IAS 41 Agriculture summary - applies in 2024

Silvia of CPDbox

27 Jul 202213:40

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

00:00

🌾 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.

05:00

🌍 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.

10:01

🌱 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

IAS 41 is an International Accounting Standard that focuses on the accounting for agricultural activities. It was created to ensure consistency in how agricultural assets and activities are reflected in financial statements across different countries. In the video, the standard is explained as applying specifically to living organisms involved in agricultural processes, like animals and plants, and how their transformation is recognized in accounting.

💡Agricultural Activity

Agricultural activity refers to the management of biological assets, such as plants and animals, for the purpose of harvest or produce. In the video, the speaker clarifies that only activities directly involved in agricultural processes are covered under IAS 41, such as raising livestock or growing crops. Non-agricultural activities, even if they involve living organisms (e.g., guard dogs), are excluded.

💡Biological Asset

A biological asset is defined as a living plant or animal that undergoes biological transformation. The video emphasizes that biological assets are central to IAS 41, and the standard provides guidance on how to account for their changes over time, such as a chick maturing into a hen. These assets are divided into 'bearer' and 'consumable' assets depending on their role in agricultural production.

💡Biological Transformation

Biological transformation refers to the changes in a biological asset's quality or quantity, such as growth, reproduction, or decay. The video describes this process as critical to the economic benefits derived from biological assets, as it is through transformation that assets like plants or animals gain value, allowing them to contribute to agricultural production.

💡Agricultural Produce

Agricultural produce is the harvested product that comes from biological assets, such as milk from cows or apples from trees. In the video, the speaker explains that produce is recognized at the point of harvest and then moved into inventory, marking its transition from a biological asset to inventory under IFRS accounting standards.

💡Bearer Plants

Bearer plants are a type of biological asset that are used to grow produce over several periods, like apple trees or grapevines. The video discusses how bearer plants are excluded from IAS 41 and are instead governed by IAS 16, which covers property, plant, and equipment. This is because bearer plants are not themselves consumed but rather generate agricultural produce over their productive lifespan.

💡Consumable Biological Assets

Consumable biological assets refer to plants or animals that are harvested themselves, such as carrots or chickens. The video contrasts these assets with bearer assets, explaining that consumable biological assets are measured at fair value less cost to sell, and are harvested for sale or further processing in agricultural activities.

💡Fair Value

Fair value is the price that would be received to sell an asset in an orderly transaction between market participants. The video highlights the importance of fair value in measuring biological assets under IAS 41. If fair value cannot be reliably measured, assets can be accounted for using cost models, though this is usually a temporary measure.

💡Government Grants

Government grants are financial supports provided to entities, often to encourage certain activities, like limiting agricultural production. In the video, two types of grants are discussed: conditional (based on meeting specific requirements) and unconditional (received without conditions). IAS 41 outlines how these grants should be recognized as income, depending on their nature and the agricultural activity they support.

💡Depreciation

Depreciation refers to the reduction in value of an asset over time. In the context of the video, depreciation is applied to bearer plants under IAS 16 once they mature and begin producing. As these plants are used over several periods, depreciation reflects their decreasing productivity and eventual scrapping when they are no longer useful.

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.