LECTURE 4/4 : MFRS 141/ IAS 41 AGRICULTURE (BIOLOGICAL ASSETS) : FAR320 TOPIC 2-PART 4

Summary

The lecture delves into the accounting treatment of biological assets under IFRS 1-1, focusing on recognition, measurement, and examples of a Danish dairy farmer and a sheep farmer. It covers the initial recognition of assets, fair value changes, and the preparation of journal entries for transactions like asset births, sales, and gains or losses on fair value changes. The importance of distinguishing between current and non-current biological assets is highlighted, along with the disclosure requirements for agricultural activities and government grants.

Takeaways

• 📘 The lecture is focused on part four of a series covering IFRS 13 (International Financial Reporting Standard 13) on fair value measurement.
• 🐄 The example involves a Danish dairy farmer who cultivates cattle for meat and sells them, also recognizing the biological assets for future economic benefits.
• 📊 The fair value of the cattle as of December 31st of year 0X0 is given as 10,000, which is used for initial recognition in the biological asset account.
• 📈 The script discusses the accounting for changes in fair value, including the recognition of gains on initial recognition and fair value changes during the year.
• 📝 Journal entries are provided to record transactions such as the birth of calves, sales of cattle, and the recognition of gains or losses on changes in fair value.
• 💼 The concept of 'fair value less cost to sell' is central to the recognition and measurement of biological assets.
• 📉 The script includes an example of a gain on the sale of biological assets, calculated by considering the fair value at the time of sale minus selling costs.
• 📚 The importance of understanding the accounting treatment for biological assets under IFRS 13 is emphasized, including the recognition of gains and losses.
• 🌱 An example of a sheep farming activity is given, where the sheep are biological assets used for wool production, not meat.
• 📋 The script outlines the requirements for disclosures related to biological assets, including physical quantities, output, and any restrictions on title.
• 🏞️ The lecture touches on the accounting for agricultural produce, such as wool from sheep, and the distinction between biological assets and agricultural produce.

Q & A

What is the main topic of the lecture and examples discussed in the transcript?

The main topic of the lecture is the recognition and measurement of biological assets according to IFRS 13 (International Financial Reporting Standard 13), with a focus on examples related to livestock farming and sheep farming.

What is the significance of slide 39 in the lecture?

Slide 39 marks the transition to the discussion of examples, specifically starting with example two which deals with a Danish dairy farmer cultivating cattle for meat and the accounting treatment of such biological assets.

What is the purpose of cultivating cattle for the company mentioned in the transcript?

The company cultivates cattle for two main purposes: to sell the meat and to sell the cattle to the slaughterhouse, which generates future economic benefits.

What is the fair value of the cattle as of December 31st, 0X0 according to the transcript?

The fair value of the cattle as of December 31st, 0X0, is ten thousand.

What is the concept of 'fair value less cost to sell' mentioned in the transcript?

'Fair value less cost to sell' is a measurement required by IFRS 13, which refers to the amount that would be received to sell an asset in an orderly transaction between market participants at the measurement date, minus the costs that would be incurred to sell the asset.

What transactions need to be recorded in the journal entries according to the transcript?

The journal entries need to record the birth of calves, the sale of cattle, the recognition of gain on initial recognition, and the gain or loss on the change in fair value of the livestock.

What is the gain on initial recognition for the biological asset at the end of the year according to the transcript?

The gain on initial recognition for the biological asset at the end of the year is 1200.

How is the profit from farming activities reflected in the transcript?

The profit from farming activities is reflected in the transcript as revenue from the sale of biological assets and other income from the fair value gain, which is the result of the fair value changes during the period.

What is the difference between the fair value at the beginning of the year and the fair value at the reporting date for the sheep farming example?

The difference between the fair value at the beginning of the year and the fair value at the reporting date for the sheep farming example is 4,100, indicating a gain on fair value change.

What is the accounting treatment for the gain on fair value change in the sheep farming example?

The accounting treatment for the gain on fair value change in the sheep farming example is to debit the biological asset account with the gain amount and credit the fair value gain or other income account, reflecting the increase in the asset's value.

Why does the coconut tree example not meet the definition of a biological asset under IFRS 13?

The coconut tree example does not meet the definition of a biological asset under IFRS 13 because it is accounted for under IAS 16 (Property, Plant and Equipment), as it is considered a long-lived asset that does not meet the specific criteria for biological assets.