IAS 41 Agriculture regulates the accounting treatment for biological assets, except for bearer plants, and for agricultural produce at the point of harvest.
Based on IAS 41, a biological asset is a living animal or plant controlled by the entity as a result of past events. Control may be through ownership or through another type of legal arrangement. Further, IAS 41 also defines biological transformation as the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative changes in a biological asset.
Biological assets are the principal assets of agricultural activities, and they are held for their transformative potential. This results in two major types of outcomes; the first may involve asset changes – as through growth or quality improvement, degeneration or procreation. The second involves the creation of separable products initially qualifying as agricultural produce.
A biological asset shall be measured on initial recognition and at the end of each reporting period at its FAIR VALUE LESS COSTS TO SELL. Agricultural produce harvested from an entity’s biological assets shall be measured at its FAIR VALUE LESS COSTS TO SELL AT THE POINT OF HARVEST. Such measurements is the cost at that date when applying IAS 2 Inventories or another applicable standard. A gain or loss arising on initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less costs to sell of a biological asset shall be included in profit or loss for the period in which it arises.
On 30 June 2014, the IASB issued Agriculture : Bearer Plants (Amendments to IAS 16 and IAS 41) which changed the accounting treatment for biological assets that meet the definition of BEARER PLANTS. Based on the amendments, bearer plants will now be within the scope of the IAS 16 and will be subject to all of the requirements therein. This includes the ability to choose between the COST MODEL and the REVALUATION MODEL for the subsequent measurement. Agricultural produce growing on bearer plants will remain within the scope of the IAS 41 Agriculture, i.e as a biological asset.
All of the following criteria as defined in the standard need to be met for a biological asset to be considered as a bearer plant. A bearer plant is defined as a living plant that : (a) is used in the production or supply of agricultural produce; (b) is expected to bear produce for more than one period; and (c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
The following are not bearer plants :
- plants cultivated to be harvested as agricultural produce (for example, trees grown for use as lumber);
- plants cultivated to produce agricultural produce when there is more than a remote likelihood that the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales (for example, trees that are cultivated both for their fruit and their lumber); and
- annual crops (for example, maize and wheat)
When bearer plants are no longer used to bear produce they might be cut down and sold as scrap, for example, for use as firewood. Such incidental scrap would not prevent the plant from satisfying the definition of a bearer plant.
The measurement requirements for bearer plants should be as follows :
- before maturity, bearer plants must be measured at their accumulated cost, similar to the accounting treatment for a self-constructed item of plant and equipment before it is available for use; and
- after the bearer plant is mature, entities have a policy choice to measure the bearer plants using either the cost model or the revaluation model
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