IAS 41

Agriculture

1Objective and scope

IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related to agricultural activity: 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. Land used in agricultural activity is accounted for under IAS 16 or IAS 40, not IAS 41 - only what grows on the land is a biological asset.

2Key definitions

Biological asset

A living animal or plant (e.g. dairy cattle, growing crops, timber plantations, fruit trees).

Agricultural produce

The harvested product of the entity's biological assets (e.g. milk, picked fruit, felled trees) - at the point of harvest only; once harvested, it becomes inventory under IAS 2.

Biological transformation

The processes of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset.

3Measurement

A biological asset is measured, both on initial recognition and at each reporting date, at fair value less costs to sell, unless fair value cannot be reliably measured (an exception applied only at initial recognition, and only for a biological asset with no active market and for which alternative fair value estimates are clearly unreliable - measured at cost less accumulated depreciation and impairment in that rare case). Agricultural produce harvested from an entity's biological assets is measured at fair value less costs to sell AT THE POINT OF HARVEST; this measurement then becomes the 'cost' of that produce for the purposes of IAS 2 going forward, since it is now inventory.

A gain or loss arising on initial recognition of a biological asset at fair value less costs to sell, and from a change in fair value less costs to sell in a later period, is recognised in profit or loss for the period in which it arises - there is no revaluation-surplus / OCI route, unlike IAS 16. The gain or loss recognised on initial recognition of agricultural produce at the point of harvest is also recognised in profit or loss.

Splitting the year-end gain on a herd of cattle

Fair value less costs to sell, start of year: 100

Fair value less costs to sell of the same animals, end of year, using START-of-year prices: 108 -> physical change (growth/weight gain) = 8

Fair value less costs to sell, end of year, using END-of-year prices: 115 -> price change = 115 - 108 = 7

Total gain recognised in profit or loss for the year = 15 (physical change 8 + price change 7)

4Presentation and disclosure

The aggregate gain or loss arising during the period on initial recognition of biological assets and agricultural produce, and from changes in fair value less costs to sell of biological assets
A description of each group of biological assets, and the methods and significant assumptions applied in determining fair value
A reconciliation of changes in the carrying amount of biological assets between the start and end of the period

5Examinable focus

What KASNEB tests

Given Kenya's agricultural economy, IAS 41 is examined with real numerical weight: computing fair value less costs to sell at initial recognition and at year end for livestock, plantations or growing crops, splitting the year's gain into the portion due to physical change and the portion due to price change, and correctly carrying harvested produce into IAS 2 inventory at its fair-value-less-costs-to-sell 'cost'.