Objective
IAS 41 prescribes the accounting treatment for:
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Biological assets (living animals and plants), and
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Agricultural produce (harvested product from those biological assets),
until the point of harvest.
The main goal is to reflect fair value changes in biological assets as they grow and develop.
🌱 1. Key Definitions
| Term | Definition |
|---|---|
| Biological Asset | A living animal or plant (e.g., sheep, cows, trees, fish). |
| Agricultural Produce | The harvested product of the entity’s biological assets (e.g., milk, wool, harvested fruits). |
| Agricultural Activity | The management of biological transformation (growth, degeneration, procreation, and production) of living animals or plants for sale or for agricultural produce. |
🐄 2. Examples
| Category | Biological Asset | Agricultural Produce |
|---|---|---|
| Cattle | Dairy cow | Milk |
| Sheep | Sheep | Wool |
| Tree plantation | Apple tree | Apples |
| Plantation forest | Pine trees | Logs |
| Vineyard | Grape vines | Grapes |
| Tea plantation | Tea bushes | Tea leaves |
| Fish farm | Fish | Harvested fish |
🧾 3. Recognition Criteria
A biological asset or agricultural produce shall be recognized when:
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The entity controls the asset (owns or manages it).
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It is probable that future economic benefits will flow to the entity.
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The fair value or cost can be measured reliably.
💰 4. Measurement
At Initial Recognition and Each Reporting Date:
✅ Measure biological assets at fair value less costs to sell (FV-LCTS).
✅ Gains or losses from changes in fair value → recognized in profit or loss.
Example 1: Cattle Farm
A company purchases 10 cows at $1,000 each.
At year-end, the market value increases to $1,200 per cow.
| Item | Amount |
|---|---|
| Initial recognition (cost) | $10,000 |
| Fair value at year-end | $12,000 |
| Gain recognized in profit or loss | $2,000 |
Journal entry:
Example 2: Apple Orchard
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At year-end, the fair value of apple trees = $100,000
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Costs to sell = $5,000
→ Carrying amount = $95,000 (FV – CTS)
If last year’s carrying amount was $80,000,
→ Gain of $15,000 in profit or loss.
Agricultural Produce (at Harvest)
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Measured at fair value less costs to sell at the point of harvest.
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After harvest → becomes inventory (IAS 2) and measured at cost (which equals its FV at harvest).
Example:
Harvested grapes (fair value $10,000, selling costs $500)
→ Record $9,500 inventory (IAS 2).
🪵 5. Change from Fair Value Model
If fair value cannot be measured reliably, use cost less accumulated depreciation and impairment (temporary exception).
This situation is rare — e.g., early stages of a plantation where fair value data is not available.
🌾 6. Government Grants
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Related to biological assets measured at fair value → recognize in profit or loss when receivable.
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Related to biological assets measured at cost → apply IAS 20 (Government Grants).
Example:
Government gives $10,000 subsidy for planting new palm trees.
→ Recognize in profit or loss when receivable if trees are measured at fair value.
🔄 7. Disclosure Requirements
Entities must disclose:
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Description of biological assets.
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The methods and assumptions used to determine fair value.
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Reconciliation of changes in carrying amounts:
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Additions (purchases, births)
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Decreases (sales, harvest, death)
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Gains/losses on fair value changes
-
📘 8. Summary Table
| Item | Treatment |
|---|---|
| Biological asset | Measure at fair value less cost to sell |
| Change in fair value | Recognize in profit or loss |
| Agricultural produce (at harvest) | Measure at fair value less cost to sell (then transfer to inventory) |
| Government grants | Recognize in profit or loss when receivable (if FV model used) |
| If FV not reliable | Use cost model temporarily |
🌿 9. Simple Illustration
Example: Pine Tree Plantation
| Description | Amount |
|---|---|
| Cost at initial recognition | $50,000 |
| Fair value at year-end | $65,000 |
| Costs to sell | $2,000 |
| Carrying amount | $63,000 |
| Gain in P&L | $13,000 |
Journal Entry:
When trees are cut down (harvested), they become logs (inventory) measured at fair value less costs to sell on harvest date.
🌍 10. Main Difference from IAS 16
| IAS 41 | IAS 16 |
|---|---|
| Applies to living assets | Applies to non-living assets |
| Fair value model required | Usually cost model (unless revaluation) |
| Gains/losses go to profit or loss each year | Gains/losses only on revaluation or disposal |