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Written Report

Dimalibot, Danica A.

PAS 41 - AGRICULTURE

Objective of PAS 41

The objective of PAS 41 is to establish standards of accounting for agricultural activity -- the
management of the biological transformation of biological assets (living plants and animals) into
agricultural produce (harvested product of the enterprise's biological assets).

Scope of PAS 41 on Agriculture

PAS 41 shall be applied to account for the following when they relate to agricultural activity:

Biological assets

Agricultural produce

Government grant related to a biological asset

PAS 41 is applied to agricultural produce AT THE POINT OF HARVEST. Thereafter,


PAS 2 on inventories shall be applied.

PAS 41 does NOT deal with processing of agricultural produce AFTER HARVEST.

Key Definitions:

A biological asset is a living animal or plant.


Agricultural produce is the harvested product of the entitys biological assets.
Harvest is the detachment of produce from a biological asset or the cessation of a
biological assets life processes.

Biological Asset
Sheep
Trees in a plantation
forest
Plants
Dairy cattle
Pigs
Bushes
Vines
Fruit trees

Agricultural Produce
Wool
Logs

Products that are the result of


processing after harvest
Yarn, carpet
Lumber

Cotton, harvested cane


Milk
Carcass
Leaf
Grapes
Picked fruit

Thread, clothing, sugar


Cheese
Sausages, cured hams
Tea, cured tobacco
Wine
Processed fruit

Agricultural activity is the management by an entity of the biological transformation of


biological assets for sale, into agricultural produce, or into additional biological assets.

Example: Raising livestock, Floriculture, Aquaculture

Biological transformation comprises the processes of growth, degeneration, production,


and procreation that cause qualitative or quantitative changes in a biological asset.

Example: Production of agricultural produce such as latex, tea, leaf, wool and milk.

Initial Recognition
An enterprise should recognize a biological asset or agriculture produce only when the enterprise
controls the asset as a result of part events, it is probable that future economic benefits will flow to
the enterprise, and the fair value or cost of the asset can be measured reliably.

Measurement
Biological assets should be measured on initial recognition and at subsequent reporting dates at
fair value less estimated point-of-sale costs, unless fair value cannot be reliably measured.

Agricultural produce should be measured at fair value less estimated point-of-sale costs at the
point of harvest. Because harvested produce is a marketable commodity, there is no 'measurement
reliability' exception for produce.

The gain on initial recognition of biological assets at fair value, and changes in fair value of
biological assets during a period, are reported in net profit or loss.

A gain on initial recognition of agricultural produce at fair value should be included in net profit or
loss for the period in which it arises.

All costs related to biological assets that are measured at fair value are recognized as expenses
when incurred, other than costs to purchase biological assets.

PAS 41 presumes that fair value can be reliably measured for most biological assets. However,
that presumption can be rebutted for a biological asset that, at the time it is initially recognized in
financial statements, does not have a quoted market price in an active market and for which other
methods of reasonably estimating fair value are determined to be clearly inappropriate or
unworkable. In such a case, the asset is measured at cost less accumulated depreciation and
impairment losses. But the enterprise must still measure all of its other biological assets at fair
value. If circumstances change and fair value becomes reliably measurable, a switch to fair value
less point-of-sale costs is required.

PAS 41 sets out several ways of measuring fair value:

Quoted market price in an active market

Most recent transaction price

Market price for similar asset with adjustment to reflect any differences

Sector benchmark, such as value of a farmland per hectare or value of cattle per kilogram

Present value of expected net cash flows from the asset

EXAMPLE: Measurement of Fair Value


AT4C Company has a herd of 10 two-year-old animals was held at January 1, 2016. One animal,
aged 2.5 years, was purchased on July 1, 2016 for 108, and one animal was born on July 1,
2016. No animals were sold or disposed of during the period. Per unit fair values less estimated
point-of-sale costs were as follows:

2-year-old animal at January 1

100

Newborn animal at July 1

70

2.5-year-old animal at July 1

108

Newborn animal at December 31

72

0.5-year-old animal at December 31

80

2-year-old animal at December 31

105

2.5-year-old animal at December 31

111

3-year-old animal at December 31

120

Before separating the physical changes and the price change, it is useful to examine the overall
movement in the valuation of the herd during 2016.
FV less estimated point-of-sale costs of herd at January 1, 2016: (10 x 100)
Purchased on July 1, 2016: (1 x 108)

1,000
108
1,108

FV less estimated point-of-sale costs of herd at December 31 , 2016:


11 x 120
1 x 80

1,320
80
1,400

Therefore the movement in valuation during the period is 292 (1,400 - 1,108).

Increase in fair value less estimated point-of-sale costs due to price change:

10 x (105 100)

50

1 x (111 108)

1 x (72 70)

2
55

Increase in fair value less estimated point-of-sale costs due to physical change:

10 x (120 105)

150

1 x (120 111)

1 x (80 72)

1 x 70

70
237

TREATMENT FOR GOVERNMENT GRANT

An unconditional government grant related to a biological asset measured at its fair value
less costs to sell shall be recognized in profit or loss when, and only when, the government
grant becomes receivable.

If a government grant related to a biological asset measured at its fair value less costs to
sell is conditional, including when a government grant requires an entity not to engage in
specified agricultural activity, an entity shall recognize the government grant in profit or loss
when, and only when, the conditions attaching to the government grant are met.

If a government grant relates to a biological asset measured at its cost less any
accumulated depreciation and any accumulated impairment losses, PAS 20 on government
grant is applied.

Other Issues

a. The change in fair value of biological assets is part physical change (growth, etc.) and part unit
price change. Separate disclosure of the two components is encouraged, not required.
b. Fair value measurement stops at harvest. PAS 2, Inventories, applies after harvest.
c. Agricultural land is accounted for under PAS 16, Property, Plant and Equipment. However,
biological assets that are physically attached to land are measured as biological assets
separate from the land.

d. Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for
under PAS 38, Intangible Assets.
e. Unconditional government grants received in respect of biological assets measured at fair
value are reported as income when the grant becomes receivable.

Disclosures
Disclosure requirements in PAS 41 include:

Carrying amount of biological assets


Description of an enterprise's biological assets, by broad group
Change in fair value during the period
Fair value of agricultural produce harvested during the period
Description of the nature of an enterprise's activities with each group of biological assets
and non-financial measures or estimates of physical quantities of output during the period
and assets on hand at the end of the period
Information about biological assets whose title is restricted or that are pledged as security
Commitments for development or acquisition of biological assets
Financial risk management strategies
Methods and assumptions for determining fair value
Reconciliation of changes in the carrying amount of biological assets, showing separately
changes in value, purchases, sales, harvesting, business combinations, and foreign
exchange differences

Disclosure of a quantified description of each group of biological assets, distinguishing between


consumable and bearer assets or between mature and immature assets, is encouraged but not
required. If fair value cannot be measured reliably, additional required disclosures include:

Description of the assets


An explanation of the circumstances
If possible, a range within which fair value is highly likely to fall
Gain or loss recognized on disposal
Depreciation method
Useful lives or depreciation rates
Gross carrying amount and the accumulated depreciation, beginning and ending

If the fair value of biological assets previously measured at cost now becomes available, certain
additional disclosures are required.
Disclosures relating to government grants include the nature and extent of grants, unfulfilled
conditions, and significant decreases in the expected level of grants

Amendments
Effectivity: For annual periods beginning on or after January 1 2016
"IASB issues amendments to IAS 16 and IAS 41 for bearer plants 30 June 2014
The International Accounting Standards Board (IASB) today published amendments that change
the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. IAS 41
Agriculture currently requires all biological assets related to agricultural activity to be measured at
fair value less costs to sell. This is based on the principle that the biological transformation that

these assets undergo during their lifespan is best reflected by fair value measurement. However,
there is a subset of biological assets, known as bearer plants, which are used solely to grow
produce over several periods. At the end of their productive lives they are usually scrapped. Once
a bearer plant is mature, apart from bearing produce, its biological transformation is no longer
significant in generating future economic benefits. The only significant future economic benefits it
generates come from the agricultural produce that it creates.
The IASB decided that bearer plants should be accounted for in the same way as property, plant
and equipment in IAS 16 Property, Plant and Equipment, because their operation is similar to that
of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead
of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. Entities
are required to apply the amendments for annual periods beginning on or after 1 January 2016.
Earlier application is permitted."