MODULE 1: Agriculture

 RELATED STANDARDS: PAS 41 –Agriculture and IFRS 13 – Fair Value Measurement

 Definition of Terms
 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.
 Agricultural produce – The harvested produce of the entity’s biological assets.
 Bearer plant – A living plant that: (a) is used in the production or supply of agricultural produce; (b) is
expected to bear produce for more than one period; and (c) has a remote likelihood of being sold as
agricultural produce, except for incidental scrap sales.
 Biological asset– A living animal or plant.
 Biological transformation – It comprises the processes of growth, degeneration, production, and
procreation that cause qualitative or quantitative changes in a biological asset.
 Costs to sell – Incremental costs directly attributable to the disposal of an asset, excluding finance costs
and income taxes.
 Group of biological assets – An aggregation of similar living animals or plants
 Harvest– The detachment of produce from a biological asset or the cessation of a biological asset’s life
processes.

 Scope
 PAS 41 applies to biological assets with the exception of:
 Bearer plants
 Agricultural produce at the point of harvest (after harvest, PAS 2 applies)
 Government grants related to these biological assets.
 PAS 41 does not apply to
 Land related to agricultural activity
 Intangible assets related to agricultural activity
 Government grants related to bearer plants, and bearer plants.
 However, it does apply to produce growing on bearer plants.
 Examples of assets under PAS 41
Identify whether each item listed is a biological assets, agricultural produce or product after harvest
o Carcass
o Cheese
o Cotton plants
o Dairy cattle
o Grape vines
o Harvested cane
o Harvested cotton
o Yarn
o Palm oil
o Picked fruit
o Picked tea leaves
o Sheep
o Sugar
o Tobacco plants
o Trees in a timber plantation
o Wine
o Wool

 Recognition
 An entity recognizes a biological asset or agriculture produce only when
 The entity controls the asset as a result of past events
 It is probable that future economic benefits will flow to the entity, and
 The fair value or cost of the asset can be measured reliably.

 Measurement
 Biological assets within the scope of PAS 41 are measured on initial recognition and at subsequent
reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured.
 In such case that fair value cannot be reliably measured, biological assets shall be measured at cost less
accumulated depreciation and any accumulated impairment.
 Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest. Because
harvested produce is a marketable commodity, there is no 'measurement reliability' exception for produce.
 Fair value measurement of agricultural produce stops at point of harvest. After such date,
PAS 2- Inventories shall apply (lower of cost and net realizable value).
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 Point of sale costs

 Include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges,
transfer taxes and duties.
 Exclude transport and other costs necessary to bring the asset to a market.
 All costs related to biological assets that are measured at fair value are recognized as expenses when
incurred, other than costs to purchase biological assets.

 Gain or loss on subsequent measurement

 The gain/loss on initial recognition biological assets at fair value less costs to sell, and changes in fair value
less costs to sell of biological assets during a period, are included in profit or loss.
 A gain/loss on initial recognition of agricultural produce at fair value less costs to sell are included in profit
or loss for the period in which it arises.
 The change in fair value of biological assets is part physical (growth) change and part unit price change.
Separate disclosure of the two components is encouraged but not required.

 Financial statement presentation

 Biological assets shall be presented as a separate line item and classified as noncurrent assets.
 Agricultural produce is considered as inventories. PAS 41 applies until point of harvest and PAS 2 applies
after harvest.

 Other accounts
 Agricultural land is accounted for under IAS 16 - Property, Plant and Equipment.
 However, biological assets (other than bearer plants) that are physically attached to land are measured as
biological assets separate from the land.  In some cases, the determination of the fair value less costs to sell
of the biological asset can be based on the fair value of the combined asset (land, improvements and biolog-
ical assets).
 Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for under
IAS 38 - Intangible Assets.
 Unconditional government grants received in respect of biological assets measured at fair value less costs
to sell are recognized in profit or loss when the grant becomes receivable.
 If such a grant is conditional (including where the grant requires an entity not to engage in certain agricul-
tural activity), the entity recognizes the grant in profit or loss only when the conditions have been met.

 Disclosure
 General disclosure requirements in PAS 41 include:
 Aggregate gain or loss from the initial recognition of biological assets and agricultural produce and the
change in fair value less costs to sell during the period.*
 Description of an entity's biological assets, by broad group
 Description of the nature of an entity's activities with each group of biological assets and non-financial
measures or estimates of physical quantities of output during the period and assets on hand at the end
of the period
 Information about biological assets whose title is restricted or that are pledged as security.
 Commitments for development or acquisition of biological assets
 Financial risk management strategies
 Reconciliation of changes in the carrying amount of biological assets, showing separately changes in
value, purchases, sales, harvesting, business combinations, and foreign exchange differences*
* Separate and/or additional disclosures are required where biological assets are measured at cost
less accumulated depreciation.
 Disclosure of a quantified description of each group of biological assets, distinguishing between consum-
able and bearer assets or between mature and immature assets, is encouraged but not required.
 If fair value cannot be measured reliably, additional required disclosures include:
 Description of the assets
 An explanation of why fair value cannot be reliably measured
 If possible, a range within which fair value is highly likely to lie
 Depreciation method
 Useful lives or depreciation rates
 Gross carrying amount and the accumulated depreciation, beginning and ending
 If the fair value of the biological assets measured at their cost less any accumulated depreciation and any
accumulated impairment losses becomes reliably measurable during the current period, an entity shall
disclosed the following: description of the biological assets, an explanation of why fair value has become
reliably measurable, and the effect of the change.
 Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions,
and significant decreases expected in the level of grants.

 Fair value measurement (IFRS 13)

 Fair value hierarchy
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1. Level 1 inputs – Quoted prices in active markets for identical assets or liabilities that the entity can
access at the measurement date.
2. Level 2 inputs– Inputs other than quoted market prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly.
3. Level 3 inputs – Unobservable inputs for the asset or liability.

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