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SCOPE
This Standard shall be applied to account for the
following when they relate to agricultural
CPA SESSION. activity:
• Biological assets, except for bearer plants;
Topic: IAS 41-Agriculture. • Agricultural produce at the point of harvest;
and
• Government grants

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SCOPE
Definitions
This Standard does not apply to: • Agricultural activity is the management by an entity of the
• Land related to agricultural activity biological transformation and harvest of biological assets for
sale or for conversion into agricultural produce or into
• Bearer plants related to agricultural activity additional biological assets.
• Agricultural produce is the harvested produce of the entity’s
• Government grants related to bearer plants biological assets.
• Intangible assets related to agricultural activity . • A bearer plant is a living plant that:
– is used in the production or supply of agricultural
• Right-of-use assets arising from a lease of land produce;
related to agricultural activity. – is expected to bear produce for more than one period; and
– has a remote likelihood of being sold as agricultural
produce, except for incidental scrap sales.
• A biological asset is a living animal or plant.

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EXAMPLES
Definitions
• Biological transformation comprises the processes of
growth, degeneration, production, and procreation that
cause qualitative or quantitative changes in a biological asset.
• Costs to sell are the incremental costs directly attributable to
the disposal of an asset, excluding finance costs and income
taxes.
• A group of biological assets is an aggregation of similar
living animals or plants.
• Harvest is the detachment of produce from a biological asset
or the cessation of a biological asset’s life processes.

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Features of Agriculture Recognition and measurement

• Capability to change. Living animals and plants are capable Recognition:
of biological transformation;
An entity shall recognise a biological asset or
• Management of change. Management facilitates biological agricultural produce when, and only when:
transformation by enhancing, or at least stabilizing,
conditions necessary for the process to take place (for (a) the entity controls the asset as a result of past
example, nutrient levels, moisture, temperature, fertility, and events;
light). (b) it is probable that future economic benefits
• Measurement of change. The change in quality (for example, associated with the asset will flow to the entity; and
genetic merit, density, ripeness, fat cover, protein content, and
fibre strength) or quantity (for example, progeny, weight, (c) the fair value or cost of the asset can be measured
cubic metres, fibre length or diameter, and number of buds) reliably.
brought about by biological transformation or harvest is
measured and monitored as a routine management function.
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Recognition and measurement

Recognition and measurement Determination of fair value
• If there is an active market for a biological asset or agricultural
Measurement. produce in its present location and condition, the price quoted
• A biological asset shall be measured on initial in the market will be the fair value of the asset or the produce.
recognition and at the end of each reporting • If an entity has access to different active markets, the entity
period at its fair value less costs to sell. uses the most relevant market
• Agricultural produce harvested from an • An active market is a market where all the following conditions
entity’s biological assets shall be measured at exist
its fair value less costs to sell at the point of – The items traded within the market are homogeneous.
harvest. Such measurement is the cost at that – Willing buyers and sellers can normally be found at any
date when applying IAS 2 Inventories or time.
another applicable Standard. – Prices are known to the public.

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Recognition and measurement Recognition and measurement

• If an active market does not exist, the entity can use
one of the following for the determination of fair
value: Example 1
– The most current market transaction price. Supreme Ltd purchased 100 sheep at an auction for
Tshs60 million on 31December 2023. The auctioneer’s
– Market prices for similar assets with adjustment fees amounted to be 1% of sales price. At what value
to show differences. would the sheep be measured in the statement of
financial position and what gain / loss would be shown in
– Sector benchmark such as the value of cattle the statement of profit or loss?
expressed per kilogram of meat. Suppose the fair value of the sheep rises to Tshs70 million
– Income approach on 30 June 2023.
At what value would the sheep be measured in the
– Net realizable value statement of financial position and what gain / loss would
be recognised in the statement of profit or loss?

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Recognition and measurement Recognition and measurement

Solution Presentation of gains and losses
• The company purchased 100 sheep at an auction for Tshs60 • A gain or loss arising on initial recognition of a
million, and the auctioneer’s fees were Tshs0.6 million (1% biological asset at fair value less costs to sell and from a
of Tshs60 million). change in fair value less costs to sell of a biological
• The fair value of the sheep on 31 December would be asset shall be included in profit or loss for the period in
Tshs59.4 million (Tshs60 million – Tshs0.6 million) and it will which it arises.
be shown in the statement of financial position.
• A gain or loss arising on initial recognition of
• A loss of Tshs0.6 million would be shown in the statement of agricultural produce at fair value less costs to sell shall
profit or loss. When the fair value of the sheep rises to
Tshs70 million on 30 June 20X6, be included in profit or loss for the period in which it
arises.
• The sheep would be measured at Tshs69.30 million (Tshs70
million – Tshs0.7 million). • A fair value gain or loss may be presented by showing
• A gain of Tshs9.9 million (Tshs69.3 million - Tshs59.4 million) separately a fair value change attributable to price
would be reflected in the statement of profit or loss. change and physical change.
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Recognition and measurement

Recognition and measurement Example 3
On 1 January 2021, a farmer had a herd of 100 cows, all of which were 2 years old.
At this date, the fair value less point of sale costs of the herd was $10,000. On 1 July
Example 2 2021, the farmer purchased 20 cows (each two and half years old) for $60 each.
A herd of five 4 year-old pigs was held on 1 January 2023. As at 31 December 2021, three year old cows sell at market for $90 each.
On 1 July 2023 a 4.5 year-old pig was purchased for $212. Market auctioneers have charged a sales levy of 2% for many years.
The fair values less estimated point of sale costs were: Required: Discuss the accounting treatment of the above in the financial
statements for the year ended 31 December 2021.
• 4 year-old pig at 1 January 2023 is $200
• 4.5 year-old pig at 1 July 2023 is $212 Answer
Cows are biological assets and should be initially recognised at fair value less costs
• 5 year-old pig at 31 December 2023 is $230 to sell.
• The cows purchased in the year should be initially recognised at $1,176 ((20 ×
$60) × 98%). This will give rise to an immediate loss of $24 ((20 × $60) –
Required: Calculate the amount that will be taken to the $1,176) in the statement of profit or loss. At year end, the whole herd should be
statement of profit or loss for the year ended 31 revalued to fair value less costs to sell. Any gain or loss will be recorded in the
December 2023. statement of profit or loss. The herd of cows will be held at $10,584 ((120 × $90)
× 98%) on the statement of financial position. This will give rise to a further loss
of $592 in the statement of profit or loss.
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Recognition and measurement Recognition and measurement

Example 4 Answer
• GoodWine is a company that grows and harvests grapes. Grape vines, • Land is accounted for in accordance with IAS 16 Property, Plant and
which produce a new harvest of grapes each year, are typically replaced Equipment. If the revaluation model is chosen, then gains in the fair
every 30 years. Harvested grapes are sold to wine producers. With value of the land should be reported in other comprehensive income.
regards to property, plant and equipment, GoodWine accounts for land • At 30 June 20X2, the land should be revalued to $2.1m and a gain of
using the revaluation model and all other classes of assets using the $100,000 ($2.1m – $2.0m) should be reported in other comprehensive
cost model. income and held within a revaluation reserve in equity.
• On 30 June 20X1, its grape vines had a carrying amount of $300,000 • The grape vines are used to produce agricultural produce over many
and a remaining useful life of 20 years. The grapes on the vines, which periods. This means that they are bearer plants and are therefore also
are generally harvested in August each year, had a fair value of accounted for under IAS 16. Except for land, GoodWine uses the cost
$500,000. The land used for growing the grape vines had a fair value of model for property, plant and equipment. Therefore, depreciation of
$2m. $15,000 ($300,000/20 years) will be charged to profit or loss in the year
• On 30 June 20X2, grapes with a fair value of $100,000 were harvested and the grape vines will have a carrying amount of $285,000 ($300,000
early due to unusual weather conditions. The grapes left on the grape – $15,000) at 30 June 20X2.
vines had a fair value of $520,000. The land had a fair value of $2.1m.
• All selling costs are negligible and should be ignored.
Required: Discuss the accounting treatment of the above in the financial
statements of GoodWine for the year ended 30 June 20X2.
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Recognition and measurement

Recognition and measurement Example 5
McDonald operates a dairy farm. At 1 January 2021,
• The grapes growing on the vines are biological assets. They
should be revalued at the year end to fair value less costs to sell
he owns 100 cows worth $1,000 each on the local
with any gain or loss reported in profit or loss. GoodWine's market. At 31 December 2021, he owns 105 cows
biological assets should therefore be revalued to $520,000. A worth $1,100 each. During 2021 he sold 40,000
gain of $20,000 ($520,000 – $500,000) should be reported in gallons of milk at an average price of $5 a gallon.
profit or loss. When cows are sold at the local market, the
• The grapes are agricultural produce and should initially be auctioneer charges a commission of 4%.
recognised at fair value less costs to sell. Any gain or loss on
initial recognition is reported in profit or loss. The harvested
Required: Show extracts from the financial
grapes should be initially recognised at $100,000 with a gain of statements for 2021 for these activities, assuming
$100,000 reported in profit or loss. The harvested grapes are that no cows were purchased or sold during the
now accounted for under IAS 2 Inventories and will have a year.
deemed cost of $100,000.

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Government grants Government grants

• An unconditional: NOTE:
Unconditional government grant related to a biological asset
measured at its fair value less costs to sell shall be recognised in If a government grant relates to a biological
profit or loss when, and only when, the government grant asset measured at its cost less any
becomes receivable.
accumulated depreciation and any
• Conditional accumulated impairment losses, IAS 20 is
If a government grant related to a biological asset measured at applied.
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 recognise the government
grant in profit or loss when, and only when, the conditions
attaching to the government grant are met.
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Government grants Government grants

Example 6 Example 8
Bhatt Company is in the business of cultivating and selling rice. The Bush Co grows fruit trees using inorganic methods. Now, it wants to grow the
trees using organic methods. In order to assist with the costs of converting to
company has offered grants to growers as an incentive to remain in the organic farming, government grants are available for the next five years;
industry. The grants will be given at the end of each of the next three provided the land is registered with an organic inspection body throughout
years. the next five years and the company does not revert to traditional methods
during these years.
• This grant will be recognised at the end of each of the three years,
Required:
when the grant is receivable.
When will the grant be recognised as income?

Example 7 Answer
A government grant may require an entity to farm in a particular • The government grant should be recognised as income when the land gets
location for four years and require the entity to return the entire registered and the grant becomes non-refundable.
government grant if it farms for less than four years. • The reason behind this is that the company has taken a conditional grant
and, according to IAS 41, the government grant can be recognised as
• In this case, the government grant is not recognised as income income only when the condition is satisfied.
until four years have passed.
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DISCLOSURES
DISCLOSURES • An entity shall present a reconciliation of changes in the carrying
General disclosures: amount of biological assets between the beginning and the end of the
current period. The reconciliation shall include:
• An entity shall disclose the aggregate gain or loss arising
during the current period on initial recognition of biological – the gain or loss arising from changes in fair value less costs to sell;
assets and agricultural produce and from the change in fair – increases due to purchases;
value less costs to sell of biological assets. – decreases attributable to sales and biological assets classified as held
• An entity shall provide a description of each group of for sale (or included in a disposal group that is classified as held for
biological assets sale) in accordance with IFRS 5;
• An entity shall disclose: – decreases due to harvest;
– the existence and carrying amounts of biological assets – increases resulting from business combinations;
whose title is restricted, and the carrying amounts of – net exchange differences arising on the translation of financial
biological assets pledged as security for liabilities; statements into a different presentation currency, and on the
– the amount of commitments for the development or translation of a foreign operation into the presentation currency of
acquisition of biological assets; and the reporting entity; and
– financial risk management strategies related to agricultural – other changes
activity. Compiled by Godson Leonard Compiled by Godson Leonard

DISCLOSURES DISCLOSURES
Additional disclosures. • Government grants
• If an entity measures biological assets at their cost less any
accumulated depreciation and any accumulated impairment An entity shall disclose the following related to agricultural activity
losses at the end of the period, the entity shall disclose for such covered by this Standard:
biological assets: – the nature and extent of government grants recognised in the
– (a) a description of the biological assets; financial statements;
– an explanation of why fair value cannot be measured reliably; – unfulfilled conditions and other contingencies attaching to
– if possible, the range of estimates within which fair value is government grants; and
highly likely to lie;
– the depreciation method used; – significant decreases expected in the level of government
– the useful lives or the depreciation rates used; and grants.
– the gross carrying amount and the accumulated depreciation
(aggregated with accumulated impairment losses) at the
beginning and end of the period.

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REVIEW QUESTIONS REVIEW QUESTIONS

QUESTION 1 Required:
A herd of 20, 4 - year old animals was held in Marigold Source farms as at 1
January 2023, valued at Tshs200,000. (i) The change in fair value less costs to sell
The following transactions took place during the year: On 1 July 2023:
• One animal aged 4.5 years was purchased for Tshs210,000 showing:
• One animal was born
No animal was sold or disposed of.
• The portion attributable to the price change
The per-unit fair values less costs to sell were as follows: • The portion attributable to physical changes
Tshs’000
4 - year old animal on 01/01/2023 200 (ii) The carrying cost of the herd as at 31
Newborn animal on 01/07/2023 150 December 2023.
4.5 - year old animal on 01/07/2023 210
Newborn animal on 31/12/ 2023 155 (iii) An extract of the livestock account for the year
0.5 - year old animal on 31/12/2023 170
4 - year old animal on 31/12/ 2023 205 to 31 December 2023.
4.5 - year old animal on 31/12/ 2023 220
5 - year old animal on 31/12/2023 230
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REVIEW QUESTIONS REVIEW QUESTIONS

QUESTION 2 • On 1st April 2014, 50 calves were born. Kayumba’s established mortality
Since Tanzania’s attainment of independence, agriculture has been the rate for her biological assets (which she incorporates in her financial
mainstay of the economic activities in most rural and peri-urban areas. In
order to regulate accounting practice in agricultural undertakings, the statements in line with best practice and prudence) is 10% per annum
International Accounting Standards Board (IASB) developed an accounting of every birth or purchase. Apart from the foregoing, she recorded no
standard, IAS 41: Agriculture. Kayumba, an emerging female farmer located other changes in the number of animals during the year ended 30th
in central province, prepares financial statements to 30th September each
year in order to align the financial year to major agricultural activities. September 2014. At year-end (30th September 2014), Kayumba had
On 1st October 2013, Kayumba carried-out the following transactions: 100 litres of unsold milk. This milk was sold shortly after year end at
• Purchased a large piece of traditional land in Mkuki farming block for TZS. the prevailing market price.
1 billion. • Information regarding fair value is as follows:
• Purchased 100 dairy cows (with average age of two years), costing TZS.50
million in total. Item Fair value less point of sale costs at
• Received a non-refundable grant of TZS.20,000,000 towards acquisition of 30th September 2014 (TZS)
these cows. • Land 1.2 billion
During the year ended 30th September 2014, Kayumba incurred the following
costs: • Six month old calves (per calf) 125,000
• TZS.25,000,000 to maintain the condition of her animals (food and disease • Three year old cows (per cow) 685,000
protection).
• Milk (per litre) 3,000
• TZS.15,000,000 in breeding fees to a local farmer.
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REVIEW QUESTIONS
REVIEW QUESTIONS QUESTION 3
a) Agriculture is one world’s largest industry. In some countries it is the
maintay of the gross domestic product. Yet until January 2003 when the
IASB issued IAS 41 Agriculture, no major accounting standard setting body
REQUIRED: had issued a comprehensive pronouncement on this topic. IAS 41
a) State the provisions of IAS 41: Agriculture, regarding introduced what some would say are radical changes in the way
agricultural enterprises should account for biological assets.
recognition and measurement of biological assets and REQUIRED:Define biological assets and explain how IAS 41 requires them to
agricultural produce in the preparation and presentation of be treated in the financial statements.
financial statements. b) Miti Safi na Nyuki Brothers (MSNB) is a Limited Company that was
incorporated to invest in forest and bee resources in general and to
b) Prepare extracts of the statement of comprehensive income collect forestry and beekeeping revenues. As at 30th June 2018, it had a
and the Statement of Financial Position that show how forest plantation in the Sourthen Highland part of Tanzania in Njombe
transactions entered into by Kayumba in respect of purchase region consisting of 250,000 Eucalyptus trees were planted 2 years
earlier.
and maintenance of the dairy herd would be reflected in the • Maturity and ideal harvesting age of Eucalyptus trees are dependent on
financial statements of the entity for the year ended 30th the intended purpose or market. The harvesting age significantly varies
September 2014. from 3 to 4 years (construction poles), 8 to 15 years (transmission poles) to
as late as 20 years for timber production. The company’s weighted average
cost of capital is 9% per annum.
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REVIEW QUESTIONS REVIEW QUESTIONS

• The accountants of the MSNB were unable to value the 250,000 QUESTION 6
Eucalyptus trees for inclusion in the company’s statement of financial Delta is a farming entity specialising in milk production. Cows are
position as biological assets as only mature Eucalyptus trees for timber milked on a daily basis. Milk is kept in cold storage immediately
production had established fair values by reference to a quoted price in an after milking and sold to retail distributors on a weekly basis. On 1
active market. The fair value (inclusive of current transport costs) for a April 20X4, Delta had a herd of 500 cows which were all three years
mature tree for timber production of the same grade as in the plantation old.
is:
As at 1st July 2017: TZS 6,000 • During the year, some of the cows became sick and on 30
As at 30th June 2018: TZS 7,000 September 20X4 20 cows died. On 1 October 20X4, Delta
REQUIRED:
purchased 20 replacement cows at the market for $210 each.
These 20 cows were all one year old when they were purchased.
i. Determine the amount of the biological asset to be reported as at 1st
July 2017 and 30th June 2018 • On 31 March 20X5, Delta had 1,000 litres of milk in cold storage
ii. Determine the total fair value change of the immature trees during the which had not been sold to retail distributors. The market price of
year ended 30th June 2018 milk at 31 March 20X5 was $2 per litre. When selling the milk to
iii. Determine the gain or loss due to changes in fair values as a result the distributors, Delta incurs selling costs of 10 cents per litre. These
year effects of change in market price, and amounts did not change during March 20X5 and are not expected
iv. Determine the gain or loss due to changes in fair values as a result of the to change during April 20X5.
physical change (growth) of the trees in the forest plantation.

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REVIEW QUESTIONS
Information relating to fair value and costs to sell is given below: IAS 41 AGRICULTURE.
Date Fair value of a dairy cow which is: Costs to sell a cow at market
1 year old 1½ years old 3 years old 4 years old
$ $ $ $ $
1 April 20X4 200 220 270 250 10
1 October 20X4 210 230 280 260 10
31 March 20X5 215 235 290 265 11
Required:
Using the information above, explain, with appropriate computations, how Delta THE END!!!!
should report transaction in the financial statements for the year ended 31 March
20X5.

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