IAS 41: Agriculture
Biological assets and agricultural produce at fair value less costs to sell, with every change in value going to profit or loss.
ACCA exams this helps with: FR Financial Reporting SBR Strategic Business Reporting See the ACCA map
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What it is: IAS 41 covers farming: living animals and plants (biological assets) and what they produce (agricultural produce).
The key idea: there is no choice. Biological assets are measured at fair value less costs to sell at every year end, and every change, up or down, goes to profit or loss.
Example. A farmer’s herd of cows is worth £49,000 (after selling costs) at the start of the year and £55,400 at the end, because the cows grew and calves were born. The £6,400 gain goes to profit or loss.
Key words
- Biological asset
- A living animal or plant.Example: Dairy cows, sheep, pigs, trees in a forest.
- Agricultural produce
- The harvested product of a biological asset.Example: Milk, wool, picked grapes, felled logs.
- Harvest
- Detaching produce from a biological asset, or ending its life processes.Example: Milking a cow, shearing a sheep, felling a tree.
- Bearer plant
- A plant used only to grow produce for more than one year, and unlikely to be sold except as scrap. It is accounted for under IAS 16, not IAS 41.Example: Grape vines, apple trees, tea bushes.
- Fair value less costs to sell
- What the asset would sell for at the measurement date, less the costs of selling it (such as auction fees and commission).Example: A cow worth £1,100 with £20 of selling costs is measured at £1,080.
Learn
What’s in and what’s out
| Biological asset (IAS 41) | Agricultural produce at harvest (IAS 41) | Product after harvest (IAS 2 inventory) |
|---|---|---|
| Dairy cattle | Milk | Cheese, butter |
| Sheep | Wool | Yarn, carpet |
| Trees in a forest | Felled logs | Timber, furniture |
| Pigs | Carcass | Sausages, bacon |
| Grapes on the vine (the vine itself is a bearer plant, IAS 16) | Picked grapes | Wine |
Measurement: no choice
- Biological assets: at fair value less costs to sell, on initial recognition and at every reporting date.
- Agricultural produce: at fair value less costs to sell at the point of harvest. That figure becomes its cost under IAS 2 Inventories from then on.
- Every gain or loss, including on initial recognition, goes to profit or loss. Nothing goes to OCI.
- Biological assets are not depreciated.
Bearer plants
Plants such as vines and fruit trees are only used to grow produce year after year. They are measured like machinery, under IAS 16 (cost or revaluation model). The produce growing on them (the grapes, the apples) is still IAS 41, at fair value less costs to sell.
Government grants
An unconditional grant for a biological asset measured at fair value less costs to sell goes to profit or loss when it becomes receivable. If it has conditions, recognise it when the conditions are met.
Why fair value? (from the lecture)
Think of a forest. At cost, it would show no profit for decades while the trees grow, then everything at once when they’re felled. Fair value spreads the profit over the years as the trees grow, which shows the real performance.
The practical problem: often there is no active market. For example, pigs might be sold as piglets (around 25 kg) or fully grown (around 110 kg), but nobody buys a 60 kg pig. You can’t just scale the price per kg, because a young animal is worth a different amount per kg. In practice, companies may have to use a present value estimate instead, which is more subjective.
Compare the measurement models
| Standard | Model | Gains go to | Depreciation? |
|---|---|---|---|
| IAS 16 revaluation model | Fair value (by class) | OCI (revaluation surplus) | Yes (not land) |
| IAS 40 fair value model | Fair value (all investment property) | Profit or loss | No |
| IAS 41 | Fair value less costs to sell (no choice) | Profit or loss | No |
Companies are encouraged to split the change in value into the part caused by price changes and the part caused by physical changes (growth, births, deaths).
Watch it explained
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Worked example
A dairy farm has 50 cows on 1 January. Each is worth £1,000, and selling costs are £20 per animal. During the year 5 calves are born. At 31 December each cow is worth £1,100 and each calf £300. Selling costs are still £20 per animal.
| Working | £ |
|---|---|
| 1 January: 50 × (1,000 − 20) | 49,000 |
| 31 December cows: 50 × (1,100 − 20) | 54,000 |
| 31 December calves: 5 × (300 − 20) | 1,400 |
| Fair value less costs to sell at 31 December | 55,400 |
| Gain in profit or loss: 55,400 − 49,000 | 6,400 |
| Account | Dr £ | Cr £ |
|---|---|---|
| Biological assets | 6,400 | |
| Gain on biological assets (P/L) | 6,400 | |
| (Remeasurement of the dairy herd to fair value less costs to sell) | ||
Split of the gain: price change 50 × £100 = £5,000; physical change (calves born) £1,400. Total £6,400. The milk collected during the year is agricultural produce, measured at fair value less costs to sell when milked, then treated as inventory.
Practice questions
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