IAS 41 Agriculture summary - applies in 2024
Summary
TLDRThis video provides an overview of IAS 41, a standard focused on agricultural activities. It explains key terms such as biological assets, agricultural produce, and the recognition criteria for these assets. The video also covers how to measure and account for biological assets, distinguishing between consumable and bearer plants, as well as government grants related to agriculture. The speaker emphasizes the importance of biological transformation in economic benefits and addresses how agricultural produce is handled after harvest. The video is part of CPD Box, offering IFRS training and certifications.
Takeaways
- 🌾 IS-41 is a sectoral standard primarily applied in agriculture but can also be relevant for non-agricultural companies engaged in agricultural activities.
- 🌱 The standard was introduced to ensure comparability in the accounting treatment of agricultural activities across countries.
- 🌍 IS-41 defines key terms such as biological assets, agricultural produce, and harvest, making it clear where the standard applies.
- 🐄 Biological assets, like animals and plants, are not automatically considered under IS-41 unless used in agricultural activities.
- 🍎 Agricultural produce refers to harvested products from biological assets, such as apples or milk, which are distinct from the biological assets themselves.
- 🌳 Bearer plants, which produce harvest over multiple periods, are excluded from IS-41 and covered under IS-16, property, plant, and equipment.
- 📊 Biological assets involved in agricultural activities are measured at fair value minus costs to sell at initial recognition and reporting periods.
- 🌾 Agricultural produce is measured at fair value at the point of harvest and is de-recognized when it enters production or trading processes.
- 📑 IS-41 includes guidelines for accounting for government grants related to agricultural activities, distinguishing between conditional and unconditional grants.
- 💼 The standard emphasizes that biological transformation, such as growth or reproduction, is central to the flow of economic benefits in agriculture.
Q & A
What is IS-41 and which sector does it mainly apply to?
-IS-41 is a sectoral accounting standard that mainly applies to agriculture, but it can also apply to activities outside the agricultural sector, depending on the nature of the activities involved.
Why was IS-41 Agriculture introduced?
-IS-41 was introduced to address the inconsistencies in accounting treatment of agricultural activities across different countries, ensuring comparability and uniformity, especially because agriculture deals with living organisms that undergo biological transformation.
What are some key terms defined in IS-41?
-Key terms defined in IS-41 include 'agricultural activity,' 'biological asset' (a living animal or plant), 'agricultural produce' (the harvested product of a biological asset), and 'harvest' (the point at which the produce is collected from the biological asset).
How does IS-41 differ in accounting for biological assets and agricultural produce?
-IS-41 treats biological assets and agricultural produce differently. Biological assets are measured at fair value less costs to sell both initially and at each reporting date, while agricultural produce is recognized at the point of harvest and also measured at fair value less costs to sell.
What criteria must be met to recognize a biological asset in financial statements?
-Three criteria must be met to recognize a biological asset: (1) the entity controls the asset due to a past event, (2) it is probable that future economic benefits will flow to the entity, and (3) the fair value or cost of the asset can be reliably measured.
What is the difference between consumable and bearer biological assets under IS-41?
-Consumable biological assets are harvested for consumption (e.g., carrots, chickens), while bearer biological assets are used to produce other agricultural products over several periods (e.g., coconut trees, grapevines).
How are bearer plants accounted for under IS-41?
-Bearer plants are excluded from IS-41 and are accounted for under IS-16 (Property, Plant, and Equipment). They are measured at cost during their growth period and depreciated once they mature and start producing agricultural products.
When should the agricultural produce be derecognized, and what happens after derecognition?
-Agricultural produce is derecognized at the point of harvest, when it enters either trading activities or production processes. After derecognition, it is accounted for under IS-2 (Inventories).
How are government grants related to agriculture treated under IS-41?
-Government grants related to agriculture are classified as either conditional or unconditional. Conditional grants are recognized as income when conditions are met, while unconditional grants are recognized when they become receivable. If biological assets are measured at cost, IS-20 applies for grant accounting.
What are the primary methods for measuring biological assets under IS-41?
-Biological assets are primarily measured at fair value less costs to sell. If fair value cannot be determined (due to unavailable market prices), they can be measured at cost less accumulated depreciation and impairment losses until fair value becomes available.
Outlines
🌾 Overview of IAS 41 - Agriculture Standard
IAS 41 is a sectoral accounting standard mainly applied in agriculture, but not exclusively. It addresses how to account for agricultural activities and biological assets. Sylvia from CPD Box explains that the standard was created to harmonize agricultural accounting across countries, as different nations faced comparability issues. The standard, issued in the late 2000s and applicable since 2003, defines agricultural activities, biological assets, and agricultural produce, clarifying how to account for the growth and reproduction of living organisms like plants and animals.
🌍 Importance of Agricultural Accounting & Scope of IAS 41
Agriculture plays a significant role in many countries like China, India, and the U.S., leading to the need for standardized accounting practices. IAS 41 helps resolve issues related to biological assets and how they are presented in financial statements. The standard clarifies that it applies only to activities defined as agricultural and excludes non-agricultural uses of biological assets (e.g., guard dogs). Sylvia highlights that produce like apples or milk are not biological assets themselves, and the standard applies only if the asset is part of an agricultural activity.
🌱 Key Terms in IAS 41 - Agriculture
IAS 41 defines key agricultural terms: biological assets (living animals or plants), agricultural produce (harvested products), and harvest (the moment produce is obtained). The standard applies only to biological assets used in agricultural activities. Bearer plants (e.g., coconut trees) fall under IAS 16 for property, plant, and equipment, while agricultural produce like milk or apples are recognized separately. The standard provides rules for recognizing biological assets, focusing on when to apply IAS 41 and when not to, depending on whether the asset is used for agricultural activity.
🧮 Accounting for Biological Assets in IAS 41
IAS 41 outlines the recognition criteria for biological assets: control, probable future economic benefits, and the ability to measure fair value or cost. Biological assets are classified into consumable (e.g., chickens) and bearer assets (e.g., apple trees). Bearer plants are excluded from IAS 41 and fall under IAS 16, with measurement based on cost until maturity. Upon reaching maturity, depreciation and impairment are applied. The fair value method is used for non-bearer biological assets, and any changes in fair value or physical transformation are recognized as income or expense in financial statements.
📊 Measurement and Reporting of Biological Assets
Biological assets not classified as bearer plants (e.g., cows) are measured at fair value minus the cost to sell at each reporting date. If fair value cannot be reliably determined, assets can be measured at cost, adjusted for depreciation and impairment. Changes in value due to fair market differences or biological growth are recognized in profit or loss. IAS 41 requires detailed presentation of these changes in financial statements, with biological assets reported separately from other classes of assets.
🍎 Agricultural Produce and Its Recognition in Financial Statements
Agricultural produce, such as milk or apples, is recognized at the point of harvest. After being harvested, produce is measured at fair value less cost to sell, and changes in value are recorded as income or expense. When the produce is derecognized (e.g., when sold or processed), it is then recognized under IAS 2 (Inventories). Agricultural produce is generally presented within inventories on the balance sheet but requires separate disclosure in the notes.
🏢 Government Grants and IAS 41
IAS 41 also covers government grants related to agriculture, distinguishing between conditional and unconditional grants. Conditional grants are recognized as income when the conditions are met, such as subsidies for reducing production. Unconditional grants are recognized when they become receivable. If biological assets are measured at cost (due to fair value unavailability), the treatment of government grants falls under IAS 20 (Accounting for Government Grants).
🔍 Conclusion: Key Takeaways of IAS 41
In conclusion, IAS 41 provides guidance on how to account for biological assets, agricultural produce, and government grants in the agricultural sector. While biological assets are primarily measured at fair value, exceptions and special treatments apply to bearer plants and government grants. Agricultural produce, being simpler, is recognized at the point of harvest and transitioned into inventory. The standard emphasizes fair value and economic benefit recognition, offering transparency and comparability in agricultural accounting.
Mindmap
Keywords
💡IAS 41
💡Agricultural Activity
💡Biological Asset
💡Biological Transformation
💡Agricultural Produce
💡Bearer Plants
💡Consumable Biological Assets
💡Fair Value
💡Government Grants
💡Depreciation
Highlights
IS-41 Agriculture standard addresses the accounting treatment of agricultural activities and biological assets to ensure consistency across countries.
Agricultural produce, such as apples and milk, are not biological assets under IS-41; they are recognized as agricultural produce only when harvested.
IS-41 defines key agricultural terms like biological assets, agricultural activity, and harvest to provide clarity on what falls under its scope.
The standard was created to solve the inconsistencies in accounting for agricultural activities and was made effective starting January 1, 2003.
Biological assets are categorized into consumable (e.g., carrots, chickens) and bearer (e.g., coconut palm trees) based on their role in agricultural activities.
Bearer plants, such as apple trees and grapevines, are measured at cost during their growth period and depreciated once they become productive.
Changes in biological assets' fair value and physical attributes are key indicators of economic benefits and are accounted for in financial statements.
IS-41 excludes agricultural land, intangible assets, and bearer plants from its scope, which are instead covered by other standards like IS-16 and IS-38.
Fair value measurement is essential for biological assets involved in agricultural activity, but IS-41 allows cost-based measurement when fair value is unavailable.
Biological assets are recognized in financial statements when the entity controls the asset, expects future economic benefits, and can reliably measure its cost or fair value.
For biological assets like cows or sheep, fair value less costs to sell is the main measurement approach used initially and at each reporting date.
Agricultural produce is measured at fair value less costs to sell at the point of harvest and is later classified under inventory (IS-2) once processed.
Government grants related to agricultural activity under IS-41 are recognized as income when certain conditions are met (conditional grants) or when receivable (unconditional grants).
Set-aside grants, such as those provided by the EU to limit production, are treated under IS-41 when linked to biological assets measured at fair value.
IS-41 provides separate treatment for consumable and bearer biological assets, where consumables are harvested, and bearers generate produce over time.
Transcripts
is-41 is one of a few sectoral standards
out there because it applies mostly in
agriculture but not only there and we
should focus more on agricultural
activity that can be performed also by
other than agricultural companies so
let's dive in and learn a bit more about
it
i am sylvia of cpd box the website to be
if you want to learn ifrs from scratched
and get to the very advanced level get
your cpd certificates and if you're
stuck then we can help with the advice
so check out cpdbox.com so let's dive in
the standard
many countries have a huge agricultural
sector because we all need to eat to
survive china india us germany these are
only few examples of countries with
significant agricultural production and
the problem was that the accounting
treatment of agricultural activities was
not comparable between individual
countries and also agriculture relates
to living organisms so how should we
reflect growth and reproduction in the
financial statement just as an example
and many similar problems arose and to
solve these issues the standard is-41
agriculture was issued in the late 2000s
and it's applicable for the period
starting on or after first january 2003
so it's here for some while so what does
it do
first of all it defines a few terms
related to agriculture to make
absolutely clear what agriculture is and
what it is not and so where you should
apply this standard and where you should
not for example
someone might say that if you have a
guard dog to protect your property you
should apply is-41 because dog is a
living animal but guarding is not
agriculture activity as defined in is-41
so you apply is-16 to accounting for
that particular dog despite the fact
that it is alive
i added the link to an article
explaining more about it in the
description below this video so please
check that out
so is41 defines terms like agricultural
activity including its main important
elements but we will not go into many
details here then biological asset which
is a living animal or plant
and here the common misunderstanding is
that also the produce like apples or
milk are biological assets
no they are not and also even if you
have a biological asset you apply is-41
only if you are using it in an
agricultural activity so that's not
automatic
another term is agricultural produce and
this is the harvested product of
entities biological assets so there you
have your apples or milk another term
harvest that's the moment when you get
the produce from the biological asset
for example milk the cow so is 41
defines all these terms and then when we
know what these items are is 41 sets the
rules of how to account for them more
specifically it deals separately with
biological assets involved in the
agricultural activity
so if you have some biological asset
some animal not involved in agricultural
activity but you have it for some other
purpose then do not apply is41
then except for bearer plants of course
then agricultural produce at the point
of harvest and that's important
and the third area arranged by is 41 are
government grants related to
agricultural activity
is 41 does not apply to agricultural
land that's is 16 property plant
equipment or is 40 investment property
to intangible assets related to
agricultural activity and that's is 38
and to bearer plants and that's is16 and
of course government grants related to
these better plans that's is 20.
so let's firstly focus on biological
assets
we have already learned that the
biological assets are living animal or
plants and the main characteristics of
these assets is their biological
transformation or the change in their
quality or quantity caused by some
biological processes with the help of
some natural resources like soil
sunlight water or air so for example
when a little chick becomes a hin right
so is41 then further explains the types
of biological transformation and please
bear in mind that the biological
transformation is absolutely critical to
the flow of economic benefits
without biological transformation there
is no agricultural production system and
no is 41 applies
and based on what role a biological
asset plays in the agricultural system
they are categorized into two categories
consumable
and these assets either plants or
animals are themselves harvested for
example carrots or chicken
another category is bearer and these
acids bear produce for harvest for
example coconut palm tree
and before we explain how to account for
both types let's see when to recognize
biological assets in the financial
statements and there are three
recognition criteria
very similar as with any other assets
the entity must control the asset as a
result of past event
and here the proof of control would be
formal ownership records like legal
title or branding
the second criterion is that it is
probable that future economic benefits
associated with the acid will flow to
the entity well
biological assets have certain physical
attributes that can be measured and
these indicate the future economic
benefits
and the third condition is that either
the fair value or cost can be reliably
measured
so let's firstly explain the accounting
for bearer plans careful you can have
also better animals but we are focusing
on better plants now no better animals
bearer plants are those that are used
solely to grow produce over several
periods for example apple trees or grape
wines
and also they are not consumed and when
they are no longer productive they are
scrapped
how should we measure bearer plants well
there are debates all around the place
about them because the fair value is not
appropriate in this case and the reason
is that bearer plants are similar to
machines in manufacturing activity and
also it was almost impossible to
determine fair values of these plants in
many cases
and therefore in 2014
bearer plants were excluded from the
scope of is-41
that means you should apply is 16
property plant and equipment so what
does that mean in practice
let's draw the lifetime of a coconut
tree as an example and we can divide it
into two parts
the time when the tree is growing until
it is mature and a time when it is
mature and produces coconuts until it is
mature to produce it is measured at cost
and after it matures and starts to
produce
then we need to start charging the
depreciation and impairment losses if
there are any
careful about coconuts they are the
agricultural produce at the moment when
you pick them up from the tree
and we will learn measuring them later
on now let's talk about measurement of
biological assets that are not bearer
plants for example cows or sheep
the basic measurement rule is to measure
biological assets at fair value less
cost to sell initially and at each
reporting date
the standard says that the primary
indicator of fair value is the net
market value in this case and you should
be looking at the principal market as
arranged by ifrs 13
so for the explanation of principal
market please take a look at our video
on ifrs 13.
if for some reason the fair value is not
available because market prices or
values are not available
then on initial recognition the
biological assets can be measured at
cost less accumulated depreciation
less impairment losses if any and this
applies only for non-current biological
assets because the current biological
asset would be gone from the statement
of financial position within one year
and it is applicable only on initial
recognition until the fair value is
available again
then at the end of each reporting period
you should calculate the difference
between the carrying amount at the end
of the reporting period
and the carrying amount at the beginning
of the period so this would be the
change in the carrying amount and you
should recognize it as income or expense
in the profit or loss for the period
this total change can be split into two
elements
first element is a change attributable
to differences in fair value so that's
affected by the market
and the second element is change
attributable to physical change in
biological assets so for example how
much it grew
you should present these two components
separately in the financial statements
notes would be sufficient but if it's an
asset within the production cycle below
one year like chicken and this
presentation would not be useful and
it's not required and then a standard
sets a few rules for presentation of
biological assets there are definitely a
separate class in the statement of
financial position
and you need to bring in more disclosure
in the notes
that was the accounting for biological
assets
let's take a look at agricultural
produce
the harvested product of entities
biological assets for example fruits
vegetables milk that's all agricultural
produce
and this should be recognized at the
point of harvest or when the produce is
detached from the biological acid so the
apple picked from the tree
the milk milked from the cow so you get
the point
the produce is de-recognized when it
enters either trading activities or
production processes without integrated
agribusiness for example when farmers
start to process milk and make cheese
when the produce is derecognized then
you start to recognize it under is-2
inventory so you stop having
agricultural produce and you start
having inventories
the agricultural produce is measured at
fair value less cost to sell similarly
as biological assets
and the change in fair value is
recognized as an income or expense in
profit or loss
the agricultural produce is usually
included within inventories in the
statement of financial position but you
should disclose it separately
either in this in the face of the
statement of financial position or in
the notes
so as you can see the guidance related
to agricultural produce is easier
simpler than for biological assets and
it's because the produce is usually used
in the shorter production cycle
the last topic covered by is 41 is
government grants related to agriculture
so if biological asset is measured at
fairvalue less cost to sell which will
be in most cases then you can have two
types of grants
conditional grounds and these are
provided after meeting certain
conditions
here you also need to include so-called
set aside grants or grants for not
producing for example a european union
regularly provides subsidies and grants
to farmers in order to limit their
production
under is-41 you should recognize these
grants as income when the conditions are
met
the second type is unconditional ground
that is with no strings attached
and here you recognize such a grand as
an income when the grant becomes
receivable so this is the treatment of
grants when they relate to biological
assets at fair value less cost a cell
but if you measure biological assets at
cost less accumulated depreciation and
impairment losses and this is an
exception when the fair value is not
available
then you need to apply is 20 accounting
for government grants and disclosure of
government assistance
so that's it for the short summary of
the main rules in is41 agriculture and
in the description you can find links to
more resources and articles related to
this topic please like the video if you
learned something new share with your
friends and visit cpdbox.com for more
ifrs related learning
thank you
bye
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