CHAPTER 4

Agricultural accounting
And Biological asset
IAS 41

150
Definitions of Key Terms (in accordance with IAS 41)
• Agricultural activity – the transformation of biological assets
(living plants and animals) into agricultural produce or into other
biological asset for the purpose of sale or used in the production.

• Examples of agricultural activity include:

• Raising livestock,
• fish or poultry,
• Stud farms (for example, breeding horses or cattle), Forestry,
• Cultivating vineyards, orchards or plantations,
• Floriculture
 Questions About
Agricultural activity
• 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.
• 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 programmed carried out to produce animals for sale would be
considered agricultural activity.

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Is ocean fishing agricultural activity?
No. Harvesting biological assets from unmanaged sources, such as ocean
fishing, is not agricultural activity.

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.

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, that activity will fall within IAS 41’s scope

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•Biological assets. Living plants and animals.
What are biological assets?
• • Sheep, pigs, beef cattle, poultry and fish.
• • Dairy cows.
• • Trees in a forest.
• • Plants for harvest (for example, wheat and vegetables).
• • Trees, plants and bushes from which agricultural produce is harvested (for
example, fruit trees, vines and tea bushes).
• Harvest is the detachment of produce from a biological asset
or the cessation of a biological asset’s life processes.
• Agricultural produce. The product of the entity’s biological
assets, for example, milk and coffee beans.

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• Biological transformation leads to various different
outcomes.
• Both plants and animals are capable of undergoing
biological transformations.
✓ Asset changes:
• Growth: increase in quantity and/or quality
• Degeneration: decrease in quantity and/or quality
✓ Creation of new assets:
• Production: producing separable non-living products
• Procreation: producing separable living animals
Examples of Biological Assets
Products that are the
result of processing after
Biological Asset Agricultural Produce harvest
Sheep Wool Yarn, carpet
Trees in a plantation
forest Logs Lumber
Plants Cotton, harvested 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
Types of Biological Assets

Biological assets

Bearer Consumable
biological assets biological assets

Plant Animal
IAS 41
IAS 16 IAS 41
Produce
Types of Biological Assets
• Bearer biological assets:
Bearer plants and Animal are defined in IAS 41as a plant that
meets all the following criteria:
❑ It is used in the production or supply of agricultural produce
❑ It is expected to bear produce for more than one period
❑ It is not intended to be sold as a living plant or harvested as
agricultural produce, except for incidental scrap sales (i.e. for
firewood at the end of the plants productive life).

Example: livestock from which milk is produced, grape

vines, fruit trees and coffee trees
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Types of Biological Assets (cont’d)
• Consumable biological assets:
• Biological assets which do not meet all of
the above requirements.

Example: livestock intended for the production of

meat, livestock held for sale, fish in farms, crops
such as maize and wheat, and trees being grown
for lumber

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Identify whether each of the following biological assets is bearer or consum

Biological Asset Agricultural Produce Bearer or consumable?

Sheep Wool Bearer
Trees in a plantation forest Logs consumable
Cotton Cotton consumable
Sugarcane Harvested cane Bearer
Dairy cattle Milk Bearer
Pigs Carcass consumable
Bushes Leaf Bearer
Vines Grapes Bearer
Fruit trees Picked fruit Bearer
 Exclusions

IAS 41does not apply to:

✓ Land related to agricultural activity (see IAS 16 Property,
Plant and Equipment and IAS 40 Investment Property).
✓Bearer plants related to agricultural activity (see IAS
16). However, IAS 41 applies to the produce on those
bearer plants.
✓Government grants related to bearer plants (see IAS 20
Accounting for Government Grants and Disclosure of
Government Assistance).
✓Intangible assets related to agricultural activity (see IAS
38 Intangible Assets).
✓Harvested agricultural produce (IAS 2, Inventory).
However, it does apply to produce growing on bearer
plants.
164
Presentation
• In the statement of financial position biological assets should be
classified as a separate class of assets falling under neither current
nor non-current classifications.

• Biological assets should also be sub-classified (either on the face of

the statement of financial position or as a note to the accounts).

✓ Class of animal or plant

✓ Nature of activities (consumable or bearer)
✓ Maturity or immaturity for intended purpose
Disclosures
• An entity shall disclose the aggregate gain or loss that arises on the
initial recognition of biological assets and agricultural produce and
from the change in value less estimated point-of sale costs of the
biological assets.

• A description of each group of biological assets is also required.

• The methods and assumptions applied in determining fair value

should also be disclosed.
 Disclosure…
• The fair value less estimated point-of-sale costs of agricultural produce harvested
during the period shall be disclosed at the point of harvest
• The existence and carrying amounts of biological assets whose title is restricted and
any biological assets placed as security should be disclosed.

• The amount of any commitments for the development or acquisition of biological

assets and management’s financial risk strategies should also be disclosed.

• A reconciliation of the changes in the carrying amount of biological assets showing

separately changes in value, purchases, sales, harvesting, business combinations,
and exchange differences should be disclosed.
• Regarding government grants, disclosures should be made as to the nature and
extent of the grants, any conditions that have not been fulfilled, and any significant
decreases in the expected level of the grants.

• Regarding government grants, disclosures should be made as to the nature and

extent of the grants, any conditions that have not been fulfilled, and any significant
decreases in the expected level of the grants.
45) The Anemone Company owns a number of herds of cattle. Where
should changes in the fair value of a herd of cattle be recognised in the
financial statements, according to IAS41 Agriculture?
A) In profit or loss only
B) In other comprehensive income only
C) In profit or loss or other comprehensive income
A
D) In the statement of cash flows only
46) According to IAS41 Agriculture, which one of the following items would
be classified as biological assets?

A) Oranges
B) Milk
C) Eggs
D) Trees

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47) Are the following statements about classification according to IAS41
Agriculture true or false?
Statement 1
Sugar should be classified as agricultural produce.
Statement 2
Wool should be classified as agricultural produce.

A) Statement 1: False, Statement 2: False

B) Statement 1: False, Statement 2: True
C) Statement 1: True, Statement 2: False
D) Statement 1: True, Statement 2: True B

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48) Where there is a long aging or maturation process after harvest, the
accounting for such products should be dealt with by

• a. IAS 41.

• b. IAS 2, Inventories.

• c. IAS 16, Property, Plant, and Equipment.

• d. IAS 40, Investment Property.

B

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49) It is the management by an entity of the biological transformation and
harvest of biological assets for sale or for conversion into agricultural produce or
into additional biological assets.
A. Agricultural activity
B. Biological activity
C. Development activity
A
D. Economic activity

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50) Where the fair value of the biological asset cannot be determined
reliably on initial recognition, the biological asset should be measured at
• a. Cost.
• b. Cost less accumulated depreciation.
• c. Cost less accumulated depreciation and accumulated impairment losses.
• d. Net realizable value.

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51) According to IAS41 Agriculture, which TWO of the following criteria must
be satisfied before a biological asset can be recognised in an entity's financial
statements?

1. The entity controls the asset as a result of past events

2. It is probable that economic benefits relating to the asset will flow to the
entity

3. An active market for the asset exists

4. The asset forms a homogenous biological group

1 and 2

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52) Which of the following is outside the scope of IAS 41?
A. dairy cattle used in the production of milk
B. chickens used in the production of meat
C. rice plants and other crops that produce agricultural products only once
D. mango trees and other plants that produce agricultural products
repeatedly over a long period of time

D
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53) A bearer plant is a living plant that:

• a. is used in the production or supply of agricultural produce

• b. has a remote likelihood of being sold as agricultural produce, except
for incidental scrap sales

• c. is used to bear produce for more than one period

• d. must possess all of these characteristics

D
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146) ………………is the management of the biological
transformation and harvest of biological assets for sale or for
conversion into agricultural produce or into additional biological
assets.
•
a. Agricultural activity
•
b. Agricultural management
•
c. Biological transformation A
•
d. Biological management
147) Which of the following does define “bearer plant”?

A) A living plant that is used in the production or supply of agricultural

produce
B) A living plant that is expected to bear produce for more than one period
C) A living plant that has a remote likelihood of being sold as agricultural
produce, except for incidental scrap sales
D) A and C
E) All of the above
E
148) It Entity IQ had a plantation forest that is likely to be harvested and
sold in 30 years, in which way should the income be accounted for?

A. Income should be measured annually and reported using a fair value

that recognizes and measures biological growth.

B. The plantation forest should be valued every five years and the increase
in value should be shown in the statement of recognized gains and
losses.

C. No income should be reported until first harvest and sale in 30 years.

D. The eventual sale proceeds should be estimated and matched to the

profit and loss account over the 30- year period
A
149) When agricultural produce is harvested, the harvest
should be accounted for by using IAS 2 Inventories, or another
applicable International Accounting Standard. For the purposes
of that Standard, cost at the date of harvest is deemed to be

A. Its fair value less estimated point-of-sale costs at point of

harvest.

B. The historical cost of the harvest.

A
C. Market value

D. The historical cost less accumulated impairment losses

• 150) PS is a farmer and is concerned how to apply IAS 41, Agriculture on his
financial statements. Which of the following assets owned by PS is subject
to the standard?
• A. 3,000 liters of milk waiting for collection by the local milk processing
entity
• B. License from the government allowing to produce 2,500 liters of milk per
day
• C. 200 hectares of land on which the cows feed
• D. A head of 100 cows held for the production of milk
• E. All
• F. None
D
34) The following items explain unique characteristics of biological assets,
except:
• A) Great deal of increase in value resulting from the input of goods.
• B) Natural capacity to grow or procreate poses an impact on value.
• C) Generally, short production or growing cycle of assets.
• D) Many costs early in the life, economic benefits until many years later.
❑ The natural capacity of biological assets to grow and/or procreate that has a direct impact on the value
of assets;
❑ A great deal of increase in value of biological assets resulting from the input of free goods such as sun, air
C and water;
❑ The many of the costs are incurred early in the life of assets, yet the economic benefits are not derived
until many years later;
❑ The long production (growing cycle) of assets, which having a direct impact on the issue when to
recognize the revenue from these assets; and
❑ There is not necessarily any relationship between the expenditure on the asset and their ultimate
benefits due to unforeseen circumstances such as droughts, floods, variations in qualities of soil and so
on.