IAS 41

IAS 41 is an International Accounting Standard issued by the International Accounting Standards Board (IASB) that prescribes the accounting treatment and disclosures related to agricultural activity.^[1] It was a landmark standard as it introduced the fair value model for biological assets, replacing the historical cost model previously used in many jurisdictions.^[2]

Scope

IAS 41 applies to the following when they relate to agricultural activity:^[3]

1. Biological assets (e.g., living animals or plants), except for bearer plants.
2. Agricultural produce at the point of harvest.
3. Government grants related to biological assets measured at fair value.

Notably, the standard does not apply to bearer plants (e.g., fruit trees or grapevines), which are accounted for under IAS 16 Property, Plant and Equipment. However, the produce growing on those bearer plants (e.g., fruit) remains within the scope of IAS 41.^[4]

Recognition and Measurement

An entity recognizes a biological asset or agricultural produce when it controls the asset, it is probable that future economic benefits will flow to the entity, and the fair value or cost can be measured reliably.^[5]

Fair Value Measurement

Biological assets within the scope of IAS 41 are measured at fair value less costs to sell both upon initial recognition and at each reporting date.^[6]

• Agricultural produce harvested from biological assets is measured at its fair value less costs to sell at the point of harvest.^[7]
• Any gain or loss arising from the initial recognition of a biological asset at fair value, or from a change in fair value, is included in profit or loss for the period in which it arises.^[8]

Examples of Biological Assets and Produce

Biological Asset	Agricultural Produce	Product after Harvest
Sheep	Wool	Yarn / Carpet
Dairy Cattle	Milk	Cheese
Cotton Plants	Harvested Cotton	Thread / Clothing
Trees in a timber plantation	Felled Trees	Logs / Lumber

Key Concepts

Transformation

Unlike other assets, biological assets undergo biological transformation (growth, degeneration, production, and procreation). IAS 41 requires the effects of this transformation to be measured and reported. This differs from the traditional historical cost model, which often fails to capture the value added through natural growth.^[9]

Inability to Measure Fair Value

There is a rebuttable presumption that fair value can be measured reliably for a biological asset.^[10] If market-determined prices are not available and alternative estimates of fair value are determined to be clearly unreliable, the asset is measured at its cost less any accumulated depreciation and impairment losses.^[11]

Presentation and Disclosure

Entities must provide a description of each group of biological assets and, if not disclosed elsewhere, the nature of their activities and non-financial measures or estimates of physical quantities.^[12] A reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period is also required.^[13]

References

1. IAS 41.1; IAS 41.BC1.
2. IAS 41.BC2; IAS 41.BC6.
3. IAS 41.1.
4. IAS 41.5; IAS 41.BC4C.
5. IAS 41.10.
6. IAS 41.12; IAS 41.BC38.
7. IAS 41.13.
8. IAS 41.26; IAS 41.BC46.
9. IAS 41.7; IAS 41.BC15.
10. IAS 41.30.
11. IAS 41.30; IAS 41.BC50.
12. IAS 41.41; IAS 41.46.
13. IAS 41.50.