ACCA - IAS 41 - Aug23 - For Participants

IAS 41 Agriculture
23 August 2023
© 2023 Deloitte PLT 1
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Contents
Overview of IAS 41
Scope of IAS 41
Recognition and measurement
Reporting of gains and losses
Key takeaways
Resources
Appendices

Overview

Applicability of IAS 41
Agricultural produce
Biological Assets
(at point of harvest)
IAS
41 • Measured at Fair value less costs to sell • Measured at Fair value less costs to sell
• High-level rebuttable presumption that
the fair value of biological assets can be
measured reliably. If rebutted, use cost
model (IAS 16)
Bearer plants IAS 2/ (after point of harvest)
IAS other
16 • Cost or fair value model IFRSs • Measurement model in the
applicable IFRSs

Key areas of consideration
Identifying an asset
as a bearer plant
Whether the fair

value of the
Cost capitalisation
biological asset can
under IAS 16
be measured
reliably
IAS 41
What is the
appropriate Whether the fair
discount rate to be value measurement
used for fair value methodologies are
calculations? Whether appropriate
monitoring process
is in place to
separately track
bearer plants and
unharvested
produce

Scope

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.
• Three common features:
The capability to change
Management of that change
Measurement of that change

Knowledge Check #1
What is Agricultural activity?
• Open sea fishing
• Plant breeding
• Cloning living organisms to produce antibodies
• Keeping animals for performing in a theme park
• Oil palm plantation

Scope of IAS 41
Biological asset * A living animal or plant
The harvested product of the entity’s biological assets
(at the point of harvest)
Produce on bearer
A biological asset
plants
Government grants Grants relating to agricultural activities
* Except for bearer plants

Scope of IAS 41
Products that are the result of

Biological assets Agricultural produce processing agricultural
produce after harvest
• Sheep • Wool • Yarn, carpet
• Trees in a timber
• Felled trees • Logs, lumber
plantation forest
• Dairy cattle • Milk • Cheese, butter
• Grape vines • Picked grapes • Wine, juice, raisins
• Fruit trees • Picked fruit • Processed fruit
IAS 41 / IAS 16 IAS 41* IAS 2
* At point of harvest
Bearer plants
A living plant that:

• is used in the production or supply of agricultural produce;
Bearer plant • is expected to bear produce for more than one period; and
• has a remote likelihood of being sold as agricultural produce, except for
incidental scrap sales.
Amendments to IAS 16 and IAS 41 - Agriculture: Bearer Plants

• Bearer plants are included within the scope of IAS 16.
• Bearer plants meet the definition of Property, Plant and Equipment (PPE).
• Bearer plants are accounted for in the same way as self-constructed items of PPE before they are in the
location and condition necessary to be capable of operating in the manner intended by management.

Knowledge Check #2
Which of the following are bearer plants are within the scope of IAS 16?
• Oil palm trees
• Trees in a timber plantation forest
• Maize and wheat
• Sugar cane

Knowledge Check #3
Entity A is a plant breeding entity. In the initial stages of the plant breeding process,
Entity A must develop new varieties by selecting seeds and cross-breeding in a
laboratory, as well as performing field tests. This process can take up to 12 years.
Is the development of new breeds of plants within the scope of IAS 41?
YES
NO

Knowledge Check #4
• Company A is a manufacturer of steel products with vertically integrated operations. Company A has a subsidiary, Subsidiary X,
that owns and operates a eucalyptus tree plantation.
• The agricultural produce (i.e. felled eucalyptus frees) is processed by Subsidiary X to produce charcoal.
• The charcoal is sold to Subsidiary Y, another member of the consolidated group, and used to fire blast furnaces for the
production of steel products. Subsidiary X does not sell the felled trees or the charcoal to entities outside of the consolidated
group.
• For the purposes of Company A’s consolidated financial statements, should Subsidiary X’s biological assets (live eucalyptus tree)
and agricultural produce at the point of harvest (felled trees) be accounted for under IAS 41?
Yes, both the live eucalyptus trees and the felled trees will be accounted for under IAS
A
41
No, since the underlying transactions are within the consolidated group and will be
B
eliminated
C The live eucalyptus trees and the felled trees will be accounted for under IAS 41
Knowledge Check #5
An entity in rubber tree plantation produces latex to sell to latex processing factories. The entity has 10 tractors, 10
computers and software to manage the rubber tree plantation on its plantation estates, which is planted with
10,000 rubber trees. The entity’s assets also included 100 barrels of recently tapped latex.
Rubber trees • Biological asset (IAS 41)
Harvested latex • Intangible asset (IAS 38)
Tractors, plantation • At point of harvest - Agricultural produce (IAS 41)

estates and computers • Subsequently – Inventories (IAS 2), or other applicable standards
Software • PPE (IAS 16)

Recognition and Measurement

Recognition
Recognise a biological asset or agricultural produce when, and only when:
The entity controls the asset as a result of past events
It is probable that future economic benefits associated with the asset will flow to the
entity and
The fair value or cost of the asset can be measured reliably

Measurement
Biological assets (other than bearer plants)
Use fair value less

Yes costs to sell model
Can fair value of biological assets

be measured reliably?
No Use cost-depreciation-
impairment model
Only on
initial
recognition

Measurement
Fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value hierarchy gives the

Level 1
highest priority to quoted prices
Quoted prices in active market for in active markets for identical
identical assets or liabilities
assets and liabilities and the
lowest priority to unobservable
Level 2 inputs
Observable inputs other
than quoted prices in
level 1, either directly or
indirectly
Level 3
Unobservable
inputs

Measurement
Costs to sell
The incremental costs

directly attributable to the disposal of the asset
Included Excluded
• Commissions to brokers and • Finance cost and income taxes

dealers
• Costs that are incurred to get
• Levies by regulatory agencies the assets to the market, such as
and commodity exchanges transport and other costs
• Transfer taxes and duties

Measurement
Cost approximating fair value
Cost may sometimes approximate fair value, particularly when:
Little biological The impact of

transformation has taken biological transformation
place since initial costs OR on price is not expected
were incurred to be material

Measurement
Cost model
• Presumes fair value can be measured reliably for most biological assets
• Rebuttable, only at initial recognition, if
Alternative fair value

Quoted market prices are measurements are
not available AND determined to be clearly
unreliable

Knowledge Check #6
• Entity A has been measuring its biological assets at fair value

• During the current financial year, market transactions become less frequent
Can Entity A change its measurement basis to Cost basis as Fair value cannot be measured reliably?
A Can
B Cannot
C Accounting policy choice

Measurement
How do you determine the fair value of biological assets including produce
growing on the bearer plants?

Measurement
Determining fair value
• Not necessarily relevant in determining fair value

Contract prices • Fair value is expected to reflects the current market
• Fair value of a biological asset or agricultural produce is not adjusted because of the
existence of a contract
• The need to consider onerous contract under IAS 37 Provisions, Contingent Liabilities and
Contingent Assets if there are contracts that are at values below the fair value.
With active • The quoted price in that market is the appropriate basis to determine the FV
Fair value (FV) market • Where different active markets exist, to identify the principal (or most advantageous
market)
• To use one or more of the following:

Provided that there No active
has not been a market o Most recent market transaction price; or
significant change in o Market prices for similar assets with adjustment to reflect differences
economic
circumstances
between the date of • Where market-determined prices or values may not be available for a biological asset in its
Measurement
that transaction and present condition.
models
the reporting date • Entity to use the present value of expected net cash flows from the asset discounted at a
current market-determined rate in determining fair value i.e. discounted cash flow (DCF)
Measurement
Discounted cash flow (DCF) model
Item Description
Objective To determine the FV of a biological asset in its present location and condition
Discount rate Appropriate discount rate to be used. Assumptions used should be consistent with those used in
estimating the expected cash flows.
Expected net cash flows • Net cashflows that market participants would expect the asset to generate in its most relevant market
• Excludes cashflows for
o Financing the asset
o Taxation
o Re-establishing biological assets after harvest (e.g. cost of replanting of forest trees)
Variations • Arms length transaction price may involve possibility of variations in cashflows as such, the DCF shall
include such variations in:
o Its expected cash flows; or
o The discount rate; or
o Combination of the above
Note: Adjustments to incorporate variation should not be double counted i.e. adjustments in both the
expected cashflows and the discount rate.

Measurement
Discounted cash flow (DCF) model – Illustrative example
Nature of biological asset: Egg laying hens in varying age attributes
No. of hens: 500,000 hens split into 5 flocks by maturity
• Flock 1: 100,000 16 week old hens Flock 2: 100,000 31 weeks old hens Flock 3: 100,000 46 weeks old hens
• Flock 4: 100,000 66 weeks old hens Flock 5: 100,000 76 weeks old hens
Assumptions:
• Hens start laying eggs after week 15
• Egg laying productivity rates are
• 60% for 16 – 30 weeks-old hens 80% for 31 – 45 weeks-old hens 95% for 46 – 65 weeks-old hens
• 60% for 66 – 75 weeks-old hens 30% for 76 – 85 weeks-old hens
• The hens are discarded once they reach > 85 weeks-old. • Variable operating costs includes chicken feed, vaccination and medical
• They can be sold at a price of CU15 per hen supplies, labour cost of employees to tend the farm, utilities and other
• Discount rate is 10% operating expenses. These costs are estimated to be CU1,400 per day.
• The current active market price for eggs are CU0.80 (after excluding
transport cost)
Measurement
Discounted cash flow (DCF) model – Illustrative example

Measurement
Bearer plants – IAS 16
Before maturity • At accumulated cost
Policy choice:
Upon maturity • the cost model; or
• the revaluation model

Measurement
Bearer plants – Cost model
• Measured at cost less accumulated depreciation and any accumulated impairment losses
• To be accounted for in the same way as self-constructed items of PPE before they are in the
location and condition necessary to bear produce
• Depreciation commences when it is available for use, (i.e. when it is in the location and condition
necessary for it to be capable of operating in the manner intended by management)

Knowledge Check #7
When should depreciation or amortisation of bearer plant commences?
A When the bearer plants start producing or bearing fruits
B When the bearer plants start producing or bearing fruits with the intended yield
C Accounting policy choice

Malaysia’s MIA FRSIC Consensus 30
Determining the Commencement of Depreciation or Amortisation of Bearer Plants – Oil Palm Trees
General
Depreciation begins when it is available for use
principle
(i.e., when it is in the location and condition necessary for it to be capable of
under
operating in the manner intended by management)
MFRS 116
Commencement of depreciation for bearer plants
• When bearer plants reach the point of maturity

• Assessment based on the technical and physical performance of the bearer plant, and not the
financial performance. Apply judgement
• Manner of determination: Census or survey activity, significant changes of programmes, etc.
• Generally, reaches maturity upon 36 months. But, can vary between 24 – 48 months,
depending on the circumstances

Knowledge Check #8
What are the appropriate depreciation or amortisation method for bearer plant?
A Straight line method
Based on expected revenue generated from the future harvest from the bearer plants
B
over its useful lives
C Based on expected yield of production from the bearer plants over its useful lives

Measurement
At point of
Fair value less estimated costs to sell
harvest
Fair value less estimated costs to sell, measured at the

Subsequent
measurement point of harvest, will be deemed cost for subsequent
accounting of the inventory


• At initial recognition, any gain or loss (when a biological asset is first recognised at fair value
less costs to sell) is reported in profit or loss for the period
Biological asset
• Over the life, gains and losses (to reflect changes in fair value less costs to sell) are also
reported in profit or loss in the period in which they arise
Agricultural • At initial recognition (point of harvest), any gain or loss arising is included in profit or loss
produce for the period in which it arises

Key Implementation Considerations

Key Implementation Considerations
Timing of
depreciation and
amortisation of
Fair value bearer plants (under
determination IAS 16)
methods and
involvement of Disclosure
experts requirements
Monitoring
Availability of systems and
historical IAS 41 processes for
information tracking biological
transformation

Disclosures
Biological assets and

agricultural activities
• Description of significant • Restriction in title

judgments applied on fair • Aggregate gain or loss from the initial
recognition and changes during the • Pledged assets
value measurements (IFRS 13)
period • Commitments of
• If fair value is not acquisitions or
determinable, the underlying • Description of the biological assets
development
reasons • Description of the nature of an
entity's activities and non-financial • Additional disclosures for
measures biological assets where
fair value cannot be
Significant judgments • Reconciliation of changes in carrying
measured reliably
amounts
Others

Key takeaways

Key summary
❑ Scope of IAS 41 ❑ Recognition
• Included in the scope are: • Recognise the biological assets or
- Biological assets, except for bearer agricultural produce when:
plants Agricultural produce at point of - Control is established
harvest - Entity will receive the future economic
benefits
- Fair value is reliably measurable
❑ Measurement ❑ Calculating gains and losses

• Measured at fair value less costs to sell • Gains and losses are recognised through
• Bearer plants are within scope of IAS 16 profit and loss
• Harvested agricultural produce within
scope of IAS 2 or other applicable
standards
❑ Measuring assets
• Presumption that fair value is determinable
• Rebuttable only on initial recognition when
quoted market price are not available or
are clearly unreliable
Resources

Resources
Deloitte E-Learning on IAS 41 (https://www.deloitteifrslearning.com/learning/section/2/)

Resources
Deloitte Publication on IAS 41 and Amendments to IAS 41 and IAS 16 (IAS Plus)

Q&A

IFRS 1 First-time Adoption of IFRS Accounting Standards
23 August 2023
First-time Adoption of IFRS Accounting Standards
Key implementation steps
STEP 1 STEP 2 STEP 3 STEP 4

• Opening SoFP at date of Mandatory exceptions Optional exemptions from First IFRS Financial Statements
transition - Retrospective full retrospective • 3 SoFP, 2 SOCI, 2 SoCIE, 2 SoCF and related
• Generally, retrospective application in certain application notes with comparative information
application of IFRSs circumstances - Specific in nature • Presentation and Disclosure requirements in
effective for the FYE prohibited (IFRS 1.13- - Cannot be applied by other IFRSs is applicable as well
• Difference(s) in local 17 and App B) analogy • Explanation of transition to IFRSs
GAAP vs IFRSs (App C – E, IFRS 1) - Reconciliation of equity
• Change in accounting
policy - Reconciliation of total comprehensive income
• Impairment assessment - Material adjustments to SoCF

- Separate disclosure of errors
Mandatory exceptions
IFRS 1 prohibits retrospective application of some aspects of IFRSs relating to:
Classification and measurement

Estimates
of financial assets
Government loans Impairment of Financial assets
Non-controlling interest Derecognition of Financial Assets and Liabilities
Insurance contracts
Embedded derivatives
(Only for entities applying IFRS 17 in their first IFRS FS)
Deferred tax – Leases and decommissioning, restoration and

similar liabilities (only for entities that are applying the May Hedge accounting
2021 amendments to IFRS 1)
Optional exemptions
Designation
Deemed of previously
Cost recognised Joint arrangements
financial
instruments
Investments
Business Borrowing
in subsidiaries,
Combinations costs
associates
and joint ventures Fair value Designation of
measurement contracts to buy
Leases of FA and FL or sell a non-
at initial financial
Assets & recognition item
Share-based Extinguishing
liabilities
payment financial liabilities
of subsidiaries,
transactions with equity
associates and
instruments
joint ventures Decommissioning
Stripping liabilities included Revenue
costs in the
Insurance cost of PPE
Contracts Compound
(only for Severe
financial
entities not Hyperinflation
instruments
applying IFRS FA or
17) Foreign currency
Cumulative intangible asset transactions and
translation accounted for advance consideration
differences in accordance with
IFRIC 12
Key implementation considerations
Stakeholders’
perception
IT implementation
Data gaps
(changes in systems.
(info required to apply
controls, etc)
new accounting )
Key implementation
considerations
Familiarity with the
key major standards
Consideration of (e.g. IFRS 15, 9, 16)
accounting policy
choices
Key Performance
Indicators

Q&A

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IAS 41 Agriculture

© 2023 Deloitte PLT 2

Recognition and measurement

Reporting of gains and losses

© 2023 Deloitte PLT 3

© 2023 Deloitte PLT 4

© 2023 Deloitte PLT 5

Whether the fair

© 2023 Deloitte PLT 6

© 2023 Deloitte PLT 7

• Three common features:

The capability to change

Management of that change

Measurement of that change

© 2023 Deloitte PLT 8

What is Agricultural activity?

• Open sea fishing

• Cloning living organisms to produce antibodies

• Keeping animals for performing in a theme park

• Oil palm plantation

© 2023 Deloitte PLT 9

Biological asset * A living animal or plant

Government grants Grants relating to agricultural activities

* Except for bearer plants

© 2023 Deloitte PLT 10

Products that are the result of

• Sheep • Wool • Yarn, carpet

• Dairy cattle • Milk • Cheese, butter

• Grape vines • Picked grapes • Wine, juice, raisins

• Fruit trees • Picked fruit • Processed fruit

IAS 41 / IAS 16 IAS 41* IAS 2

A living plant that:

Amendments to IAS 16 and IAS 41 - Agriculture: Bearer Plants

© 2023 Deloitte PLT 12

• Oil palm trees

• Trees in a timber plantation forest

• Maize and wheat

© 2023 Deloitte PLT 13

© 2023 Deloitte PLT 14

Rubber trees • Biological asset (IAS 41)

Harvested latex • Intangible asset (IAS 38)

Tractors, plantation • At point of harvest - Agricultural produce (IAS 41)

Software • PPE (IAS 16)

© 2023 Deloitte PLT 16

© 2023 Deloitte PLT 17

Recognise a biological asset or agricultural produce when, and only when:

The entity controls the asset as a result of past events

The fair value or cost of the asset can be measured reliably

© 2023 Deloitte PLT 18

Use fair value less

Can fair value of biological assets

© 2023 Deloitte PLT 19

The fair value hierarchy gives the

© 2023 Deloitte PLT 20

The incremental costs

• Commissions to brokers and • Finance cost and income taxes

• Transfer taxes and duties

© 2023 Deloitte PLT 21

Cost may sometimes approximate fair value, particularly when: