1. Wiecek and Young IFRS Primer Chapter 9
Agriculture: IAS 41
Wiecek and Young
IFRS Primer
Chapter 9

2. Agriculture Related standards IAS 41 Current GAAP comparisons
IFRS financial statement disclosures
Looking ahead
End-of-chapter practice

3. Related Standards
FAS 144 Accounting for the Impairment or Disposal of Long-lived Assets
FAS 157 Fair Value Measurements
SOP 85-3 Accounting by Agricultural Producers and Agricultural Cooperatives

4. Related Standards IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 18 Revenues
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

5. IAS 41 – Overview Objective and Scope Recognition and Measurement
Government Grants
Disclosure

6. IAS 41 – Objective and Scope
Standard deals with the accounting for agricultural activity specifically covering:
Biological assets
Agricultural produce at the point of harvest
Related government grants
Excludes land and intangible assets
IAS 41 is considered a significant addition to GAAP since the economies of many global countries rely on agriculture
In general, agricultural activities have the following common characteristics: they are capable of biological transformation and this transformation is managed, facilitated, measured, and monitored by the entity

7. IAS 41 – Objective and Scope

8. IAS 41 – Objective and Scope
IAS 41 defines the following terms:
Agricultural activity is 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
Agricultural produce is the harvested product of the entity’s biological assets
A biological asset is a living animal or plant
Biological transformation comprises the processes of growth, degeneration, production, 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

9. IAS 41 – Recognition and Measurement
Biological assets are recognized when:
Entity controls the asset as a result of past events
Future economic benefits are probable and
Fair value or cost is reliably measurable

10. IAS 41 – Recognition and Measurement
As biological assets grow and mature through biological transformation, they increase in value
Biological assets are measured at fair value less estimated costs to sell on initial recognition, unless fair value cannot be reliably measured
Costs to sell include commissions, taxes, and duties
Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest. Where fair value is used, assets are remeasured at each reporting date

11. IAS 41 – Recognition and Measurement
Fair value is felt to be the most relevant measure since many of these assets trade in active markets and therefore objective information on their current value is available
Market values are more reliable and relevant than cost figures, which may be inconsistently accumulated from entity to entity due to differing choices regarding allocations
In general, fair value is determined by reference to a market price if an active market exists for the asset in its present location and condition
An active market is a market where the items traded are homogeneous and there are buyers and sellers and publicly available prices

12. IAS 41 – Recognition and Measurement
Where an active market does not exist or where markets
do not exist at all, the entity would do the following in attempting
to estimate fair value:
1. First, try to estimate current market prices by looking at the prices of recent market transactions, market prices for similar assets, or sector benchmarks such as the price of cattle expressed by weight
2. Second, if market-determined prices are not available for assets in their present condition, use a discounted cash flow approach to measure the value
This need not be carried out by an independent valuator
Cost may be close to fair value if there has been little or immaterial biological transformation

13. IAS 41 – Recognition and Measurement
When using a discounted cash flow approach, the
entity would:
• Use a market-determined discount rate
• Exclude cash flows for financing, taxation, or replacing the asset after
harvest
• Incorporate risk by either using probability weighted cash flows or
adjusting the discount rate or some combination of the two; and
• Ensure assumptions for calculating the discount rate are consistent with
calculating the cash flows to avoid double-counting
Where the biological assets are attached to land, the fair value of the land and assets would be measured, and then the value of the land would be deducted since land is not covered by this standard

14. IAS 41 – Recognition and Measurement
Contracts:
If the entity has entered into a contract to sell the assets at a future date, the price fixed in the contract does not necessarily dictate the fair value since the contract price reflects an estimate of the future fair value and therefore includes a time value factor
In addition, the locked-in contract price may be higher or lower than the fair value at any point in time (spot price) due to changing market conditions and expectations
Where an entity has locked into a price to sell the assets at a price less than the current fair value, this would be reflected in the statements as an onerous contract and IAS 37 would apply

15. IAS 41 – Recognition and Measurement
Costs related to the biological transformation process:
May include planting, weeding, fertilizing, and others
IAS 41 does not prescribe how to treat these costs
Some feel that it is inconsistent to capitalize these costs in a fair value model and that they should be expensed
Others feel that they should be capitalized and only the net amount should be recognized as gain or loss in the statement of profit and loss
Gains and losses:
Gains or losses are recognized in income when they arise
This may result in a gain or loss arising upon initial recognition such as the birth of a calf

16. IAS 41 – Recognition and Measurement
Inability to Measure Fair Value Reliably:
In general, the standard assumes that fair value is measurable
This rebuttable presumption may be overcome for biological assets only if the market-determined prices are not available or fair value estimates are unreliable
at the time of initial recognition
As a default measurement method, the asset would be measured at cost (amortized if relevant) and would also be tested for impairment
Once an asset is measured at fair value less point of sale costs it is assumed that fair value is reliably measurable thereafter (no “going back”)
Agricultural produce is always presumed to have a reliably measurable fair value

17. IAS 41 – Government Grants
Unconditional government grants are recognized as income when receivable
For conditional grants, conditions must be met before recognition of the grant
If the biological asset is measured at cost or amortized cost, the government grant is accounted for in accordance with IAS 20

18. IAS 41 – Disclosure
IAS 1 requires biological assets to be presented separately on the statement
of financial position
The standard requires the following disclosures:
• Recognized gains/losses (on initial recognitions and on revaluation)
• Description of each type of biological asset
• Nature of activities relating to the assets
• Non-financial measures or estimates of the physical qualities of the assets
• Methods and significant assumptions to determine fair value
• Fair value of harvested assets at point of harvest
• Any restrictions on title
• Commitments for the development or acquisition of biological assets
• Financial risk management strategies
• A reconciliation of changes in the carrying amounts of biological assets between the beginning and end of the period
• Additional disclosure if measured at cost
• Additional disclosures related to government grants

19. IAS 41 – Disclosure
An entity is also encouraged but not required to disclose the change in fair value due to physical changes (assets getting older) and price changes (e.g., the price of beef increases)
Biological assets:
Are categorized as being consumable (beef cattle) and bearer (dairy cows)
Bearer biological assets are long-term assets that produce each year such as an orchard tree
Entities are encouraged to provide a description of different types of assets differentiating between consumable and bearer biological assets

20. Current GAAP Comparisons
Pages 80 & 108 of 164 of

21. IFRS Financial Statement Disclosures
Del Monte Pacific Limited
Biological Assets accounting
policy note page 62 of 108
Biological Assets note page 75 of 108

22. Looking Ahead
The use of fair value in this standard means that the standard is intertwined with the larger fair value measurement project
The IASB has established an expert advisory panel to deal with the issue of fair value measurement in general; the panel met for the first time in June 2008
To date, the IASB has completed a standard-by-standard review of existing measurements in IFRSs that are identified as “fair value” and has decided to delete the requirement to use a pre-tax discount rate
Other than noted in footnote 6 and above, there are no other specific plans to make any changes in the standard in the near future

23. End-of-Chapter Practice

24. End-of-Chapter Practice

25. End-of-Chapter Practice

26. Copyright © 2010 John Wiley & Sons, Inc. All rights reserved
Copyright © 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Inc., 111 River Street, Hoboken, NJ , (201) , fax (201) , website The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.