might, therefore, occur only at the end of a plant’s productive life, which differs from wear and tear on an item of machinery.

Question 56

Requirements for bearer plants in the scope of IAS 16 - Depreciation and impairment considerations 2 Applying the requirements of IAS 36 to a bearer plant may also be challenging. For example, an individual bearer plant may not generate its own cash inflows and may, therefore, need to be tested for impairment as part of a cash generating unit. In addition, the produce growing on a bearer plant is treated as a separate asset from the bearer plant and, because it is measured at fair value less costs to sell on an ongoing basis, under IAS 41, it is excluded from the scope of IAS 36. When testing the bearer plant for impairment, entities need to determine whether or not they can include the produce currently growing on the bearer plant in their impairment assessment.

Answer 56

Applying the requirements of IAS 36 to a bearer plant may also be challenging. For example, an individual bearer plant may not generate its own cash inflows and may, therefore, need to be tested for impairment as part of a cash generating unit. In addition, the produce growing on a bearer plant is treated as a separate asset from the bearer plant and, because it is measured at fair value less costs to sell on an ongoing basis, under IAS 41, it is excluded from the scope of IAS 36. When testing the bearer plant for impairment, entities need to determine whether or not they can include the produce currently growing on the bearer plant in their impairment assessment.

Question 57

Requirements for bearer plants in the scope of IAS 16 - Revaluation model in IAS 16 .1 IAS 16 permits an entity, after initial recognition to apply the revaluation model. However, this is not the same as applying the fair value model in IAS 41. The former is one that recognises valuation adjustments in other comprehensive income as a form of capital maintenance; the latter is a model that recognises valuation adjustments in the income statement as part of periodic performance.

Answer 57

IAS 16 permits an entity, after initial recognition to apply the revaluation model. However, this is not the same as applying the fair value model in IAS 41. The former is one that recognises valuation adjustments in other comprehensive income as a form of capital maintenance; the latter is a model that recognises valuation adjustments in the income statement as part of periodic performance.

Question 58

Requirements for bearer plants in the scope of IAS 16 - Revaluation model in IAS 16 .2 In addition, unlike the model in IAS 41, if the revaluation model is applied under IAS 16 entities are required to: • depreciate bearer plants between revaluations, with the depreciation expense recognised in profit or loss; • identify appropriate indicators of impairment for bearer plants in accordance with IAS 36, and assess annually whether indicators exist. If they do, then those bearer plants are tested for impairment (as discussed above); and • maintain cost records for each bearer plant so as to separately track impairment that is recognised in profit or loss and impairment that is recognised in other comprehensive income.

Answer 58

In addition, unlike the model in IAS 41, if the revaluation model is applied under IAS 16 entities are required to: • depreciate bearer plants between revaluations, with the depreciation expense recognised in profit or loss; • identify appropriate indicators of impairment for bearer plants in accordance with IAS 36, and assess annually whether indicators exist. If they do, then those bearer plants are tested for impairment (as discussed above); and • maintain cost records for each bearer plant so as to separately track impairment that is recognised in profit or loss and impairment that is recognised in other comprehensive income.

Question 59

Requirements for bearer plants in the scope of IAS 16 - Revaluation model in IAS 16 .3 Furthermore, an entity is unable to recognise increases in fair value that arise from a bearer plant’s biological transformation in profit or loss, during the periods in which it is held and used. Since bearer plants are considered property, plant and equipment, the sale of a bearer plant results in a gain or loss on disposal, while revenue is recognised only in relation to sales of agricultural produce.

Answer 59

Furthermore, an entity is unable to recognise increases in fair value that arise from a bearer plant’s biological transformation in profit or loss, during the periods in which it is held and used. Since bearer plants are considered property, plant and equipment, the sale of a bearer plant results in a gain or loss on disposal, while revenue is recognised only in relation to sales of agricultural produce.

Question 60

Requirements for bearer plants in the scope of IAS 16 - Revaluation model in IAS 16 .4 Despite these challenges, entities may elect to measure their bearer plants using the revaluation model to ensure consistency with the produce growing on them or because the fair value information is useful. That is, a change in the productive capacity of a bearer plant, or a change in the prices for the future output of a bearer plant, can provide useful information.

Answer 60

Despite these challenges, entities may elect to measure their bearer plants using the revaluation model to ensure consistency with the produce growing on them or because the fair value information is useful. That is, a change in the productive capacity of a bearer plant, or a change in the prices for the future output of a bearer plant, can provide useful information.

Question 61

Requirements for agricultural produce growing on bearer plants 1 IAS 16 and IAS 41 require an entity to recognise a bearer plant separately from produce growing on it from the time it exists until the point of harvest. Produce growing on a bearer plant remains within the scope of IAS 41 and is measured at fair value less costs to sell, with changes recognised in profit or loss as the produce grows. In the IASB’s view, this requirement ensures that produce growing in the ground as an annual crop (e.g. wheat) and produce growing on a bearer biological asset (e.g. grapes) are accounted for consistently. [IAS 41.BC4D]. As a result, changes in the fair value of such agricultural produce continue to be recognised in profit or loss at the end of each reporting period.

Answer 61

IAS 16 and IAS 41 require an entity to recognise a bearer plant separately from produce growing on it from the time it exists until the point of harvest. Produce growing on a bearer plant remains within the scope of IAS 41 and is measured at fair value less costs to sell, with changes recognised in profit or loss as the produce grows. In the IASB’s view, this requirement ensures that produce growing in the ground as an annual crop (e.g. wheat) and produce growing on a bearer biological asset (e.g. grapes) are accounted for consistently. [IAS 41.BC4D]. As a result, changes in the fair value of such agricultural produce continue to be recognised in profit or loss at the end of each reporting period.

Question 62

Requirements for agricultural produce growing on bearer plants 2 Figure 38.3: Measurement requirements for agricultural produce growing on bearer plants refer OneNote

Answer 62

Figure 38.3: Measurement requirements for agricultural produce growing on bearer plants refer OneNote

Question 63

Requirements for agricultural produce growing on bearer plants - Determining when agricultural produce exists 1 As discussed IAS 41 provides criteria for recognising biological assets and agricultural produce. [IAS 41.10]. However, since produce growing on a plant is not acquired, but grown, it may be difficult to determine when that produce exists and can be recognised for accounting purposes. Would an entity, for example, wait for physical evidence, e.g. blossom on a tree? If so, how would this be done when the produce is within the bearer plant and not visible, such as with maple or rubber trees? Entities may also need to check their procedures for ensuring that sufficient information is gathered, i.e. identify each item of produce growing on a bearer plant when it is at the right stage of development to be recognised.

Answer 63

As discussed IAS 41 provides criteria for recognising biological assets and agricultural produce. [IAS 41.10]. However, since produce growing on a plant is not acquired, but grown, it may be difficult to determine when that produce exists and can be recognised for accounting purposes. Would an entity, for example, wait for physical evidence, e.g. blossom on a tree? If so, how would this be done when the produce is within the bearer plant and not visible, such as with maple or rubber trees? Entities may also need to check their procedures for ensuring that sufficient information is gathered, i.e. identify each item of produce growing on a bearer plant when it is at the right stage of development to be recognised.

Question 64

Requirements for agricultural produce growing on bearer plants - Determining when agricultural produce exists 2 The key question when assessing the recognition criteria (see 3.1 above) may be whether it is probable that future economic benefits will flow to the entity. At such an early stage of development, it may be difficult to determine for each item of produce growing on the bearer plant. However, historical information about similar bearer plants and their produce may be of help.

Answer 64

The key question when assessing the recognition criteria (see 3.1 above) may be whether it is probable that future economic benefits will flow to the entity. At such an early stage of development, it may be difficult to determine for each item of produce growing on the bearer plant. However, historical information about similar bearer plants and their produce may be of help.

Question 65

Requirements for agricultural produce growing on bearer plants - Determining when agricultural produce exists 3 Determining when produce on a bearer plant exists is important as it affects when an entity should recognise and initially measure fair value less costs to sell. This, in turn, determines when an entity should assess whether it is able to measure produce at fair value reliably (or otherwise apply the measurement exception discussed at Inability to measure fair value reliably below).

Answer 65

Determining when produce on a bearer plant exists is important as it affects when an entity should recognise and initially measure fair value less costs to sell. This, in turn, determines when an entity should assess whether it is able to measure produce at fair value reliably (or otherwise apply the measurement exception discussed at Inability to measure fair value reliably below).

Question 66

Requirements for agricultural produce growing on bearer plants - Applying the requirements for biological assets to produce growing on a bearer plant 1 IAS 41 does not explicitly address the accounting for produce growing on a bearer plant. Instead, the standard says that ‘produce growing on bearer plants is a biological asset’. [IAS 41.5C]. Therefore, an entity is required to apply the accounting required for other biological assets to such produce.

Answer 66

IAS 41 does not explicitly address the accounting for produce growing on a bearer plant. Instead, the standard says that ‘produce growing on bearer plants is a biological asset’. [IAS 41.5C]. Therefore, an entity is required to apply the accounting required for other biological assets to such produce.

Question 67

Requirements for agricultural produce growing on bearer plants - Applying the requirements for biological assets to produce growing on a bearer plant 2 This has a number of consequences, including the following: • The unit of account is each item of produce, not the produce growing on each plant as a group. However, while the unit of account is the individual item, an entity is permitted to group these together for measurement purposes. • Each item of produce growing on a bearer plant must be measured at fair value less costs to sell from the time it is recognised until the point of harvest, unless the measurement exception for biological assets for which the fair value cannot be reliably measured at initial recognition is applicable • The disclosure requirements that apply to biological assets also apply to produce growing on a bearer plant

Answer 67

This has a number of consequences, including the following: • The unit of account is each item of produce, not the produce growing on each plant as a group. However, while the unit of account is the individual item, an entity is permitted to group these together for measurement purposes. • Each item of produce growing on a bearer plant must be measured at fair value less costs to sell from the time it is recognised until the point of harvest, unless the measurement exception for biological assets for which the fair value cannot be reliably measured at initial recognition is applicable • The disclosure requirements that apply to biological assets also apply to produce growing on a bearer plant

Question 68

Measurement - Gains and losses 1 IAS 41 requires gains and losses arising on the initial recognition of a biological asset (including produce growing on a bearer plant) at fair value less costs to sell to be included in profit or loss for the period in which they arise. [IAS 41.26]. The standard warns that ‘[a] loss may arise on initial recognition of a biological asset, because costs to sell are deducted in determining fair value less costs to sell of a biological asset.’ On the other hand, a gain may arise on the initial recognition of a biological asset (e.g. when a calf is born). [IAS 41.27].

Answer 68

IAS 41 requires gains and losses arising on the initial recognition of a biological asset (including produce growing on a bearer plant) at fair value less costs to sell to be included in profit or loss for the period in which they arise. [IAS 41.26]. The standard warns that ‘[a] loss may arise on initial recognition of a biological asset, because costs to sell are deducted in determining fair value less costs to sell of a biological asset.’ On the other hand, a gain may arise on the initial recognition of a biological asset (e.g. when a calf is born). [IAS 41.27].

Question 69

Measurement - Gains and losses 2 Subsequent to initial recognition, reported gains or losses essentially represent the difference between two fair values. As such, the standard effectively decouples profit recognition from a sales transaction. One consequence of this approach is to anticipate some of the profit that will be realised, often by a matter of years for long-term crops, such as trees.

Answer 69

Subsequent to initial recognition, reported gains or losses essentially represent the difference between two fair values. As such, the standard effectively decouples profit recognition from a sales transaction. One consequence of this approach is to anticipate some of the profit that will be realised, often by a matter of years for long-term crops, such as trees.

Question 70

Measurement - Gains and losses 3 The implications for initial recognition of agricultural produce are similar – an entity may need to recognise a gain or loss on agricultural produce upon harvesting, if the fair value of the harvested produce is different from the pre-harvest valuation. [IAS 41.29]. The standard requires that ‘[a] gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell ... be included in profit or loss for the period in which it arises’. [IAS 41.28].

Answer 70

The implications for initial recognition of agricultural produce are similar – an entity may need to recognise a gain or loss on agricultural produce upon harvesting, if the fair value of the harvested produce is different from the pre-harvest valuation. [IAS 41.29]. The standard requires that ‘[a] gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell ... be included in profit or loss for the period in which it arises’. [IAS 41.28].

Question 71

Measurement - Inability to measure fair value reliably : Rebutting the presumption 1 Under IAS 41, there is a presumption that the fair value of all biological assets (including produce growing on a bearer plant) can be measured reliably. This presumption can only be rebutted on initial recognition for a biological asset (not agricultural produce). In our view, such a rebuttal will be rare, as to be able to do so, an entity must demonstrate both of the following: (a) quoted market prices for the biological asset (including produce growing on a bearer plant) are not available; and (b) alternative fair value measurements for the biological asset are determined to be clearly unreliable. [IAS 41.30].

Answer 71

Under IAS 41, there is a presumption that the fair value of all biological assets (including produce growing on a bearer plant) can be measured reliably. This presumption can only be rebutted on initial recognition for a biological asset (not agricultural produce). In our view, such a rebuttal will be rare, as to be able to do so, an entity must demonstrate both of the following: (a) quoted market prices for the biological asset (including produce growing on a bearer plant) are not available; and (b) alternative fair value measurements for the biological asset are determined to be clearly unreliable. [IAS 41.30].

Question 72

Measurement - Inability to measure fair value reliably : Rebutting the presumption 2 Since IAS 41 requires that the fair value of a biological asset (including produce growing on a bearer plant) be measured in accordance with IFRS 13, an entity would need to consider the requirements of that standard in order to determine whether fair value can be reliably measured.

Answer 72

Since IAS 41 requires that the fair value of a biological asset (including produce growing on a bearer plant) be measured in accordance with IFRS 13, an entity would need to consider the requirements of that standard in order to determine whether fair value can be reliably measured.

Question 73

Measurement - Inability to measure fair value reliably : Rebutting the presumption 3 In relation to (a) above, it is important to note that IAS 41 does not restrict the criteria to quoted prices in an active market. Therefore, in order to rebut the presumption, an entity would need to determine that quoted prices in both active and inactive markets are unavailable for the asset.

Answer 73

In relation to (a) above, it is important to note that IAS 41 does not restrict the criteria to quoted prices in an active market. Therefore, in order to rebut the presumption, an entity would need to determine that quoted prices in both active and inactive markets are unavailable for the asset.

Question 74

Measurement - Inability to measure fair value reliably : Rebutting the presumption 4 If an entity is able to determine that quoted prices for the asset are unavailable, it would still need to determine that all other methods for measuring fair value are clearly unreliable before it can rebut the presumption. This is not the same identifying that a fair value measurement is complex and/or subjective. That is, measuring fair value often involves estimation and significant judgement, but this does not mean that it is automatically unreliable. Furthermore, the requirement is for the measurements to be ‘clearly unreliable’, which is arguably a higher hurdle than ‘unreliable’.

Answer 74

If an entity is able to determine that quoted prices for the asset are unavailable, it would still need to determine that all other methods for measuring fair value are clearly unreliable before it can rebut the presumption. This is not the same identifying that a fair value measurement is complex and/or subjective. That is, measuring fair value often involves estimation and significant judgement, but this does not mean that it is automatically unreliable. Furthermore, the requirement is for the measurements to be ‘clearly unreliable’, which is arguably a higher hurdle than ‘unreliable’.

Question 75

Measurement - Inability to measure fair value reliably : Rebutting the presumption 5a Determining that alternative fair value measurements are clearly unreliable is likely to include, but not be limited to, considering the reliability of the following factors: • Estimates of quantities on hand and the stage of development – while estimates are often required of quantities on hand (including current stage of biological transformation and anticipated yields for future agricultural produce), the mere fact that estimates are used is not sufficient to demonstrate that fair value is unreliable. Rather, an entity would need to demonstrate that their estimates of the quantity and current state of their biological assets are often incorrect. This may be challenging for entities to demonstrate if the underlying information is regularly used by management to make decisions about future operations of the business.

Answer 75

Determining that alternative fair value measurements are clearly unreliable is likely to include, but not be limited to, considering the reliability of the following factors: • Estimates of quantities on hand and the stage of development – while estimates are often required of quantities on hand (including current stage of biological transformation and anticipated yields for future agricultural produce), the mere fact that estimates are used is not sufficient to demonstrate that fair value is unreliable. Rather, an entity would need to demonstrate that their estimates of the quantity and current state of their biological assets are often incorrect. This may be challenging for entities to demonstrate if the underlying information is regularly used by management to make decisions about future operations of the business.

Question 76

Measurement - Inability to measure fair value reliably : Rebutting the presumption 5b * Prices for the asset in a future state (e.g. for the mature biological asset or the agricultural produce that will ultimately be harvested); * Price for similar assets that can be used as an input into the fair value measurement – this could include plants and animals that are similar to the asset held by the entity or the ultimate agricultural produce that will result from managing the biological transformation of the asset held by the entity. * Cash flow projections for the asset. * The replacement cost of the asset.

Answer 76

* Prices for the asset in a future state (e.g. for the mature biological asset or the agricultural produce that will ultimately be harvested); * Price for similar assets that can be used as an input into the fair value measurement – this could include plants and animals that are similar to the asset held by the entity or the ultimate agricultural produce that will result from managing the biological transformation of the asset held by the entity. * Cash flow projections for the asset. * The replacement cost of the asset.

Question 77

Measurement - Inability to measure fair value reliably : Rebutting the presumption 6 An entity that previously measured a biological asset at its fair value less costs to sell cannot revert to a cost-based measurement in a later period, even if a fair value can no longer be measured reliably. [IAS 41.31]. The standard assumes that reliable estimates of fair value would rarely, if ever, cease to be available. [IAS 41.B36]. At 4.7 below is a more detailed discussion of some of the practical problems associated with determining fair value in the absence of a market price.

Answer 77

An entity that previously measured a biological asset at its fair value less costs to sell cannot revert to a cost-based measurement in a later period, even if a fair value can no longer be measured reliably. [IAS 41.31]. The standard assumes that reliable estimates of fair value would rarely, if ever, cease to be available. [IAS 41.B36]. At 4.7 below is a more detailed discussion of some of the practical problems associated with determining fair value in the absence of a market price.

Question 78

Measurement - Inability to measure fair value reliably : Rebutting the presumption 7 If it becomes possible at a later date to measure the fair value of a biological asset reliably, the entity is required to apply the fair value model to that asset from that date onwards. [IAS 41.30]. In developing the standard, the (then) IASC noted in this respect that ‘in agricultural activity, it is likely that fair value becomes measurable more reliably as biological transformation occurs and that fair value measurement is preferable to cost in those cases’. Therefore, the IASC ‘decided to require fair value measurement once fair value becomes reliably measurable’. [IAS 41.B35].

Answer 78

If it becomes possible at a later date to measure the fair value of a biological asset reliably, the entity is required to apply the fair value model to that asset from that date onwards. [IAS 41.30]. In developing the standard, the (then) IASC noted in this respect that ‘in agricultural activity, it is likely that fair value becomes measurable more reliably as biological transformation occurs and that fair value measurement is preferable to cost in those cases’. Therefore, the IASC ‘decided to require fair value measurement once fair value becomes reliably measurable’. [IAS 41.B35].

Question 79

Measurement - Inability to measure fair value reliably : Rebutting the presumption 8 IAS 41 presumes that the fair value of a non-current biological asset that ‘meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale) in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations’ can always be measured reliably. [IAS 41.30].

Answer 79

IAS 41 presumes that the fair value of a non-current biological asset that ‘meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale) in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations’ can always be measured reliably. [IAS 41.30].

Question 80

Measurement - Inability to measure fair value reliably : The cost model 1 If on initial recognition an entity rebuts the presumption and demonstrates that fair value cannot be measured reliably, it applies the cost model to the biological asset (including produce growing on a bearer plant), i.e. the asset is measured at cost less any accumulated depreciation and any accumulated impairment losses. [IAS 41.30].

Answer 80

If on initial recognition an entity rebuts the presumption and demonstrates that fair value cannot be measured reliably, it applies the cost model to the biological asset (including produce growing on a bearer plant), i.e. the asset is measured at cost less any accumulated depreciation and any accumulated impairment losses. [IAS 41.30].

Question 81

Measurement - Inability to measure fair value reliably : The cost model 2 When determining cost, accumulated depreciation and accumulated impairment losses an entity needs to consider the requirements of IAS 2, IAS 16 and IAS 36. [IAS 41.33]. IAS 41 provides no further guidance on the application of the cost model or the extent to which entities should consider the requirements of these standards.

Answer 81

When determining cost, accumulated depreciation and accumulated impairment losses an entity needs to consider the requirements of IAS 2, IAS 16 and IAS 36. [IAS 41.33]. IAS 41 provides no further guidance on the application of the cost model or the extent to which entities should consider the requirements of these standards.

Question 82

Measurement - Inability to measure fair value reliably : The cost model 3 Both IAS 2 and IAS 16 establish frameworks within which to determine cost. The nature of the biological asset may be helpful when determining which approach to use. Consumable biological assets that are to be harvested as agricultural produce or sold as biological assets, for example livestock to be slaughtered or held for sale, fish in farms or crops to be harvested, may be more consistent with inventories accounted for in accordance with IAS 2. Bearer biological assets, such as dairy cows may be more consistent with plant and equipment accounted for in accordance with IAS 16. When the IASB issued the bearer plants amendments, it noted that, although bearer plants are dissimilar in form to plant and machinery, similarities in how they are used supported accounting for them in the same way. [IAS 16.BC67].

Answer 82

Both IAS 2 and IAS 16 establish frameworks within which to determine cost. The nature of the biological asset may be helpful when determining which approach to use. Consumable biological assets that are to be harvested as agricultural produce or sold as biological assets, for example livestock to be slaughtered or held for sale, fish in farms or crops to be harvested, may be more consistent with inventories accounted for in accordance with IAS 2. Bearer biological assets, such as dairy cows may be more consistent with plant and equipment accounted for in accordance with IAS 16. When the IASB issued the bearer plants amendments, it noted that, although bearer plants are dissimilar in form to plant and machinery, similarities in how they are used supported accounting for them in the same way. [IAS 16.BC67].

Question 83

Measurement - Inability to measure fair value reliably : The cost model 4 The nature of the biological asset may also be helpful in determining when to commence depreciation and the useful life of the asset. IAS 16 requires depreciation to commence when an asset is available for use. [IAS 16.53]. Determining when a biological asset is available for use may be more obvious in relation to bearer biological assets. For example, a cow may be considered available for use as soon as it is sufficiently mature to produce milk. However, for consumable biological assets defining when an asset is available for use is less clear because the period between these assets reaching maturity and being sold or harvested is typically short.

Answer 83

The nature of the biological asset may also be helpful in determining when to commence depreciation and the useful life of the asset. IAS 16 requires depreciation to commence when an asset is available for use. [IAS 16.53]. Determining when a biological asset is available for use may be more obvious in relation to bearer biological assets. For example, a cow may be considered available for use as soon as it is sufficiently mature to produce milk. However, for consumable biological assets defining when an asset is available for use is less clear because the period between these assets reaching maturity and being sold or harvested is typically short.

Question 84

Measurement - Inability to measure fair value reliably : The cost model 5 The last component of the cost model is the assessment of impairment in accordance with IAS 36. That standard requires an entity to determine the recoverable amount of an asset or cash-generating unit (CGU) and compare it to its carrying amount in order to determine whether the asset or CGU is impaired. Recoverable amount is defined by IAS 36 as the higher of either the value in use or fair value less costs of disposal of the asset or CGU. Entities that have demonstrated that fair value cannot be reliably determined for a biological asset should be careful to apply a consistent approach when determining the recoverable amount of an asset. As such, using a value in use approach to determine recoverable amount will be required, possibly at the CGU level. Even in this situation, entities may need to carefully consider whether information used to measure value in use could be used to measure the fair value of the biological asset.

Answer 84

The last component of the cost model is the assessment of impairment in accordance with IAS 36. That standard requires an entity to determine the recoverable amount of an asset or cash-generating unit (CGU) and compare it to its carrying amount in order to determine whether the asset or CGU is impaired. Recoverable amount is defined by IAS 36 as the higher of either the value in use or fair value less costs of disposal of the asset or CGU. Entities that have demonstrated that fair value cannot be reliably determined for a biological asset should be careful to apply a consistent approach when determining the recoverable amount of an asset. As such, using a value in use approach to determine recoverable amount will be required, possibly at the CGU level. Even in this situation, entities may need to carefully consider whether information used to measure value in use could be used to measure the fair value of the biological asset.

Question 85

Government grants 1 Government grants involving biological assets that are within the scope of IAS 41 (i.e. excluding bearer plants, which are specifically scoped out of IAS 41) are only accounted for under IAS 20 if the biological asset is ‘measured at its cost less any accumulated depreciation and any accumulated impairment losses’. [IAS 41.37-38]. IAS 41 applies to government grants relating to all other biological assets (including produce growing on a bearer plant) accounted for at fair value less costs to sell.

Answer 85

Government grants involving biological assets that are within the scope of IAS 41 (i.e. excluding bearer plants, which are specifically scoped out of IAS 41) are only accounted for under IAS 20 if the biological asset is ‘measured at its cost less any accumulated depreciation and any accumulated impairment losses’. [IAS 41.37-38]. IAS 41 applies to government grants relating to all other biological assets (including produce growing on a bearer plant) accounted for at fair value less costs to sell.

Question 86

Government grants 2 What is not clear is whether government grants that relate to both a bearer plant and the produce growing on that bearer plant would be within the scope of either IAS 20 or IAS 41. Entities will need to use judgement in relation to such grants.

Answer 86

What is not clear is whether government grants that relate to both a bearer plant and the produce growing on that bearer plant would be within the scope of either IAS 20 or IAS 41. Entities will need to use judgement in relation to such grants.

Question 87

Government grants 3 Under IAS 20, government grants are either: • recognised as deferred income and then recognised in profit or loss on a systematic basis over the useful life of the asset; or • deducted in calculating the carrying amount of the asset and then recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

Answer 87

Under IAS 20, government grants are either: • recognised as deferred income and then recognised in profit or loss on a systematic basis over the useful life of the asset; or • deducted in calculating the carrying amount of the asset and then recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

Question 88

Government grants 4 Under IAS 41, an unconditional government grant related to a biological asset that is ‘measured at its fair value less costs to sell shall be recognised in profit or loss when, and only when, the government grant becomes receivable’. [IAS 41.34]. An entity is, therefore, not permitted under IAS 41 to deduct a government grant from the carrying amount of the related asset. This would be inconsistent with a ‘fair value model in which an asset is measured and presented at its fair value’ because the entity would recognise even conditional government grants in income immediately. [IAS 41.B66].

Answer 88

Under IAS 41, an unconditional government grant related to a biological asset that is ‘measured at its fair value less costs to sell shall be recognised in profit or loss when, and only when, the government grant becomes receivable’. [IAS 41.34]. An entity is, therefore, not permitted under IAS 41 to deduct a government grant from the carrying amount of the related asset. This would be inconsistent with a ‘fair value model in which an asset is measured and presented at its fair value’ because the entity would recognise even conditional government grants in income immediately. [IAS 41.B66].

Question 89

Government grants 5 Any conditional government grant related to a biological asset measured at its fair value less costs to sell – including government grants that require an entity not to engage in a specified agricultural activity – are only recognised when the conditions attaching to the grant are met. [IAS 41.35]. IAS 41 permits an entity to recognise a government grant as income only to the extent that it: (i) has met the terms and conditions of the grant; and (ii) has no obligation to return the grant. The following example, which is derived from IAS 41, illustrates how an entity should apply these requirements. [IAS 41.36].

Answer 89

Any conditional government grant related to a biological asset measured at its fair value less costs to sell – including government grants that require an entity not to engage in a specified agricultural activity – are only recognised when the conditions attaching to the grant are met. [IAS 41.35]. IAS 41 permits an entity to recognise a government grant as income only to the extent that it: (i) has met the terms and conditions of the grant; and (ii) has no obligation to return the grant. The following example, which is derived from IAS 41, illustrates how an entity should apply these requirements. [IAS 41.36].

Question 90

Government grants 6 Example 38.1: Conditional government grants Terms and conditions of government grants vary. A government grant requires an entity to farm in a particular location for five years and requires the entity to return the entire government grant if it farms for less than five years. The government grant is not recognised as income until the five years have passed. However, if the terms of the government grant allows part of the government grant to be retained based on the passage of time. The entity recognises the government grant as income on a time proportion basis.

Answer 90

Example 38.1: Conditional government grants Terms and conditions of government grants vary. A government grant requires an entity to farm in a particular location for five years and requires the entity to return the entire government grant if it farms for less than five years. The government grant is not recognised as income until the five years have passed. However, if the terms of the government grant allows part of the government grant to be retained based on the passage of time. The entity recognises the government grant as income on a time proportion basis.

Question 91

Disclosure - Statement of financial position IAS 1 requires biological assets (including produce growing on a bearer plant) to be presented separately on the face of an entity’s statement of financial position. [IAS 1.54]. Agricultural produce after the point of harvest should be accounted for under IAS 2. That standard does not require agricultural produce to be disclosed separately on the face of the statement of financial position

Answer 91

IAS 1 requires biological assets (including produce growing on a bearer plant) to be presented separately on the face of an entity’s statement of financial position. [IAS 1.54]. Agricultural produce after the point of harvest should be accounted for under IAS 2. That standard does not require agricultural produce to be disclosed separately on the face of the statement of financial position

Question 92

Disclosure - Statement of financial position : Current versus non-current classification 1 IAS 1 requires an asset to be classified as current when: [IAS 1.66] (a) the entity expects to sell, consume or realise the asset in its normal operating cycle; (b) the asset is primarily for trading purposes; (c) the entity expects to realise the asset within 12 months after the reporting period; or (d) the asset is cash or a cash equivalent (as defined in IAS 7 – Statement of Cash Flows), unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. If these criteria are not met, the asset is classified as non-current.

Answer 92

IAS 1 requires an asset to be classified as current when: [IAS 1.66] (a) the entity expects to sell, consume or realise the asset in its normal operating cycle; (b) the asset is primarily for trading purposes; (c) the entity expects to realise the asset within 12 months after the reporting period; or (d) the asset is cash or a cash equivalent (as defined in IAS 7 – Statement of Cash Flows), unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. If these criteria are not met, the asset is classified as non-current.

Question 93

Disclosure - Statement of financial position : Current versus non-current classification 2 The classification of agricultural produce is usually consistent with an entity’s assessment for its inventories, i.e. typically classified as a current asset because it will be sold, consumed or realised as part of the normal operating cycle. The classification of biological assets (including produce growing on a bearer plant) typically varies based on the nature of the biological asset and the time it takes to mature.

Answer 93

The classification of agricultural produce is usually consistent with an entity’s assessment for its inventories, i.e. typically classified as a current asset because it will be sold, consumed or realised as part of the normal operating cycle. The classification of biological assets (including produce growing on a bearer plant) typically varies based on the nature of the biological asset and the time it takes to mature.

Question 94

Disclosure - Statement of financial position : Current versus non-current classification 3 For consumable biological assets that only have one harvest, classification will depend on when the asset will be harvested and sold. For example, livestock held for slaughter would likely be realised within 12 months after the end of the reporting period or as part of the normal operating cycle, and therefore would be classified as a current asset. Pine trees in a forest usually take more than 20 years to mature. Therefore, pine forests are usually classified as non-current.

Answer 94

For consumable biological assets that only have one harvest, classification will depend on when the asset will be harvested and sold. For example, livestock held for slaughter would likely be realised within 12 months after the end of the reporting period or as part of the normal operating cycle, and therefore would be classified as a current asset. Pine trees in a forest usually take more than 20 years to mature. Therefore, pine forests are usually classified as non-current.

Question 95

Disclosure - Statement of financial position : Current versus non-current classification 4 Bearer biological assets, such as dairy cows or animals used for breeding, are often classified as non-current. Such assets usually provide multiple harvests, which may extend beyond one accounting period. Therefore, in order to classify the asset appropriately, an entity would need to consider the period over which it will derive future economic benefits from the asset, which is likely to be when the biological asset will be sold, replaced or removed. This is essentially consistent with determining the useful life of an item of property, plant and equipment in accordance with IAS 16.

Answer 95

Bearer biological assets, such as dairy cows or animals used for breeding, are often classified as non-current. Such assets usually provide multiple harvests, which may extend beyond one accounting period. Therefore, in order to classify the asset appropriately, an entity would need to consider the period over which it will derive future economic benefits from the asset, which is likely to be when the biological asset will be sold, replaced or removed. This is essentially consistent with determining the useful life of an item of property, plant and equipment in accordance with IAS 16.

Question 96

Disclosure - Statement of financial position : Current versus non-current classification 5 Produce growing on a bearer plant (e.g. grapes on a vine) is accounted for in accordance with IAS 41, separately from the bearer plant (which is within the scope of IAS 16,). As a result, entities need to consider the appropriate classification of any produce growing on a bearer plant. Produce growing on a bearer plant will likely be a current asset, unless it takes more than a year to mature.

Answer 96

Produce growing on a bearer plant (e.g. grapes on a vine) is accounted for in accordance with IAS 41, separately from the bearer plant (which is within the scope of IAS 16,). As a result, entities need to consider the appropriate classification of any produce growing on a bearer plant. Produce growing on a bearer plant will likely be a current asset, unless it takes more than a year to mature.

Question 97

Disclosure - Income statement 1 IAS 1 is silent on the presentation of gains and losses on biological assets (including produce growing on a bearer plant) and agricultural produce in the income statement. IAS 41 requires that an entity disclose ‘the aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets’. [IAS 41.40]. The standard only requires disclosure of the aggregate gain or loss; it does not require or encourage disaggregating the gain or loss. [IAS 41.B78-B79].

Answer 97

IAS 1 is silent on the presentation of gains and losses on biological assets (including produce growing on a bearer plant) and agricultural produce in the income statement. IAS 41 requires that an entity disclose ‘the aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets’. [IAS 41.40]. The standard only requires disclosure of the aggregate gain or loss; it does not require or encourage disaggregating the gain or loss. [IAS 41.B78-B79].

Question 98

Disclosure - Income statement 2 IAS 41 is not clear about how gains should be presented in the income statement. IAS 1 prohibits offsetting of income and expenses in the income statement. [IAS 1.32]. Therefore, if the sale of biological assets or agricultural produce meets the definition of revenue under IFRS 15 – Revenue from Contracts with Customers, i.e. ‘income arising from the ordinary activities of the entity’, [IFRS 15 Appendix A], it should be presented on a gross basis in the income statement. Furthermore, if the sale of biological assets results from a contract with a customer and is within the scope of IFRS 15, it would be presented as revenue from contracts with customers.

Answer 98

IAS 41 is not clear about how gains should be presented in the income statement. IAS 1 prohibits offsetting of income and expenses in the income statement. [IAS 1.32]. Therefore, if the sale of biological assets or agricultural produce meets the definition of revenue under IFRS 15 – Revenue from Contracts with Customers, i.e. ‘income arising from the ordinary activities of the entity’, [IFRS 15 Appendix A], it should be presented on a gross basis in the income statement. Furthermore, if the sale of biological assets results from a contract with a customer and is within the scope of IFRS 15, it would be presented as revenue from contracts with customers.

Question 99

Disclosure - Income statement 3 However, if sales of non-current biological assets are incidental to the main revenue-generating activities of the entity they should be presented on a net basis. [IAS 1.34]. However, under IAS 41 the gross margin on agricultural produce sold shortly after harvest may be negligible, as the produce may have been previously carried at a valuation near to its sales price.

Answer 99

However, if sales of non-current biological assets are incidental to the main revenue-generating activities of the entity they should be presented on a net basis. [IAS 1.34]. However, under IAS 41 the gross margin on agricultural produce sold shortly after harvest may be negligible, as the produce may have been previously carried at a valuation near to its sales price.

Question 100

Disclosure - Groups of biological assets 1 The standard requires an entity to provide a narrative or quantitative description of each group of biological assets. [IAS 41.41, 42]. An entity is encouraged to provide ‘a quantified description of each group of biological assets, distinguishing between consumable and bearer biological assets or between mature and immature biological assets, as appropriate’. [IAS 41.43].

Answer 100

The standard requires an entity to provide a narrative or quantitative description of each group of biological assets. [IAS 41.41, 42]. An entity is encouraged to provide ‘a quantified description of each group of biological assets, distinguishing between consumable and bearer biological assets or between mature and immature biological assets, as appropriate’. [IAS 41.43].

Question 101

Disclosure - Groups of biological assets 2 The standard suggests that an entity may separately disclose the carrying amounts of: [IAS 41.43, 44] • consumable biological assets (i.e. assets that are to be harvested as agricultural produce, sold as biological assets or produce growing on a bearer plant); and • bearer biological assets (i.e. assets that are not consumable, but rather are self-regenerating).

Answer 101

The standard suggests that an entity may separately disclose the carrying amounts of: [IAS 41.43, 44] • consumable biological assets (i.e. assets that are to be harvested as agricultural produce, sold as biological assets or produce growing on a bearer plant); and • bearer biological assets (i.e. assets that are not consumable, but rather are self-regenerating).

Question 102

Disclosure - Groups of biological assets 3 The standard continues by suggesting that an entity ‘may further divide those carrying amounts between mature and immature assets. These distinctions provide information that may be helpful in assessing the timing of future cash flows’. [IAS 41.43]. Mature biological assets are defined by the standard as those assets ‘that have attained harvestable specifications (for consumable biological assets) or are able to sustain regular harvests (for bearer biological assets)’. [IAS 41.45]. If an entity makes such distinctions, it should disclose the basis for making those distinctions. [IAS 41.43].

Answer 102

The standard continues by suggesting that an entity ‘may further divide those carrying amounts between mature and immature assets. These distinctions provide information that may be helpful in assessing the timing of future cash flows’. [IAS 41.43]. Mature biological assets are defined by the standard as those assets ‘that have attained harvestable specifications (for consumable biological assets) or are able to sustain regular harvests (for bearer biological assets)’. [IAS 41.45]. If an entity makes such distinctions, it should disclose the basis for making those distinctions. [IAS 41.43].

Question 103

Disclosure - Other disclosures 1 If not disclosed elsewhere in information published with the financial statements, an entity is required to describe: ‘(a) the nature of its activities involving each group of biological assets; and (b) non-financial measures or estimates of the physical quantities of: (i) each group of the entity’s biological assets at the end of the period; and (ii) output of agricultural produce during the period’. [IAS 41.46].

Answer 103

If not disclosed elsewhere in information published with the financial statements, an entity is required to describe: ‘(a) the nature of its activities involving each group of biological assets; and (b) non-financial measures or estimates of the physical quantities of: (i) each group of the entity’s biological assets at the end of the period; and (ii) output of agricultural produce during the period’. [IAS 41.46].

Question 104

Disclosure - Other disclosures 2a In addition, an entity shall disclose the following information: (a) the existence and carrying amounts of biological assets whose title is restricted, and the carrying amounts of biological assets pledged as security for liabilities; [IAS 41.49] (b) the amount of commitments for the development or acquisition of biological assets; [IAS 41.49] (c) financial risk management strategies related to agricultural activity; [IAS 41.49]

Answer 104

In addition, an entity shall disclose the following information: (a) the existence and carrying amounts of biological assets whose title is restricted, and the carrying amounts of biological assets pledged as security for liabilities; [IAS 41.49] (b) the amount of commitments for the development or acquisition of biological assets; [IAS 41.49] (c) financial risk management strategies related to agricultural activity; [IAS 41.49]

Question 105

Disclosure - Other disclosures 2b (d) a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period, which includes: [IAS 41.50] (i) the gain or loss arising from changes in fair value less costs to sell; (ii) increases due to purchases; (iii) decreases attributable to sales and biological assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5; (iv) decreases due to harvest; (v) increases resulting from business combinations; (vi) net exchange differences arising on the translation of financial statements into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting entity; (vii) other changes.

Answer 105

(d) a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period, which includes: [IAS 41.50] (i) the gain or loss arising from changes in fair value less costs to sell; (ii) increases due to purchases; (iii) decreases attributable to sales and biological assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5; (iv) decreases due to harvest; (v) increases resulting from business combinations; (vi) net exchange differences arising on the translation of financial statements into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting entity; (vii) other changes.

Question 106

Fair value measurement disclosures IFRS 13 specifies the disclosures that are required for fair value measurements of biological assets and agricultural produce. they are subsumed within the disclosure requirements in IFRS 13. That standard requires substantially more information to be disclosed about fair value measurements, for example: • the classification of a fair value measurement within the fair value hierarchy, i.e. Level 1, 2 or 3, and, for recurring fair value measurements, any transfers between levels in the hierarchy; • a detailed reconciliation of movements for fair value measurements classified within Level 3 of the hierarchy, along with narrative sensitivity analysis; and • the highest and best use of a non-financial asset if it differs from its current use, including why the non-financial asset is being used in a manner that differs from its highest and best use. [IFRS 13.93].

Answer 106

IFRS 13 specifies the disclosures that are required for fair value measurements of biological assets and agricultural produce. they are subsumed within the disclosure requirements in IFRS 13. That standard requires substantially more information to be disclosed about fair value measurements, for example: • the classification of a fair value measurement within the fair value hierarchy, i.e. Level 1, 2 or 3, and, for recurring fair value measurements, any transfers between levels in the hierarchy; • a detailed reconciliation of movements for fair value measurements classified within Level 3 of the hierarchy, along with narrative sensitivity analysis; and • the highest and best use of a non-financial asset if it differs from its current use, including why the non-financial asset is being used in a manner that differs from its highest and best use. [IFRS 13.93].

Question 107

Additional disclosures if fair value cannot be measured reliably 1 If an entity rebuts the presumption that fair value can be reliably measured on initial recognition of a biological asset (including produce growing on a bearer plant) and measures the asset at its cost less any accumulated depreciation and any accumulated impairment losses it is required to disclose the following information:

Answer 107

If an entity rebuts the presumption that fair value can be reliably measured on initial recognition of a biological asset (including produce growing on a bearer plant) and measures the asset at its cost less any accumulated depreciation and any accumulated impairment losses it is required to disclose the following information:

Question 108

Additional disclosures if fair value cannot be measured reliably 2a (a) if the entity holds such assets at the end of the period: [IAS 41.54] (i) a description of the biological assets; (ii) an explanation of why fair value cannot be measured reliably; (iii) if possible, the range of estimates within which fair value is highly likely to lie; (iv) the depreciation method used; (v) the useful lives or the depreciation rates used; and (vi) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period;

Answer 108

(a) if the entity holds such assets at the end of the period: [IAS 41.54] (i) a description of the biological assets; (ii) an explanation of why fair value cannot be measured reliably; (iii) if possible, the range of estimates within which fair value is highly likely to lie; (iv) the depreciation method used; (v) the useful lives or the depreciation rates used; and (vi) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period;

Question 109

Additional disclosures if fair value cannot be measured reliably 2b (b) if the entity held such assets at any point during the current period: [IAS 41.55] (i) any gain or loss recognised on disposal of such biological assets; (ii) the reconciliation required by paragraph 50 of IAS 41 (see Other disclosures above) shall disclose amounts related to such biological assets separately; (iii) that reconciliation shall include the following amounts included in profit or loss related to those biological assets: • impairment losses; • reversals of impairment losses; and • depreciation;

Answer 109

(b) if the entity held such assets at any point during the current period: [IAS 41.55] (i) any gain or loss recognised on disposal of such biological assets; (ii) the reconciliation required by paragraph 50 of IAS 41 (see Other disclosures above) shall disclose amounts related to such biological assets separately; (iii) that reconciliation shall include the following amounts included in profit or loss related to those biological assets: • impairment losses; • reversals of impairment losses; and • depreciation;

Question 110

Additional disclosures if fair value cannot be measured reliably 2c (c) if the entity held such assets and their fair value became reliably measurable during the current period: [IAS 41.56] (i) a description of the biological assets; (ii) an explanation of why fair value has become reliably measurable; and (iii) the effect of the change.

Answer 110

(c) if the entity held such assets and their fair value became reliably measurable during the current period: [IAS 41.56] (i) a description of the biological assets; (ii) an explanation of why fair value has become reliably measurable; and (iii) the effect of the change.

Question 111

Disclosure - Government grants An entity that has received government grants related to agricultural activity covered by IAS 41 is required to disclose the following information: ‘(a) the nature and extent of government grants recognised in the financial statements; (b) unfulfilled conditions and other contingencies attaching to government grants; and (c) significant decreases expected in the level of government grants.’ [IAS 41.57].

Answer 111

An entity that has received government grants related to agricultural activity covered by IAS 41 is required to disclose the following information: ‘(a) the nature and extent of government grants recognised in the financial statements; (b) unfulfilled conditions and other contingencies attaching to government grants; and (c) significant decreases expected in the level of government grants.’ [IAS 41.57].