Agriculture
IAS 41
[Link] Thi Mai Anh
1. Introduction - definitions & scope
2. Measurement
3. Recognition
4. Government grants
5. Disclosures
2
Agriculture
1. Introduction - definitions
& scope
Scope of IAS 41
Agricultural Biological asset
produce after Biological
(Partial)
point of Assets Farm Land
harvest Agriculture
Agriculturalproduce at & Buildings
pointatofpoint
Produce harvest
of harvest
Government grants for
Intangible Government
agricultural activities
Assets Grants
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Agriculture
Agricultural activity – the management by an entity of the
biological transformation of biological assets for sale, into
agricultural produce or into additional biological assets.
Examples:
- Raising livestock, fish or poultry
- Stud farms (breeding horses or cattle)
- Forestry
- Cultivating vineyards, orchards or plantations
- Floriculture
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Biological transformation - is a natural change in a
biological asset. It includes growth of living animals or
plants, reduction in output due to age or disease and the
production of new biological assets through a managed
reproductive program.
Biological asset – a living animal or plant.
A group of biological assets is an aggregation of
similar animals or plants (include product of the
biological asset before harvest).
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Biological asset – a living animal or plant.
Classification of biological assets:
- Living aninal and living plant.
- Bearer and consumable biological assets.
- Consumable biological assets: Biological assets harvested as
agricultural produce
- Bearer biological assets -> IAS 16: PP&E (living plant)
- are used for production of agricultural produce.
- are expected to produce for more than one fiscal year
and are less likely to be sold as an agricultural product
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Biological asset – a living animal or plant.
Example:
- Sheep, pigs, beef cattle, poultry and fish.
- Dairy cows.
- Trees in a forest.
- Plants for harvest (wheat, vegetables).
- Trees, plants and bushes from which agriculture produce is
harvested (fruit trees, vines, tea bushes)
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Agricultural produce - the harvested product of the biological
assets.
Harvest - the detachment of produce from a biological asset.
* Biological products before harvest are part of the
biological asset and are not recorded as an individual asset,
except for agricultural products that are being grown on
perennial ( Tea leaves on the tree).
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Examples of biological assets, agricultural produce, and products that are the
result of processing:
Agricultural Products that are the
Biological assets produce result of processing
Sheep Wool Yarn, carpet
Trees in a plantation Logs Lumer
Dairy cattle Milk Cheese
Bushes Leaf Tea
Fruit trees Picked Processed
fruit fruit
IAS 41 IAS 02 - INVENTORY
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Biological asset Agriculture produce Products that
are the result
of processing
IAS 16 – IAS 41 – Biological asset IAS 41 – Biological IAS 02-
PP&E asset Inventory
Dairy cattle Milk Cheese
Market Hog Pork (hog slaughter) Sausage, ham
Trees in a plantation Logs Lumer
Corn tree Corn Corn starch
Bushes Tea leaves on the tree Leaf Tea
perennial fruit fruit on trees harvested fruits dried fruits
trees (cây ăn
quả lâu năm)
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In an integrated business, are all the activities treated as
being in the scope of IAS 41?
Example – Cattle farm
Entity A raises cattle, slaughters them at its abattoirs (lò mổ) and
sells the carcasses (xác) to the local meat market. Which of these
activities are in the scope of IAS 41?
The cattle are biological assets while they are living.
When they are slaughtered, biological transformation ceases: the
carcasses are agricultural produce.
Þ A should account for:
- Live cattle - IAS 41
- Carcasses - IAS 2.
Example 2 – Vineyard
Entity B grows vines, harvests the grapes and produces wine. Which
of these activities are in the scope of IAS 41?
- The grapevine: biological assets that continually generate crops of
grapes.
- When the entity harvests the grapes, their biological transformation
ceases and they become agricultural produce.
- The grapevines continue to be living plants and should be recognised
as biological assets.
- Wine is inventory
Example 2 – Vineyard
Entity B grows vines, harvests the grapes and produces wine.
Which of these activities are in the scope of IAS 41?
Assets such as wine that are subject to a lengthy maturation
period are not biological assets. These processes are analogous to
the conversion of raw materials to a finished product rather than
biological transformation.
Therefore, the entity should account for the grapevines and the
harvested grapes in accordance with IAS 41
The production of wine, as inventory in accordance with IAS 2.
1. Is managing animal-related recreational activities agricultural activity?
No.
Managing recreational activities – for example, game parks and zoos –
is not agricultural activity, as there is no management of the
transformation of the biological assets but simply control of the
number of animals.
2. Is the natural breeding of animals in zoos and game parks
agricultural activity?
No.
The natural breeding that takes place is not a managed activity and is
incidental to the main activity of providing a recreational facility.
A managed breeding programme carried out to produce animals for
sale would be considered agricultural activity.
3. When an entity rears or grows biological assets under contract for a third
party, which entity is in the scope of IAS 41?
It depends on the facts and circumstances and judgement is required in each case.
The contract-grower entity needs to determine whether its exposure to risk is that of a
receivable (secured credit risk) or that of a biological asset (physical inventory and fair
value changes). Where the risks and rewards relating to ownership of the biological
assets are with the contract growing entity, management should account for them as its
biological assets.
4. Is ocean fishing agricultural activity?
No. Harvesting biological assets from unmanaged sources, such as ocean fishing, is
not agricultural activity.
5. Is fish farming agricultural activity?
Yes. Managing the growth of fish for subsequent slaughter or sale is agricultural
activity within the scope of IAS 41.
6. Does the development of living organisms such as cultures, cells,
bacteria and viruses represent agricultural activity?
It depends.
- For research purposes => not agricultural activity, as those organisms
are not being developed for sale, or for transformation into agricultural
produce or additional biological assets.
- For sale, or for transformation into agricultural produce or additional
biological assets => agricultural activity (IAS 41) – for example, the
development of cultures for use in dairy products.
7. Is the growing of plants to be used in the production of drugs an
activity within the scope of IAS 41?
Yes. If a pharmaceutical or biotechnology entity grows plants from
which particular drugs are produced
Agriculture
2. Measurement
• An entity shall recognise a biological asset or agricultural
produce 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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• A biological asset: IAS 41 requires biological assets to
be measured on initial recognition and at each balance sheet
date at their fair value less costs to sell, except in limited
circumstances.
• Agricultural produce harvested from an entity's
biological assets shall be measured at its fair value less
estimated cost to sell at the point of harvest.
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Fair value determination:
• Price for the asset in an active market.
• Recent transaction price for the asset if there is no active
market.
• Market prices for similar assets, adjusted for the points of
difference.
• Sector benchmarks.
• Present value of the future cash flows expected to be
generated from the asset.
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Cost to sell: are the incremental costs incurred in
selling the asset.
- Cost to sell include: commissions paid to brokers
and dealers, transfer taxes and duties and fees paid to
regulatory agencies or commodity exchanges.
- Costs to sell do not include: the cost of transporting
the asset to market (as this is included in its fair
value) or income taxes and finance costs.
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Accounting for Biological assets and agricultural produce
Illustration 2.1:
A farmer owned a dairy herd. At the start of the period the herd
contained 100 animals that were two years old and 50 newly
born calves. At the end of the period a further 30 calves had
been born. None of the herd died during the period. Relevant
fair value details were as follows:
Start of period End of period
$ $
Newly born calves 50 55
One-year-old animals 60 65
LO 3
Two-year-old animals 70 75
Three-year-old animals 75 80
Accounting for Biological assets and agricultural produce
Illustration 2.1:
Fair value at end of the year = (100 * $80) + (50 * $65) + (30
* $55) = $12,900
Fair value at start of the year = (100 * $70) + (50 * $50) =
$9,500
The change in the fair value of the herd is $3,400
LO 3
Accounting for Biological assets and agricultural produce
Illustration 2.1:
IAS 41 requires that the change in the fair value of the herd be
reconciled as follows:
$
Price change – opening newly born calves: 50x($55 - $50) 250
Physical change of opening newly born calves: 50x($65 - $55) 500
Price change of opening two-year-old animals: 100x($75 - $70) 500
Physical change of opening two-year-old animals: 100x($80 - $75) 500
Due to birth of new calves: 30 * $55 1,650
Total change 3,400
The costs incurred in maintaining the herd would all be charged in
LO 3
the statement of comprehensive income in the relevant period.
Agriculture
3. Recognition
Accounting for Biological assets and agricultural produce
Accounting life of a biological asset
Harvest
Additional
Acquisition and initial
costs to
of Development recognition
complete
biological costs of
assets production
agricultural
process
produce
LO 1
Accounting for Biological assets and agricultural produce
The journal entries for biological assets occur during two stages:
1. Acquire or obtain biological assets: Based on IAS 41 P10 to
P12, companies must record or measure initially and
subsequently biological assets at fair value less cost to sell
those assets. Recognize any gains or losses resulting from
the recognition.
2. At each reporting date, companies must remeasure this value.
Recognize any gains or losses resulting from the recognition.
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Accounting for Biological assets and agricultural produce
Accounting life of a biological asset
Harvest
Additional
Acquisition and initial
costs to
of Development recognition
complete
biological costs of
assets production
agricultural
process
produce
LO 1
Income under IAS 41 can be classified into:
• Initial gain or loss on biological assets.
• Changes in fair value less costs to sell of biological assets.
• Initial gain or loss on agricultural produce.
Initial gains or losses on biological assets:
- Initial loss 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.
- Initial gains arise when new biological assets are generated – for
example, when a calf or a piglet is born.
I
O
Initial gains or losses on biological assets:
Biological Asset: FV - estimated cost to sell
Cash: Purchase price
Gain/Loss on re-measurement
I
O
Changes in fair value less costs to sell of biological
assets:
- Represent the difference in value from period to
period, normally on an aggregated basis.
- Sometimes difficult to distinguish from the initial
gain due to procreation.
- The value typically increases due to growth,
procreation and higher prices, but may decrease
due to degeneration, sickness and lower prices.
I
O
Changes in fair value less costs to sell of biological
assets:
Illustration 2.1 (cont.)
Fair value at end of the year = (100 * $80) + (50 * $65) +
(30 * $55) = $12,900
Fair value at start of the year = (100 * $70) + (50 * $50) =
$9,500
The change in the fair value of the herd is $3,400
At the reporting date
Biology asset: 3,400
I
O
Illustration 2.2
ABC Co sells Woollen clothing items. It needs sheep to gather the wool. ABC
Co acquires:
- 200 1-year-old sheep during an accounting period.
- cost per unit purchased is $100
- transportation costs of $5 per sheep.
Þ Total of $21,000 includes $20,000 fair value (200 sheep x $100/unit).
+ $1,000 transportation (200 sheep x $5/ unit)
Þ Recognize BA = fair value - cost to sell = $20,000 - $1,000 = $19,000
Dr. Biological asset $19,000
Loss on re-measurement BA (P/L) $2,000
Cash $21,000
Illustration 2.2
Subsequently, ABC Co. remeasures the fair value less cost to sell these sheep.
- The company obtains the fair value for 2-year-old sheep * $120 = 24,000
- Transportation costs to sell = $5 per unit => The cost to sell will be $1,000
Þ Remeasures the fair value - cost to sell = $23,000.
Initially, recognized the sheep at $19,000.
Þ $4,000 gain. ABC Co. will record it as follows.
Biological asset $4,000
Gain on re-measurement BA (P/L)
$4,000
Initial gains or losses on agricultural produce:
- Represents the difference between the change in carrying value
of the biological assets due to harvest and the fair value less
costs to sell of the harvested agricultural produce.
- It reflects the last stage of the value creation of the biological
process, and the harvested produce is transferred to inventory
(may be include further costs involved in preparing the
inventory for market)-> Agricultural products are recorded at
the time of harvest. When the product are put into trading
activities or the production process will comply with the of
IAS 2 – Inventories
I
O
Agriculture
4. Government grants
Đầu tư TS cho DN
IAS 20 Cho DN tiền
Government grants –IAS 20
Grants Related to Assets
Grant of $400,000 for the purchase of a machine costing $1m.
- 1/10/X0, the machine is purchased, useful life = 10 years.
- 15/9/X0 The grant is received.
Present in the FS for the year ended 30 September 20X1 if Lake Co if
(i) Presents the grant separately;
Statement of financial position at 30.9.X0 $000
PPE (1,000 x 9/10) 900
Deferred income (400 x 9/10) (360)
Statement of profit or loss for the y/e 30.9.X0 $000
Depreciation (1,000 x 1/10) (100)
Grant income (400 x 1/10) 40 => phân bổ theo pp khấu hao của TS mà nó tài trợ
(ii) Offsets the grant against the carrying amount of the asset
Statement of financial position at 30.9.X0 $000
PPE (1,000-400) x 9/10 = 540
Statement of profit or loss for the y/e 30.9.X0 $000
Depreciation (1,000-400) x 1/10 = (60)
Government grants –IAS20
Grants Related to Income
Initial recognition
Dr Bank Present
Cr Deferred income (vì còn phải phân bổ cho nhiều kì)
(Recognize in income immediately if no future conditions )
Recognition as income
Over the period in which related expenses are recognized
Present as separate item of income
Or
Present netted off related expenses
Government grants – IAS 20
ABC receives the following government grants in 20X2:
[Link] of CU 40 000 to acquire a water cleaning station. The cost of the station
was CU 100 000 and its useful life is 8 years. ABC acquired the station on 1 July
20X2 and recognized depreciation on a straight-line monthly basis.
[Link] of CU 10 000 to cover the expenses for ecological measures during 20X2 –
20X5. ABC assumes to spend CU 3 000 in 20X2-20X5 and CU 2 000 in 20X6 (CU
14 000 in total).
[Link] of CU 3 000 to cover the expenses for ecological measures made by ABC in
20X0-20X1.
Prepare the journal entries in the year ended 31 December 20X2.
Government grants – IAS 20
Grant for a water cleaning station
This grant is a typical grant to acquire property, plant and
equipment. As written above, we have 2 choices to present it:
Option #1: Deferred income
ABC can credit the grant to deferred income and amortize it over
the useful life of a water cleaning station in order to match the
grant income with the relevant costs (in this case depreciation
charges).
In 20X2, ABC recognizes CU 2 500 in profit or loss (calculated
as the grant of CU 40 000 divided by 8 years times 6 monhts in
20X2 divided by 12 months in a year).
Government grants – IAS 20
Description Amount Debit Credit
SoFP – SoFP –
Receipt of the
40 000 Cash/Bank Deferred
grant
account income
P/L –
2 500 SoFP – Income
Recognition in
(40 000/8* Deferred from
P/L in 20X2
6/12) income governmen
t grant
Government grants – IAS 20
Option #2: Deduction from an asset
ABC can deduct the grant amount to arrive at carrying
amount of a water cleaning station. Then its recognition in
profit or loss is automatically reflected in depreciation
charges.
As a result, the new carrying amount of a water cleaning
station upon initial recognition is CU 60 000 (cost of CU
100 000 less grant of CU 40 000) and the annual
depreciation charge is CU 7 500 (CU 60 000 divided by
8) instead of CU 12 500 (CU 100 000 divided by 8). In
the first year, it’s CU 3 750 (6 months only).
Government grants – IAS 20
Description Amount Debit Credit
SoFP – PPE
SoFP –
Receipt of the (Water
40 000 Cash/Bank
grant cleaning
account
station)
Recognition in P/L –
SoFP – PPE
P/L in 20X2 3 750 Depreciation
(water
(within (60 000/8*6/ of water
cleaning
depreciation 12) cleaning
station)
charge) station
Government grants – IAS 20
Grant for ecological measures in 20X2-20X5
Apparently, the second grant is provided to reimburse the
expenses for ecological measures in 20X2 to 20X5. In other
words, it is a grant for current and future expenses.
ABC needs to recognize the income from grant in the periods
when relevant expenses are incurred.
In this example, we can calculate the portion recognized in
P/L in 20X2 on a proportionate basis, i.e. assumed CU 3 000
in 20X2 divided by total assumed expenses of CU 14 000
times the grant of CU 10 000.
The credit entry goes in profit or loss, but here, ABC has a
choice to present the grant income as a separate line item
(that’s easier) or to deduct it from the expenses.
Government grants – IAS 20
Description Amount Debit Credit
SoFP – SoFP –
Receipt of the
10 000 Cash/Bank Deferred
grant
account income
P/L –
2 143 SoFP – Income
Recognition in
(3 000/14 00 Deferred from grants
P/L in 20X2
0*10 000) income (or relevant
expense)
Government grants – IAS 20
Grant for ecological measures in 20X0-20X1
The third grand relates to the expenses that had already been
incurred in the previous years 20X0 and 20X1.
As a result, the grant is recognized immediately in profit or loss.
The journal entry is:
Description Amount Debit Credit
P/L –
SoFP – Income
Receipt of the
3 000 Cash/Bank from
grant
account government
grant
Government grants – IAS 41
• An unconditional government grant related to a biological asset measured =
fair value - estimated costs to sell shall be recognised as income when, and only
when, the government grant becomes receivable. (ghi nhận là income khi và chỉ khi
nó trở thành khoản phải thu => Dr gov receivable Cr income/ deferred income)
• If grant is conditional, including requirements that an entity not to engage in
specified agricultural activity, an entity shall recognise the government grant as
income when, and only when, the conditions attaching to the government grant
are met. (ghi vào income khi và chỉ khi thỏa mãn các điều kiện của CP. Nếu ko sẽ trả
lại tiền cho NN)
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Government grants – IAS 41
Example:
• Farm Improvement Grants
• Grants for New Farms
• Grants to Improve Food Access
IAS 20 does not apply to a government grant
on biological assets measured at FV less
POS costs. However, IAS 20 apply if
biological asset is measured at cost less
accumulated depreciation
Agriculture
5. Presentation & Disclosures
- Biological asset -> NCA
SOFP & SOPL -
Agriculture produce -> Inventory
- Income under IAS 41 can be classified into:
• Initial gain or loss on biological assets.
• Changes in fair value less costs to sell of biological assets.
• Initial gain or loss on agricultural produce.
• The inflows will be the price in the market of the harvested crop
for each crop over the life of the asset;
Presentation - • The outflows will be those incurred raising or growing the asset
Cashflow and getting it to market – for example, direct labour, feed,
Statement fertilizer and transport to market. The ‘market’ is where the asset
will be sold. For some assets, this will be an actual market; for
others, it may be the ‘factory gate’.
Request for disclosure of the following contents:
- Description of assets and related activities
- Profit/loss recorded during the period
- Methods and important assumptions applied in determining the value Reasonable
