Chapter Three: Accounting for Agriculture/Biological Assets (IAS 41)
Overview
IAS 41 Agriculture sets out the accounting for agricultural activity – the transformation of biological assets
(living plants and animals) into agricultural produce (harvested product of the entity's biological assets). The
standard generally requires biological assets to be measured at fair value less costs to sell.
IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related
to agricultural activity. 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.
IAS 41 establishes the accounting treatment for biological assets during their growth, degeneration,
production and procreation, and for the initial measurement of agricultural produce at the point of
harvest. It does not deal with processing of agricultural produce after harvest (for example,
processing grapes into wine, or wool into yarn). IAS 41 contains the following accounting
requirements:
• bearer plants are accounted for using IAS 16;
• other biological assets are measured at fair value less costs to sell;
• agricultural produce at the point of harvest is also measured at fair value less costs to sell;
• changes in the fair value of biological assets are included in profit or loss; and
• biological assets attached to land (for example, trees in a plantation forest) are measured
separately from the land.
The fair value of a biological asset or agricultural produce is its market price less any costs to sell the
produce. Costs to sell include commissions, levies, and transfer taxes and duties.
IAS 41 differs from IAS 20 with regard to recognition of government grants. Unconditional grants
related to biological assets measured at fair value less costs to sell are recognised as income when
the grant becomes receivable. Conditional grants are recognised as income only when the conditions
attaching to the grant are met.
IAS 41
Objective
The objective of IAS 41 is to establish standards of accounting for agricultural activity – the management of
the biological transformation of biological assets (living plants and animals) into agricultural produce
(harvested product of the entity's biological assets).
Scope
IAS 41 applies to biological assets with the exception of bearer plants, agricultural produce at the point of
harvest, and government grants related to these biological assets. It 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.
Note: Bearer plants were excluded from the scope of IAS 41 by Agriculture: Bearer Plants (Amendments to
IAS 16 and IAS 41), which applies to annual periods beginning on or after 1 January 2016.
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Key definitions
Biological asset A living animal or plant
Bearer plant* A living plant that:
1. is used in the production or supply of agricultural produce
2. is expected to bear produce for more than one period, and
3. has a remote likelihood of being sold as agricultural produce, except for
incidental scrap sales.
Agricultural
The harvested product from biological assets
produce
The incremental costs directly attributable to the disposal of an asset, excluding finance
Costs to sell
costs and income taxes
The Nature of Biological Assets
Biological assets are plants and animals.
Biological assets change qualitatively and quantitatively. These changes can be measured, assessed
and monitored.
Biological transformation results in:
• growth (an improvement in quality or increase in quantity of animals or plants);
• deterioration in quality or decrease in quantity of animals or plants;
• creation of additional animals or plants;
• Harvesting of agricultural produce.
Examples of biological assets, agricultural produce, and products that are the result of their
processing are as follows:
Agricultural
Biological assets Products – result of processing
produce
Grain (crop) Cereal, straw Flour
Sugar beetroots
(crop) Sugar beetroots Sugar
Flax Straw Fibre, threads, fabrics
Perennial grass, Grass, hay,
Grass flour
meadows haylage, silage
Fruit trees,
Picked fruit,
berries Wine, juice, jam
berry-bearing bushes
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Pasteurized milk, cheese,
Dairy cattle Milk sour cream, cottage cheese, butter,
cheese
Pigs, livestock Carcass Sausages
Sheep Wool Yarn, carpets
Bees Honey, wax Candles, “Midus”
Picked
Mushrooms mushrooms Conserved, dried mushrooms
Fish Fry, fish Smoked fish, tinned fish
Furry animals Fur Fur coats
Different types of agricultural assets are shown in the following scheme:
Consumable biological assets
Consumable biological assets are those that will be either:
• Harvested as agricultural produce; for example farmed fish, hogs for meat, trees grown for lumber
etc.; or
• Sold as biological assets; for example seedlings of apple trees, young puppies, etc.
Consumable assets fall within the scope of IAS 41 and shall be measured at fair value less cost to
sell.
Bearer biological assets
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Bearer biological assets are other than consumable biological assets, for example apple tree held
for harvesting apple, or cattle for milk production.
Here, IFRS makes a distinction between bearer plants and bearer animals:
• Bearer plants fall within the scope of IAS 16; but
• Bearer animals fall within the scope of IAS 41.
In conclusion – basically all animals do fall within the scope of IAS 41, regardless whether they are
consumable or bearer. Therefore, you need to measure them at fair value less cost to sell as well.
With plants, you need to differentiate and correctly assess what they are. And, as this question
requires special attention, I will make up a Q&A session soon on this point.
Bearer plants fall within the scope of IAS 16 and therefore they are measured either applying cost
model or revaluation model.
Agricultural produce
Agricultural produce is the harvested produce of the entity’s biological assets. Examples are apples,
eggs, milk, or meat.
Be careful – products made from agricultural produce are NOT agricultural produce anymore; rather
they are inventories, for example apple juice, cheese, salami, etc.
Also, some people get confused about living animals. Imagine you have a chicken farm and raise
young chicks for further sale.
These young chicks are NOT an agricultural produce. Instead, they are biological assets, because
they are living animals (thus meet the definition of a biological asset).
Agricultural produce shall be measured at fair value less cost to sell at the point of harvest.
After this point, agricultural produce becomes inventories and you need to apply the standard IAS 2.
Initial recognition
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Companies require assets to generate revenues. These include resources owned or controlled by a
company that results in inflows of economic benefits. In accounting, these inflows may occur
through the asset’s value or use. These resources are crucial in helping companies continue their
operations.
An entity shall recognize a biological asset and agricultural produce in accounting records 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.
Consequently, they must also recognize any gains or losses resulting from the recognition.
However, the asset must meet the recognition criteria set by IAS 41 as mentioned above.
If the company measures a loss, it will use the following journal entries.
Dr Cr
Biological asset XXX
Loss on biological asset (Profit or loss) XXX
Cash/Payable XXX
If there is gain on the transaction, the accounting entries will be below.
Dr Cr
Biological asset XXXX
Gain on biological asset (Profit or loss) XXXX
Cash/Payable XXXX
Measurement
What Are the Journal Entries for Biological Assets?
The journal entries for biological assets occur during two stages. The first includes when companies
acquire or obtain those assets. Based on IAS 41, companies must record or measure initially and
subsequently biological assets at fair value less cost to sell those assets.
❖ Biological assets within the scope of IAS 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.
❖ 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.
❖ The gain on initial recognition of 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 on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair value less
costs to sell are included in profit or loss for the period in which it arises.
All costs related to biological assets that are measured at fair value are recognised as expenses when incurred,
other than costs to purchase biological assets.
IAS 41 presumes that fair value can be reliably measured for most biological assets. However, that
presumption can be rebutted for a biological asset that, at the time it is initially recognised, does not have a
quoted market price in an active market and for which alternative fair value measurements are determined to
be clearly unreliable. In such a case, the asset is measured at cost less accumulated depreciation and
impairment losses. But the entity must still measure all of its other biological assets at fair value less costs to
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sell. If circumstances change and fair value becomes reliably measurable, a switch to fair value less costs to
sell is required.
Guidance on the determination of fair value is available in IFRS 13 Fair Value Measurement. IFRS 13 also
requires disclosures about fair value measurements.
Other issues
The change in fair value of biological assets is part physical change (growth, etc) and part unit price change.
Separate disclosure of the two components is encouraged, not required.
Agricultural produce is measured at fair value less costs to sell at harvest, and this measurement is considered
the cost of the produce at that time (for the purposes of IAS 2 Inventories or any other applicable standard).
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 biological assets).
Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for under IAS 38
Intangible Assets.
Examples For Accounting for Biological Assets
1. let’s say that a business acquires 100 cows for $10,500. The fair value of each cow is $130
with a total estimated cost to sell of $12. This means that each cow has a fair value less
estimated costs to sell of $118. The journal entry to record the acquisitions of the cow will
then be:
The gain on initial recognition of $1,300 will be included in the profit and loss statement of the
business.
2. JJ Farms is a business that deals grows and sells beef cattle. It was only newly formed on
December 31, 2020. At the time of its formation, it has 130 units of cattle, 90 of them
immature, and 40 of them mature stock. A cattle becomes mature after one year. JJ Farms
acquired all of its cattle for a total of $11,600. The following data was acquired regarding the
fair value of each cattle, as well as costs to sell:
Required:
A. Determine the value of the biological assets upon initial
recognition.
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B. Prepare the journal entry for the initial recognition of the biological asset.
Solution
First, we need to determine the fair value less costs to sell for each cattle.
There are two types of cattle, immature and mature.
Each immature cattle has a fair value of $90.
The fair value less costs to sell of each immature cattle is then:
$90 – $6 – $1 = $83
Each mature cattle has a fair value of $160.
The fair value less costs to sell of each immature cattle is then:
$160 – $6- $1= $153
Now that we have our fair value less cost to sell for each unit of cattle, we can compute the initial
value of biological assets:
Biological Assets = (90 x $83) + (40 x $153)
= $7,470 + $6,120
= $13,590
As per computation, the initial value of the biological assets is $13,590.
With this in mind, the journal entry should be:
3. Alex and Ria corp. provided the following assets in a forest plantation and farm:
Free standing plants 16,050,000
Land under trees 500,000
Roads in the Forest 500,000
Animals related to recreational activities 1,000,000
Bearer plants 3,000,000
Bearer animals 1,500,000
Agricultural produce growing on bearer plants 800,000
Agricultural produce harvested 1,000,000
Plants with dual use 1,400,00
What amount should be recorded as biological assets?
Solution
16,050,000 + 1,500,000 + 800,000 + 1,400,000 = 19,750,000
Government grants
Unconditional government grants received in respect of biological assets measured at fair value less costs to
sell are recognised in profit or loss when the grant becomes receivable.
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If such a grant is conditional (including where the grant requires an entity not to engage in certain agricultural
activity), the entity recognises the grant in profit or loss only when the conditions have been met.
Disclosure
Disclosure requirements in IAS 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 consumable
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 biological assets previously measured at cost subsequently becomes available, certain
additional disclosures are required.
Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions, and
significant decreases expected in the level of grants.