Introduction

The purpose of this standard is to provide guidance with reference to the accounting treatment and disclosures regarding agricultural activities, especially those activities in which biological assets are used that are expected to have economic life of more than one accounting period.

Scope

• This Standard is basically applicable to all the biological assets such as plants and animals, agricultural produce at the time of harvest and all the grants provided by government in relation to all the assets mentioned in the standard.
• However, this standard does is not applicable to bearer plants as these will be dealt by IAS 16 and agricultural products that are further processed after being harvested, for example, fruits and wool, as these items with be dealt by IAS 2. It also does not cover land, intangible assets and grants provided by government that are related with agricultural activities that are defined by and are mentioned in IAS 41.

Definitions of Important Terms

Agricultural Activity
Agricultural activities can be defined as the management of harvest of biological assets and also the biological transformation of those very same assets basically for selling purposes or for the purpose of converting those manageable items in to agricultural products or for converting those in to additional assets.

Agricultural Produce
It can be defined as the product of the entity’s biological nature of assets and that has also been harvested by the entity.

Biological Asset
It can be defined as a living plant or animal.

Biological Transformation
This is a process in which an asset (a biological one) goes through different phases and sub processes like growth, production, degeneration and reproduction that basically causes a quantitative or qualitative change in an asset.

Costs to Sell
The costs to sell can be defined as the future costs that are directly associated with the asset’s disposal apart from the costs linked with raising finance and income taxes.

Harvest
Harvest can be termed as a process through which produce of a biological asset is detached from that very same asset. It is also a reference to the termination of such an asset’s life processes.

Initial Recognition

An entity should recognize agricultural produce detached from a biological asset or a biological asset itself only if the entity meets the following criteria:

• The entity has control over the asset as a result of a past event or transaction
• The asset embodies probable future economic benefits
• The asset’s fair value or cost can reliably be measured.

Initial Measurement

As per IAS 41 an entity should follow and apply the following rules when initially measuring an asset of a biological nature and an agricultural product that has been produced of such an asset:

• The assets of Biological nature are all measured at their fair value after deducting the costs of selling the asset both initially and in subsequent periods, unless the asset’s fair value cannot be measured reliably.

• Agricultural produce detached from an asset of a biological nature should be measured at its fair value after deducting any estimated costs of selling that agricultural product, up to the point of harvest. If the produce is still growing or the produce is still attached with the asset then in that case the value of the produce becomes part of the value of the biological asset to which the produce relates to.

• An entity measures a biological asset and agricultural produce detached from an asset like that is measured at its fair value after deducting any cost of selling the asset and the fair value is determined by the entity as per the requirements of IFRS 13. In addition to the requirements mentioned in IFRS 13 the entity should also consider the following when determining the fair value of a biological asset and agricultural produce:

a) The fair value of a biological asset and its agricultural produce is not affected by the existence of a contract unless the contract prices reflect latest market conditions as fair value is a mirror reflection of latest market prices.
b) In certain situations the cost approximates fair value, these are such situations where little biological transformation has taken place since the initial cost was incurred and recognized or the effect of biological transformation on the price of the asset is not expected to be material.
c) If it is not possible for an entity to determine a biological asset’s fair value, which is associated with another asset, for example, land used for agricultural activities. If the entity is able to determine the fair value of the combined asset (biological asset and land) then the fair value of the biological asset can be determined by deducting the land’s fair value from the fair value of the both the biological asset and land combined together.
d) As per IAS 41, fair value for most of the biological assets can be measured reliably with the exception of those assets which at the time of the their initial recognition does not have quoted prices attached to them and for which alternative measurements with regards to fair value are deemed to be unreliable. In such circumstances an entity should measure an asset at its cost after deducting accumulated depreciation and any impairment losses. If the condition changes and the fair value of the asset become available then in that case the biological asset should be measured at its fair value after deducting the cost of selling the asset.

Gains and Losses

• The gain or loss on the initial recognition of fair value of a biological asset will be recognized in the entity’s statement of profit or loss
• Similarly any changes in a biological asset’s fair value after deducting estimated costs of selling the asset will also be recognized in the entity’s statement of profit or loss
• As per IAS 41, any gains or losses made by the entity on the initial recognition of fair value of the harvested produce will be reported and recognized in the entity’s profit or loss statement.

Government Grant

1) If an entity measures a biological asset at its fair value after deducting the cost of selling the asset, then any grant provided by the government to the entity in relation to such a biological asset will be treated as follows:

a) If the grant provided to the entity by the government is unconditional then in that case the entity should recognize this grant in its profit or loss statement when the grant becomes available to be received
b) If the grant provided to the entity by the government is conditional then in that scenario the entity should recognize the grant in its profit or loss statement when the conditions attached with the grant are met with or are fulfilled.

2) If an entity measures a biological asset at its cost after deducting accumulated depreciation and impairment losses, then a government grant provided to the entity in relation to such an asset will be dealt as per the guidance and requirements mentioned in IAS 20.

Disclosures

An entity is required to give disclosures with regards to the following:
• The gains or losses recognized by the entity when initially recognizing both the biological assets and agricultural produce that has been detached from the biological assets
• The gains or losses that has been recognized by the entity with reference to the changes made in the fair value less cost to sell of both the biological assets and the produce that has been detached from these assets
• All the information regarding the biological assets that are pledged by the entity as a security
• A reconciliation statement that shows changes in the carrying values of the biological assets both at the start of the period and also at the period end and the statement also separately shows the following:
a) A Gain or loss occurring as a result of change in the Asset’s fair value after deducting the costs of selling the biological asset
b) A Gain or loss being suffered by the entity as a result of changes occurring with regards to the attributes of a biological asset
c) Decrease in the carrying amounts of the produce that has been harvested during the current period
d) Purchase and sale of both the biological assets and the produce that has been detached from these assets

• In case of asset’s whose fair value cannot reliably be measured then the entity is required to give the disclosures regarding the following:
a) The nature and description of the biological assets
b) Reasons as to why it is not possible to determine the fair value of the asset
c) Depreciation method used by the entity for depreciating the assets falling under IAS 40.
d) The Carrying values of all the assets both at the start of the period and at the end of the period
e) The asset’s Useful lives or the rates which the entity uses for the depreciation purposes
f) Details regarding the impairment losses that has been recognized by the entity during the current accounting period
g) Any gain or loss that has been resulted due to the disposal of an asset that have been mentioned in IAS 40.

• All the information relating to the grant provided by the government to the aid the entity in its agricultural activities