AGRICULTURE

IPSAS 27

Saturday, December 9, 2023 1

Overview
Definitionand Scope
Measurement
Recognition
Government Grant
Bearer Plants
Disclosures

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 IPSAS 27 – Objective and Scope
Standard deals with the accounting
for agricultural activity specifically
covering:
◦ Biological assets (except bearer plants)
◦ Initial measurement of agricultural
produce at the point of harvest
◦ Excludes land and intangible assets

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IPSAS 27 doesn’t apply to:
Land related to agricultural activity
Intangible assets related to agricultural
activity
Bearer plants related to agricultural
activity (IPSAS 17 applies to the produce
on those bearer plants)
Any post – harvest product or produce.

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IPSAS 27 – Life cycle of A biological
asset
Seedling Planted – IPSAS 27
Tree growing – IPSAS 27
Mature tree harvested – IPSAS 27 and
IPSAS 12
Logs processed into lumber – IPSAS 12
Lumber Sold – IPSAS 9 or IPSAS 23

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 Key Terms

Agricultural Activity –the management by an

entity of the biological transformation and harvest
of biological assets for sale, distribution at no
charge or for a nominal charge or for conversion
into agricultural produce or into additional
biological assets

Biological Asset – A living animal or plant

Agricultural Produce – harvested product of an

enterprise’s biological assets

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Key terms…
 Biological Transformation – the processes of growth,
degeneration, production, and procreation that cause
qualitative and quantitative changes in a biological asset

 Harvest – the detachment of produce from a biological

asset/bearer plant or the cessation of a biological asset’s life
processes
 Bearer plant
 is used in the production or supply of agricultural produce;
 is expected to bear produce for more than one period; and
 has a remote likelihood of being sold as agricultural produce, except
for incidental scrap sales

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Characteristics of agricultural activities
Capability to change: Living animals and plants
are capable of biological transformation;
Management of change: Management facilitates
biological transformation
Measurement of change: the change in quality
(for example, genetic merit, density, ripeness, fat
cover, protein content, and fibre strength) or
quantity (for example, progeny, weight, cubic
metres, fibre strength or diameter, and number of
buds) brought about by biological
transformation is measured and monitored as a
routine management function.
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Agricultural activity

Biological Products that are the result of

Asset/Bearer plant Agricultural Produce processing after harvest
Sheep Wool Yarn, carpet

Trees in a
plantation forest Logs Lumber
Cotton, harvested
Plants cane Thread, clothing, sugar
Dairy cattle Milk Cheese
Pigs Carcass Sausages, cured hams
Bushes Leaf Tea, cured tobacco
Vines Grapes Wine
Fruit trees Picked fruit Processed fruit
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Examples: Bearer plant or Biological
asset?
1. Coffee plant
2. Crop plants (wheat, Maize, etc)
3. Sugar cane plant
4. grapevines
5. Bamboo plant
6. Rubber trees
7. Mango trees
8. Trees grown for lumber
9. Cows

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Which of the following items fall within
the scope of IPSAS 27?
The land on which a vineyard is planted
A sheep kept to breed more sheep
Grapes on the vine
Wool sheared from the sheep
Wool on the sheep
 Grapes picked from the vine
Grape vines

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Test Your Understanding
IsEgg a biological asset or an agricultural
produce?
Which category would the wool fall
under while they are still on the sheep?
(Biological asset? Agricultural produce?
Products resulting from processing after
harvest, unmanaged stock?

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Practical Example
Entity A raises cattle, slaughters
them at its abattoirs and sells the
carcasses to the local meat
market.
Which of these activities are in
the scope of IPSAS 27?

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Practical Example
Entity B grows vines, harvests
the grapes and produces wine.
Which of these activities are in
the scope of IPSAS 27?

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Recognition:
An entity shall recognize a biological asset
or agricultural produce when and only
when:
a) the entity controls the asset as a result of
past events;
b) it is probable that future economic
benefits associated with the asset will flow
to the entity; and
c) the fair value or cost of the asset can be
measured reliably.
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Examples: recognition of assets 16

When to recognize the asset?

For each example below choose one of: 1)
01/01/2011; 2) 01/10/2011; 3) 01/05/2012; 4)
31/12/2012; or 5) never.
A. On 01/01/2011 a greenhouse tomato grower buys
and gains control of a backup generator (it expects
never to use it)
B. A beef farmer’s calf: conceived on 01/01/2011, born
on 01/10/2011; weaned on 01/05/2012; slaughtered
to harvest carcass on 31/12/2012.
C. 3 year milk supply quota granted free by Ministry of
Agriculture to a dairy farmer on 01/01/2011
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 Measurement
 A biological asset shall be measured on initial recognition
and at the end of each reporting period at its fair value
less cost-of-sale, except where the fair value cannot be
measured reliably.

 Agricultural produce harvested from an entity’s

biological assets shall be measured at its fair value less
costs-of-sale at the point of harvest.

 Point-of-sale costs include commissions to brokers and

dealers, levies by regulatory agencies and commodity
exchanges, and transfer taxes and duties. Point-of-sale costs
exclude transport and other costs necessary to get assets to a
market.
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 Treatment of Subsequent Costs
 It depends. Such costs may include feeding,
veterinary services, planting, weeding, irrigation,
fertilizer, and harvesting and slaughtering costs.
 IPSAS 27 does not prescribe the treatment of such
costs.
 Experience shows capitalizing some of these costs,
particularly those relating to the development of
immature plants or livestock up to the point they
were productive.
 As IPSAS 27 does not prescribe the treatment of
subsequent expenditure, such a treatment would
still be permissible under IPSAS 27.
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 Gains and Losses
 A gain or loss arising on initial recognition of a
biological asset at fair value less estimated point-of-
sale costs and from a change in fair value less
estimated point-of-sale costs of a biological asset shall
be included in surplus or deficit for the period in
which it arises.
 Initial losses on biological assets typically arise when a
biological asset is purchased. The cost of the biological
asset is often higher than the fair value less costs to
sell, as the latter represents an exit price, and
transaction expenses therefore create a loss.
 A gain may arise on initial recognition of a
biological asset, such as when a calf is born.
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 Gain or Loss
A gain or loss arising on initial recognition
of agricultural produce at fair value less
estimated point-of-sale costs shall be
included in surplus or deficit for the period
in which it arises.
 A gain or loss may arise on initial
recognition of agricultural produce as a
result of harvesting.

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Example: Gain at point of harvest
A public sector entity is engaged in
cheese production and holds 500 cows
that are able to produce milk for the
cheese. On one particular day, the cows
produced 500 liters of milk. The fair value
less estimated point-of-sale costs is
estimated at €1.20 per liter for that day.
Gain of €600 (500 x 1.20) should be
included in surplus or deficit.

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 Bearer Plants Treatment
A bearer plant should be accounted for as property
plant and equipment in accordance with IAS 16
 Initial measurement is at cost
 Subsequent measurement is in line with either
cost model or revaluation model
Agricultural produce growing on bearer crops is
a biological asset measured at fair value in
accordance with IPSAS 27.

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Bearer Plants Further Issues Maturity
For bearer plants, costs capitalization
should cease when the bearer plants reach
maturity.

Judgment may be needed to identify when

bearer plants reach maturity; and, hence,
costs will cease to be capitalized and
depreciation will commence.

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 Disclosure
IAS 1 requires biological assets to be presented
separately on the statement of financial position.
IPSAS 27 requires the following disclosures:
Recognized gains/losses (on initial recognitions and on
revaluation)
Description of each type of biological asset
Nature of activities relating to the assets
Non-financial measures or estimates of the physical
qualities of the assets
Methods and significant assumptions to determine fair
value

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 Disclosure
Any restrictions on title
Commitments for the development or
acquisition of biological assets
Financial risk management strategies
A reconciliation of changes in the carrying
amounts of biological assets between the
beginning and end of the period
Additional disclosure if measured at cost

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 Practical Exercise
Farming Co. enters into forward selling
contracts to sell its produce. One such
contract has locked in the price of the most
current crop at Br 2,400 per Quintal. The
harvest will take place after year end, the crop
is worth only Br 2,160 per quintal.
Instructions: Discuss whether the entity should
value the crop at Br 2,400 per quintal or Br
2,160.

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 Practical Exercise
Sheep Inc. raises sheep for wool. During the
year, the sheep must be cared for, including
feeding and veterinary bills.

Instructions: Discuss how these cost should be

accounted for.

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Practical Exercise 28

Is each item below a fish harvester’s asset?

(choose one of): 1) yes; or 2) no.
A. fishing license/quota
B. nine-month lease of fully equipped fishing
boat
C. Wild fish in the area of the lake covered by
the fishing license

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Questions/ Suggestions

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