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]

Disclosure Requirements (IAS 41)

IAS 41 requires an entity to provide a description of each group of biological assets and the methods and significant assumptions used in determining the fair value of each group of agricultural produce and biological assets. ^[14]

Paragraph	Category	Disclosure Requirement	Description / Examples
IAS 41.40	General	Aggregate Gain or Loss	The aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell.
IAS 41.41	Descriptions	Groups of Assets	A description of each group of biological assets (e.g., livestock, orchards, plantations).
IAS 41.43		Quantities of Assets	A description of the nature of an entity's activities involving each group of biological assets and non-financial measures or estimates of physical quantities.
IAS 41.47	Valuation	Methods and Assumptions	The methods and significant assumptions applied in determining the fair value of each group of agricultural produce at the point of harvest and each group of biological assets.
IAS 41.50		Reconciliation of Movements	A reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period, distinguishing between physical changes and price changes.
IAS 41.49	Restrictions	Commitments & Pledges	The existence and carrying amounts of biological assets whose title is restricted, and the amount of commitments for the development or acquisition of biological assets.
IAS 41.54	Cost Model Exception	Fair Value Not Reliable	If biological assets are measured at cost (because fair value cannot be measured reliably), disclosure of the description of the assets, an explanation of why fair value is not reliable, and the depreciation method/lives used.
IAS 41.57	Government Grants	Grant Details	The nature and extent of government grants recognized in the financial statements and any unfulfilled conditions attached to them.

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.
14. IASB. IAS 41, Paragraph 40-57.