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Lease arrangements
Biological assets may be subject to lease arrangements.
Where the lease is a finance lease, the lessee should
recognise and measure the assets as biological assets
rather than leased assets [IAS17.2(c)(R.05)]. Similarly,
where the lease is an operating lease, the lessor
recognises the leased assets as biological assets,
because it is assumed to have the risks and benefits
of the leased assets [IAS17.2(d)(R.05)]
.
Land related to agricultural activity
Many biological assets are physically attached
to land, for example trees in a forest. IFRS do
not establish any specific accounting principles
for land related to agricultural activity. The land
is subject to the recognition and measurement rules
for PPE [IAS41.2].
Initial recognition
The initial recognition of biological assets is
subject to the general recognition criteria for
assets set out in the Framework and IFRS .
The entity must demonstrate
control over the asset that will generate future
benefits that can be measured reliably [IAS41.10].
Control over biological assets would usually be
evidenced by legal ownership, and for example the
branding or marking of cattle on acquisition or
birth [IAS41.11].
Initial recognition will occur at the point of
purchase, or when biological assets are generated
from existing assets, such as calves from livestock.
Agricultural produce that is attached to a biological
asset, such as wool to sheep and grapes to the vine,
is not recognised separately.
A gain may arise on initial recognition of a biological
asset at fair value. The change in fair value should
be recognised in income in the period in which it
arises [IAS41.26].
Government grants
The recognition of government grants related to
a biological asset differs, depending on whether
the entity measures the asset at fair value or at
cost. An unconditional grant that relates to an
asset measured at fair value should be recognised
as income when it becomes receivable [IAS41.34].
Where there are conditions associated with a government
grant, such as the entity engaging or not engaging
in a particular activity, then the entity should
recognise the grant when the conditions are met
[IAS41.35].
Grants received in respect of biological assets
which are carried at cost less depreciation and
impairment should be recognised in income over the
periods necessary to match them with the related
costs they are intended to compensate, on a systematic
basis [IAS41.37][IAS20.12].
Initial measurement
IFRS include a presumption that an entity can establish
a fair value for biological assets [IAS41.30]. On
initial recognition, an entity must measure biological
assets at fair value less estimated point-of-sale
costs [IAS41.12]. An entity may rebut this presumption
in rare circumstances where a market-determined
price is not available, or the entity cannot make
a reliable estimate of fair value in which case the entity recognises
the biological assets at cost [IAS41.30]. Where,
however, biological transformation takes place over
a very lengthy period and the qualitative change
in the asset in the early periods is minimal, it
is possible for cost to approximate fair value.
Establishing fair value
The identification of fair value is key to the measurement
of biological assets. Where an active market for
a biological asset exists, the market-determined
price is the appropriate basis for determining fair
value [IAS41.17]. An active market exists where;
the items traded have the same sort of features;
where willing buyers and sellers participate in
the market; and where prices are available to the
public [IAS41.8] . Market prices
should be used regardless of management's intentions.
For example, the market price of a calf held for
the purpose of beef production is determined by
observing the market prices for calves in a market
where potential buyers may have different intentions
in relation to the calves. This information is useful
to the user in assessing the future economic benefits
that could currently be obtained from the calf.
An entity may have access to a number of markets
through which it can trade its product. The relevant
price is the market price in the market that the
entity expects to trade in [IAS41.17].
Where an active market does not exist, the entity
may use other methods to approximate fair value.
The most recent transaction price struck between
the entity and a third party is appropriate, provided
that prices are fairly stable [IAS41.18(a)]. Alternatively,
an entity may use the market price for similar assets,
provided that appropriate adjustments are made to
reflect differences in the assets' quality [IAS41.18(b)].
An entity may use sector benchmarks to derive fair
value, such as the value of fruit trees per hectare
or the value of dairy cattle per kilogram of meat
[IAS41.18(c)]. These prices may not however reflect
the value of a biological asset in its current condition.
For example, the fruit trees may not be of a size
that they can be traded. An entity may derive a
fair value from the present value of expected cash
flows (for the fully-grown fruit tree) discounted
at a market-determined pre-tax rate [IAS41.20];
less the costs anticipated to be incurred until
the fruit tree reaches maturity [IAS41.20] .
Biological assets may be physically attached to
land, for example fruit trees, vines and sugar cane.
While a market may not exist for the biological
asset as such there may be an active market for
the combined asset. The entity may use the market
price of the plantation to approximate fair value
[IAS41.25].
Entities may enter into forward-contract type arrangements
to sell agricultural assets at some future date.
IFRS do not permit the use of forward-contract prices
as a means of estimating fair value, as it reflects
the market conditions anticipated at some future
date rather than currently [IAS41.16]
Measurement subsequent to initial recognition
Subsequent to initial recognition, an entity should
re-measure biological assets at fair value [IAS41.12]
. The entity may recognise biological
assets at cost where a fair value could not be determined
reliably; however, once a fair value for biological
assets has been established, the entity must continue
to measure on that basis [IAS41.30] .
Biological assets carried at cost are subject to
depreciation .
Increases or decreases in the fair value of a
biological asset should be recognised in the income
statement as gains or losses [IAS41.26]. The change
in fair value may be attributable to physical changes
or changes in market prices of biological assets
[IAS41.51].
Recognition and measurement of the sale of biological assets
The transaction to reclassify biological assets
to inventory should be measured at its fair value
less estimated point of sale costs. The measurement
at that date then becomes the cost when applying
IAS 2 .
The transaction to recognise a sale of biological
assets should be measured at the fair value of the
cash received, with the assets derecognised at their
fair value. Recognition of the sale does not therefore
trigger the recognition of a gain or loss in the
income statement.
Subsequent expenditure
An entity will usually continue to incur expenditure
throughout the life of a biological asset. Provided
that the expenditure meets the asset recognition
criteria, the entity should capitalise subsequent
expenditure and include it as part of the carrying
amount of biological assets. This treatment is appropriate
for biological assets measured using either fair
value or cost.
Impairment
Biological assets measured at cost must be tested
for impairment
[IAS36.2(g)(R.05)].
Presentation and disclosure
Financial disclosures
An entity should disclose:
| a) |
the aggregate gain or loss
arising during the period on initial recognition
of biological assets and agricultural produce
[IAS41.40]; |
|
| b) |
the aggregate gain or loss arising during
the period from changes in fair value, less
estimated point-of-sale costs from the subsequent
measurement of biological assets [IAS41.40]; |
|
| c) |
the fair value less estimated point-of-sale
costs of agricultural produce harvested during
the period [IAS41.48]; |
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| d) |
a reconciliation of changes in the carrying
amounts of biological assets between the beginning
and the end of the current period under the
fair value and cost approaches [IAS41.50]; and |
|
| e) |
the net gain or loss recognised on the
disposal of biological assets where they are
measured at cost [IAS41.55]. |
Non-financial disclosures
An entity should:
| a) |
present a description of each
group of biological assets; this may take the
form of a narrative of quantitative description
[IAS41.41]; |
|
| b) |
describe the nature of its activities
involving each group of biological assets
[IAS41.46(a)]; |
|
| c) |
disclose physical quantities of each group
of biological assets at the end of the period
[IAS41.46(b)(i)]; |
|
| d) |
disclose the output of agricultural produce
during the period [IAS41.46(b)(ii)]; |
|
| e) |
describe the methods and significant assumptions
applied in determining the fair value of each
group of agricultural produce, and each group
of biological assets [IAS41.47]. |
|
| f) |
disclose the existence [IAS41.49(a)] of
biological assets whose title is restricted
and/or pledged as liabilities; |
|
| g) |
the amount of commitments for biological
assets [IAS41.49(b)]; |
|
| h) |
describe the financial risk management
strategies related to agricultural activity
[IAS41.49(e)]; |
|
| i) |
where during the period the fair value
becomes the measurement basis, the entity should
disclose that fact and include an explanation
for the change and the effect of the change
[IAS41.56]; and |
|
| j) |
describe the nature and extent of government
grants recognised, unfulfilled conditions attaching
to such grants and any decreases expected in
the level of government grants [IAS41.57]. |
Other disclosures
IFRS require additional disclosures for biological
assets where the entity cannot measure fair value
reliably and adopts the cost (less any accumulated
depreciation) method. In this case the entity must
disclose [IAS41.54]: a description of the biological
assets; an explanation of why fair value cannot
be measured reliably; a range of estimates where
fair value is likely to be; the depreciation method
used; and the useful lives and the gross carrying
amount of the assets at the beginning of the period.
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