International Accounting Standard 41 Agriculture

Objective

The objective of this Standard is to prescribe the accounting treatment and disclosures related to
agricultural activity.

Scope

This Standard shall be applied to account for the following when they relate to agricultural activity:

(a) Biological assets except bearer plants.

(b) Agricultural produce at the point of harvest; and
(c) Unconditional government grants related to a biological asset measured at fair value less cost to
sell or FVLCS

This Standard does not apply to:

a. land related to agricultural activity (see IAS 16 Property, Plant and Equipment and IAS 40
Investment Property); and
b. Intangible assets related to agricultural activity (see IAS 38 Intangible Assets).
c. Bearer plants related to agricultural activity
d. Government grants related to agricultural activity
e. Right-of-use of assets arising from a lease of land related to agricultural activity

This Standard is applied to agricultural produce, which is the harvested product of the entity's biological
assets, only at the point of harvest. Thereafter, IAS 2 Inventories or another applicable Standard is
applied. Accordingly, this Standard does not deal with the processing of agricultural produce after
harvest; for example, the processing of grapes into wine by a vintner who has grown the grapes. While
such processing may be a logical and natural extension of agricultural activity, and the events taking
place may bear some similarity to biological transformation, such processing is not included within the
definition of agricultural activity in this Standard.

The table below provides examples of biological assets, agricultural produce, and products that are the
result of processing after harvest:
Agriculture-related definitions

The following terms are used in this Standard with the meanings specified;

Agricultural activity is the management by an entity of the biological transformation of biological assets
for sale, into agricultural produce, or into additional biological assets.

Agricultural produce is the harvested product of the entity's biological assets.

A biological asset is a living animal or plant.

Example: Sheep, pigs, beef cattle, poultry fish.

Dairy cows.

Plants for harvest (for example, wheat and vegetables)

Trees, plants, and bushes from which agricultural produced is harvested (fruit trees, vines, and tea
bushes)

Biological transformation comprises the processes of growth, degeneration, and procreation that cause
qualitative or quantitative changes in a biological asset.

A group of biological assets is an aggregation of similar living animals or plants.

Harvest is the detachment of produce from a biological asset or the cessation of a biological asset's life
processes.

Is the produce or harvest from a biological asset another biological asset?

No. The produce or harvest from a biological asset (for example, milk, tea leaves and

lumber) is inventory. The harvested produce is transferred to inventory at fair value

less costs to sell; it is thereafter accounted for in accordance with IAS 2, ‘Inventories’.

However, while the produce is still growing or still attached to the biological asset, its

value forms part of the value of the biological asset.

Consumable vs. Bearer biological assets

Biological assets are either consumable or bearer.

Consumable - those that are to be harvested as agricultural produce or sold as biological assets.
Examples of consumable biological assets are livestock intended for the production of meat, livestock
held for sale, fish in farms, crops such as maize and wheat, and trees being grown for lumber.
Bearer - those other than consumable biological assets.

Example is livestock from which milk is produced, grape vines, and fruit trees from which fruit is
harvested, and trees from which firewood is harvested while the tree remains.

Agricultural activity covers a diverse range of activities; for example, raising livestock, forestry, annual
or perennial cropping, cultivating orchards and plantations, floriculture, and aquaculture (including fish
farming). Certain common features exist within this diversity:

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 stabilizing, 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 fiber strength) or quantity (for example, progeny, weight, cubic
meters, fiber length or diameter, and number of buds) brought about by biological
transformation is measured and monitored as a routine management function.

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.

General definitions

The following terms age used this Standards with the meanings specified:

An active market is a market where all tile following conditions exist:

a. the items traded within the market are homogeneous;

b. willing buyers and sellers can normally be found at any time, and
c. prices are available to the public.

Carrying amount is the amount at which an asset is recognized in the balance sheet.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction.
Government grants are assistance by the government in the form of transfers of resources to an entity
in return for the past or future compliance with certain conditions relating to the operating activities of
the entity.

The fair value of an asset is based on its present location and condition. As a result. for example, the fair
value of cattle at a farm is the price for the cattle in the relevant market less the transport and other
costs of getting the cattle to that market.

Recognition and measurement

An entity shall recognize a biological asset or agricultural produce when, and only when:

a. the entity 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.

In agricultural activity, control may be evidenced by, for example, legal ownership of cattle and the
branding or otherwise marking of the cattle on acquisition, birth, or weaning. The future benefits are
normally assessed by measuring the significant physical attributes.

A biological asset shall be measured on initial recognition and at each balance sheet date at its fair
value less estimated point-of-sale costs, except for the case where the fair value cannot be measured
reliably.

Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value
less estimated point-of-sale costs at the the point of harvest. Such measurement is the cost at that
date when applying IAS 2 Inventories Of another applicable Standard.

Point-of-sale costs include commissions to brokers and dealers levies by regulatory agencies and
commodity exchanges, and transfer taxes and duties. Point-of-sale costs exclude transport and other
costs necessary to get assets to a market.

The determination of fair value for a biological asset or agricultural produce may be facilitated by
grouping biological assets or agricultural produce according to significant attributes.

For example. by age or quality. An entity selects the attributes to the attributes used in the market as a
basis for pricing.

Entities often enter into contracts to sell their biological assets or agricultural produce at a future date.
Contract prices are not necessarily relevant in determining fair value, because fair value reflects the
current market in which a willing buyer and seller would enter into a transaction. As a result, the fair
value of a biological asset or agricultural produce is not adjusted because of the existence of a contract.
In some cases, a contract for the sale of a biological asset or agricultural produce may be an onerous
contract, as defined in IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IAS 37 applies to
onerous contracts.
If an active market exists for a biological asset or agricultural produce, the quoted price in that market is
the appropriate basis for determining the fair value of that asset. If an entity has access to different
active markets, the entity uses the most relevant one. For example, if an entity has access to two active
markets, it would use the price existing in the market expected to be used.

If an active market does not exist, an entity uses one or more of the following when available, in
determining fair value:

a. the most recent market transaction price, provided that there has not been a significant change
in economic circumstances between the date of that transaction and the balance sheet date;
b. market prices for similar assets with adjustment to reflect differences; and
c. sector benchmarks such as the value of, an orchard expressed per export tray, bushel, or
hectare, and the value of cattle expressed per kilogram of meat.

In some cases, the information sources listed in paragraph 18 may suggest different conclusions as to
the fair value of a biological asset or agricultural produce. An entity considers the reasons for those
differences in order to arrive at the most reliable estimate of fair value within a relatively narrow range
of reasonable estimates.

In some circumstances, market-determined prices or values may not be available for a biological asset in
its present condition. In these circumstances, an entity uses the present value of expected net cash
flows from the asset discounted at a current market-determined pre-tax rate in determining fair value.

The objective of a calculation of the present value of expected net cash flows is to determine the fair
value of a biological asset in its present location and condition. An entity considers this in determining
an appropriate discount rate to be used and in estimating expected net cash flows. The present
condition of a biological asset excludes any increases in value from additional biological transformation
and future activities of the entity, such as those related to enhancing the future biological
transformation, harvesting, and selling.

An entity does not include any cash flows for financing the assets, taxation, or re-establishing biological
assets after harvest (for example, the cost of replanting trees in a plantation forest after harvest).

In agreeing an arm's length transaction price, knowledgeable, willing buyers and eliexs consider the
possibility of variations in cash flows. It follows that fair value reflcts the possibility of such variations.
Accordingly, an entity incorporates expectations about possible variations in cash flows into either the
expected cash flows or the discount rate, or some combination of the two. In determining discount rate,
an entity uses assumptions consistent with those used in estimating the expected cash flows, to avoid
the effect of some assumptions being double-counted or ignored.

Cost may sometimes approximate fair value, particularly when:

a. little biological transformation has taken place since initial cost incurrence (for example, for fruit
tree seedlings planted immediately prior to a balance sheet date); or
 b. the impact of the biological transformation on price is not expected to be material (for example,
for the initial growth in a 30-year pine plantation production cycle).

Biological assets are often physically attached to land (for example, trees in a plantation forest). There
may be no separate market for biological assets that are attached to the land but an active market may
exist for the combined assets, that is, for the biological assets, raw land, and land improvements, as a
package. An entity may use information regarding the combined assets to determine fair value for the
biological assets. For example, the fair value of raw land and land improvements may be deducted from
the fair value of the combined assets to arrive at the fair value of biological assets.

Gains and losses

A gain or loss arising on initial recognition of a biological asset at fair value less estimated point of-sale
costs and from a change in fair value less estimated point-of-sale costs of a biological asset shall be
included in profit or loss for the period in which it arises.

A loss may arise on initial recognition of a biological asset, because estimated point-of-sale costs are
deducted in determining fair value less estimated point-of-sale costs of a biological asset. A gain may
arise on initial recognition of a biological asset, such as when a calf is born.

A gain or loss arising on initial recognition of agricultural produce at fair value less estimated point-of-
sale costs shall be included in profit or loss for the in which it arises.

A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.

Inability to measure fair value reliably

There is a presumption that fair value can be measured reliably for a biological asset. However, that
presumption can be rebutted only on initial recognition for a biological asset for which market-
determined prices or values are not available and for which alternative estimates of fair value are
determined to be dearly unreliable. In such a case, that biological asset shall be measured at its cost less
any accumulated depreciation and any accumulated impairment losses. Once the fair value of such a
biological asset becomes reliably measurable, an entity shall measure it at its fair value less estimated
point-of-sale costs. Once a non-current biological asset 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, it is presumed that fair value can be
measured reliably.

The presumption in paragraph 30 can be rebutted only on initial recognition. An entity that has
previously measured a biological asset at its fair value less estimated point-of-sale costs continues to
measure the biological asset at its fair value less estimated point-of-sale costs until disposal.

In all cases, an entity measures agricultural produce at the point of harvest at its fair value less
estimated point-of-sale costs. This Standard reflects the view that the fair value of agricultural produce
at the point of harvest can always be measured reliably.

In determining cost, accumulated depreciation and accumulated impairment losses, an entity considers
IAS 2 Inventories, IAS 16 Property, Plant and Equipment and IAS 36 Impairment of Assets.
Government grants

An unconditional government grant related to a biological asset measured at its fair value less estimated
point-of-sale costs shall be recognized as income when and only when, the government grant becomes
receivable.

lf a government grant related to a biological asset measured at its fair value less estimated point-of-sale
costs is conditional, including where a government grant requires an entity not to engage in specified
agricultural activity, an entity shall recognize the government grant as income when, and only when the
conditions attaching to the government grant are met.

Terms and conditions of government grants vary. For example, a government grant may require an
entity to farm in a particular location for five years and require the entity to return all of the government
grant if it farms for less than five years. In this case, the government grant is not recognized as income
until the five years have passed. However, if the government grant allows part of the government grant
to be retained based on the passage of time the entity recognizes the government grant as income on a
time proportion basis.

If a government grant relates to a biological asset measured at its cost less any accumulated
depreciation and any accumulated impairment losses, IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance is applied.

This Standard requires a different treatment from LAS 20, if a government grant relates to a biological
asset measured at its fair value less estimated point-of-sale costs or a government grant requires an
entity not to engage in specified agricultural activity. IAS 20 is applied only to a government grant
related to a biological asset measured at its cost less any accumulated depreciation and any
accumulated impairment losses.

Disclosure

General

An entity shall 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 estimated point-of-
sale costs of biological assets.

An entity shall provide a description of each group of biological assets.

The disclosure required by paragraph 41 may take the form of a narrative or quantified description.

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. For example, an entity may disclose the carrying amounts of
consumable biological assets and bearer biological assets by group. 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 an entity discloses the basis for making any
such distinctions.

Consumable biological assets are those that are to be harvested as an agricultural produce or sold as
biological assets. Examples of consumable biological assets are livestock intended for the production of
meat, livestock held for sale, fish in farms, crops such as maize and wheat, and trees being grown for
lumber. Bearer biological assets are those other than consumable biological assets: for livestock from
which milk is produced, grape vines, fruit trees, and trees which firewood is harvested while the tree
remains. Bearer biological assets not agricultural produce but, rather, are self-regenerating.

Biological assets may be classified either as mature biological assets or biological assets. Mature
biological assets are those that have attain harvestable specifications (for consumable biological assets)
or are able to regular harvests (for beaver biological assets).

If not disclosed elsewhere in information published n statements, an entity shall 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:
*each group of the entity's biological assets at the end of the period;
*output of agricultural produce during the period.

An entity shall disclose the methods and significant assumptions applied in determining the fair value of
each group of agricultural produce at the point of harvest and each group of biological assets.

An entity shall disclose the fair value less estimated point-of-sale costs of agricultural produce harvested
during the period, determined at the point of harvest.

An entity shall disclose:

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;
b. the amount of commitments for the development or acquisition of biological assets; and
c. financial risk management strategies related to agricultural activity.

An entity shall present a reconciliation of changes in the carrying amount of biological assets between
the beginning and the end of the current period. The reconciliation shall include:

a. the gain or loss arising from changes in fair value less estimated point-of-sale costs;
b. increases due to purchases;
c. 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;
d. decreases due to harvest;
e. increases resulting from business combinations;
f. 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; and
g. other changes.
The fair value less estimated point-of-sale costs of a biological asset can change due to both physical
changes and price changes in the market. Separate disclosure of physical and price changes is useful in
appraising current period performance and future prospects, particularly when there is a production
cycle of more than one year. In such cases, an entity is encouraged to disclose, by group or otherwise,
the amount of change in fair value less estimated point-of-sale costs included in profit or loss due to
physical changes and due to price changes. This information is generally less useful within the
production cycle is less than one year (for example. when raising chickens or growing cereal crops).

Biological transformation results in a number of types of physical change—. growth, degeneration,

production, and procreation, each of which is observable and measurable, Each of those physical
changes' has a direct relationship to future economic benefits. A change in fair value of a biological asset
due to harvesting is also a physical change.

Agricultural activity is often exposed to climatic, disease and other natural risks, If an event occurs that
gives rise to a material item of income or expense, the nature and amount of that item are disclosed in
accordance with IAS I Presentation of Financial Statements. Examples of such an event include an
outbreak of a virulent disease, a flood, a severe drought or frost, and a plague of insects.

Additional disclosures for biological assets where fair value cannot be measured reliably

If an entity measures biological assets at their cost less any accumulated depreciation and any
accumulated impairment losses at the end of the period, the entity shall disclose for such biological
assets:

a. a description of the biological assets;

b. an explanation of why fair value cannot be measured reliably;
c. if possible, the range of estimates within which fair value is highly likely to lie;
d. the depreciation method used;
e. the useful lives or the depreciation rates used; and
f. the gross carrying amount and the accumulated depreciation (aggregated with accumulated
impairment losses) at the beginning and end of the period.

If, during the current period, an entity measures biological assets at their cost less any accumulated
depreciation and any accumulated impairment losses, an entity shall disclose any gain or loss recognized
on disposal of such biological assets and the reconciliation required shall disclose amounts related to
such biological assets separately. In addition, the reconciliation shall include the following amounts
included in profit or loss related to those biological assets:

a. impairment losses:
b. reversals of impairment losses; and
c. depreciation

If the fair value of biological assets measured at their cost less any accumulated depreciation and any
accumulated impairment losses reliably measurable during the current period, an entity shall disclose
for those biological assets:

(a) a description of the biological assets;

 (b) an explanation of why the fair value has become reliably measurable; and
(c) the effect of the change

Government grants

An entity shall disclose the following related to agricultural activity covered this Standard:

a. the nature and extent of government grants recognized 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.

Effective date and transition

This Standard becomes operative for annual financial statements covering periods beginning on or after
1 January 2003. Earlier application is encouraged. If an entity applies this Standard for periods beginning
before 1 January 2003, it shall disclose that fact.

This Standard does not establish any specific transitional provisions. The adoption of this Standard is
accounted for in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.