60Paragraphs 5, 6, 17, 20 and 21 were amended and paragraph 14 deleted by Improvements to IFRSs issued in May 2008. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2009. (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). Separating the increase in fair value less costs to sell between the portion attributable to physical changes and the portion attributable to price changes is encouraged but not required by this Standard. The Board noted that requiring item (a) above would not be appropriate since external independent valuations are not commonly used for assets related to agricultural activity, unlike for certain other assets such as investment property. The Board also noted that item (b) is not required in other International Accounting Standards and a unique disclosure requirement is not warranted for agricultural activity.
- 32In all cases, an entity measures agricultural produce at the point of harvest at its fair value less costs to sell.
- There had been no prior crisis or public expression of concern about shortcomings in existing practice.
- In fact, some national accounting standards required or recommended measurement of bearer assets at fair values even before IAS 41 was issued.
- In 2014, the IASB amended the accounting treatment for bearer plants with the aim to address some concerns that have emerged since the application of the IAS 41.
- The future benefits are normally assessed by measuring the significant physical attributes.
Agricultural activity is the management of the biological transformation of biological assets (living animals or plants) and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets. This standard provides the guidelines, to deal with the accounting treatment of biological assets and agricultural produce at the time of harvest, related to the agricultural activity along with related disclosure requirements in the financial statements of the entity. 38This Standard requires a different treatment from IAS 20, if a government grant relates to a biological asset measured at its fair value less costs to sell 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. As noted previously, certain biological assets are measured at their cost less any accumulated depreciation and any accumulated impairment losses, if the reliability exception is applied.
Related IFRS Standards
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. Agricultural produce should be measured at fair value less costs to sell (point-of-sale costs) at the point of harvest. In June 2014 the Board amended the scope of IAS 16 Property, Plant and Equipment to include bearer plants related to agricultural activity. Bearer plants related to agricultural activity were previously within the scope of IAS 41.
Additional disclosures for biological assets where fair value cannot be measured reliably
Such measurement is the cost at that date when applying IAS 2 Inventories or another applicable Standard. The Board noted that the same basis of measurement should generally be applied to agricultural produce on initial recognition and to the biological asset from which it is harvested. Because the fair value of a biological asset takes into account the condition of the agricultural produce that will be harvested from the biological asset, it would be illogical to measure the agricultural produce at cost when the biological asset is measured at fair value. For example, the fair value of a sheep with half fleece will differ from the fair value of a similar sheep with full fleece.
This has created a greater need for financial statements based on sound and generally accepted accounting principles. If a government grant relates to a biological asset measured at its cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 30), IAS 20 is applied. The Interpretations Committee received a request seeking clarification on paragraph 25 of IAS 41. 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. It is the process managing, undertaken by the entity, for the biological transformation and harvest of biological assets for the purpose of sale or to convert it into agricultural produce or into further biological assets. An entity is encouraged, but not required, 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.
Does IFRS Use Historical Cost?
Changes in fair value can arise due to biological transformation, which includes growth, degeneration, production, and procreation that cause changes in quantity and quality of the biological asset. These assets are initially measured at their fair value minus estimated point-of-sale costs, unless this fair value cannot be measured reliably. Determining fair value is an important aspect of measurement and may involve using various methods depending on the nature of the biological asset and market conditions. The fair value of a biological asset takes into account various factors such as market conditions, production costs, and supply and demand. IFRS 13, issued in May 2011, amended paragraphs 8, 15, 16, 25 and 30 and deleted paragraphs 9, 17–21, 23, 47 and 48.
Top 3 Questions about IAS 41 Agriculture
Furthermore, they believe that applying a cost measure to bearer plants may be equally as difficult in some situations. Fair value measurements are required in assessing bearer plants for impairment, and surely those who are urging a reversion to a cost model for bearer assets would not suggest that impairment should be ignored because fair value measurement may sometimes be difficult. Moreover, the June 2014 Amendment would permit fair value measurements as a pure accounting policy choice. Mr Finnegan and Ms McConnell believe that accounting should reflect underlying economic circumstances and should not merely be left to choice. The existing fair value exception in IAS 41 is based on circumstances (measurement reliability), and is not an accounting policy choice.
Qual a importância da adoção do IFRS das normas contábeis? Entenda!
With regard to measurement after harvest, some argue that agricultural produce should be measured at its fair value both at the point of harvest and at each balance sheet date until sold, consumed, or otherwise disposed of. They argue that this approach would ensure that all agricultural produce of a similar type is measured similarly irrespective of date of harvest, thus enhancing comparability and consistency. When an entity has access to different markets, the Standard indicates that the entity uses the most relevant one.
- The Corporate Reporting Faculty’s annual IFRS factsheets provide a more detailed discussion of recent IFRS amendments.
- Furthermore, Mr Finnegan and Ms McConnell believe that such a change would preserve relevant information for investors through prominent display in the primary financial statements, while addressing the concerns of those who believe that fair value changes distort profit or loss.
- The Board considered requiring, or encouraging, disclosure of the gain or loss on a disaggregated basis; for example, requiring separate disclosure of the gain or loss related to biological assets and the gain or loss related to agricultural produce.
- The gain on initial recognition of biological assets and agricultural produce and re-measurement of biological assets should be recognised in profit or loss.
- Referring to the forestry example above, the difference in fair value of the plantation between the two year end dates is 800 (4,500 – 3,700), which will be reported as a gain in the statement or profit or loss (regardless of the fact that it has not yet been realised).
International Financial Reporting Tool perfect reporting according to IFRS
The Standard indicates that contract prices are not necessarily relevant in determining fair value and that the fair value of a biological asset or agricultural produce is not adjusted because of the existence of a contract. In summary, IAS 41 requires biological assets to be measured at fair value less costs to sell, except in certain circumstances where cost less accumulated depreciation and impairment losses may be used. The standard applies to biological assets, which are living plants and animals, and agricultural produce, the harvested products of those biological assets. The change in fair value (less costs to sell) of a biological asset between reporting dates is reported as a gain or loss in the statement or profit or loss.
The aim of this paper is to analyze the practical challenges of applying IAS 41 before and after the revision of this standard. It would be illogical to continue fair value measurement when the agricultural produce is measured at historical cost. The Board noted that it would be anomalous to require an entity to start measuring a contract at fair value once the related asset exists and to stop doing that at a later date. However, the Board noted that to achieve symmetry between the measurement of a biological asset and a related sales contract the Standard would have to carefully restrict ias 41 agriculture the sales contracts to be measured at fair value. An entity may enter into a contract to sell agricultural produce to be harvested from the entity’s biological assets. The Standard requires that agricultural produce harvested from an entity’s biological assets should be measured at its fair value less estimated point‑of‑sale costs at the point of harvest.
Government Grants:
Referring to the forestry example above, the difference in fair value of the plantation between the two year end dates is 800 (4,500 – 3,700), which will be reported as a gain in the statement or profit or loss (regardless of the fact that it has not yet been realised). Have a remote likelihood of being sold as agricultural produce, except for incidental scrap. This is a major shift away from the traditional cost model widely applied in primary industry. Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes. The Interpretations Committee explains in an agenda decision why it has not proposed a standard-setting project for the work plan. In many cases, agenda decisions also explain how the applicable principles and requirements in IFRS Standards apply to the transaction or fact pattern that prompted a review of the Standard.
IAS 41 prescribes the accounting for agricultural activity, that is, the management by an entity of the biological transformation of living animals or plants (biological assets) for sale, into agricultural produce or into additional biological assets. The underlying principle of IAS 41 is that fair value measurement best reflects the biological transformation of biological assets. It requires measurement at fair value less costs to sell (referred to hereafter as fair value) from initial recognition of biological assets up to and including the point of harvest, other than when fair value cannot be measured reliably on initial recognition. IAS 41 requires disclosure of 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. 40 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 costs to sell of biological assets. 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 costs to sell of biological assets.
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 1 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. This information helps users to make informed decisions about the entity’s financial position and performance. Entities need to keep up to date with any amendments or updates to IAS 41 and ensure they apply the standard per the latest guidance. Agriculture is an important sector of the economy in many countries and involves various activities such as breeding and rearing livestock, growing crops, and harvesting timber.