IAS 41 Agriculture summary - applies in 2024

Summary

This 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.