International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
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‘(a) asset changes through (i) growth (an increase in quantity or improvement in quality
of an animal or plant), (ii) degeneration (a decrease in the quantity or deterioration
in quality of an animal or plant), or (iii) procreation (creation of additional living
animals or plants); or
(b) production of agricultural produce such as latex, tea leaf, wool, and milk.’ [IAS 41.7].
IAS 41 defines the following additional terms that are used throughout the standard: [IAS 41.5]
• A biological asset is a living animal or plant.
• A group of biological assets is an aggregation of similar living animals or plants.
• Agricultural produce is the harvested product of the entity’s biological assets.
• Harvest is the detachment of produce from a biological asset or the cessation of a
biological asset’s life processes.
• Costs to sell are the incremental costs directly attributable to the disposal of an
asset excluding finance costs and income taxes.
The standard provides examples to illustrate the above definitions. In addition to providing
these examples, the standard notes that some of the plants mentioned in the table may
meet the definition of bearer plants and, therefore, be within the scope of IAS 16.
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However, the produce growing on such plants is within the scope of IAS 41 (see 2.2.1.A and
2.3.3 below) and is considered a biological asset. [IAS 41.5C]. Figure 38.1 below is based on
those examples, but has been modified to provide examples of possible bearer plants and
produce growing on those plants: [IAS 41.4]
Figure 38.1:
Examples of biological assets (including possible bearer plants),
agricultural produce and products that are the result of
processing after harvest
Biological assets that
Biological assets
may meet the
(including produce
Products that are the
definition of a bearer
growing on a bearer
result of processing
plant
plant)
Agricultural produce
after harvest
Sheep
Wool
Yarn,
carpet
Trees in a timber
Felled trees
Logs, lumber
plantation
Dairy
cattle
Milk
Cheese
Pigs
Carcass
Sausages, cured hams
Cotton plants
Growing cotton
Harvested cotton
Thread, clothing
Sugar-cane roots
Growing sugarcane
Harvested cane
Sugar
Tobacco plants
Leaves on the tobacco
Picked leaves
Cured tobacco
plants
Tea bushes
Leaves on the tea
Picked leaves
Tea
bushes
Grape vines
Grapes on the vines
Picked grapes
Wine
Fruit trees
Fruit on the trees
Picked fruit
Processed fruit
Oil palms
Growing fruit
Picked fruit
Palm oil
Rubber trees
Latex
Harvested latex
Rubber products
2.2.1.A
Definition of bearer plants
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’. [IAS 41.5].
All of the above criteria need to be met for a plant to be considered a bearer plant.
The definition captures plants that would intuitively be considered to be bearers, for
instance, grape vines. Some plants that may appear to be consumable, such as the root
systems of perennial plants (e.g. sugar cane, bamboo or asparagus), but due to the perennial
nature of their root systems, they are expected to meet the definition of a bearer plant.
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Annual crops and other plants that are held solely to be harvested as agricultural
produce (e.g. many traditional arable crops such as maize, wheat and soya, as well as
trees grown for lumber), are explicitly excluded from the definition of a bearer plant. In
addition, plants that have a dual use (i.e. plants cultivated to bear agricultural produce,
but for which there is more than a remote likelihood that the plant itself will be
harvested and sold as agricultural produce, beyond incidental scrap sales) are not bearer
plants. [IAS 41.5A]. This may be the case when, for example, an entity holds rubber trees
to sell both the latex as agricultural produce and the trees as lumber.
Bearer animals, like bearer plants, may be held solely for the produce that they bear.
However, when IAS 41 was amended to exclude bearer plants from its scope, bearer
animals were explicitly excluded from the amendments and continue to be accounted
for under IAS 41 on the basis that the measurement model would become more complex
if applied to such assets.
Determining whether an asset meets the definition of a bearer plant may not be entirely
intuitive. Careful assessment will, therefore, be important. We believe that judgement is
needed in the following areas:
• Used in the production or supply of agricultural produce
Judgement may be needed to determine whether a plant is used in the production
or supply of agricultural produce, rather than consumed in the process. For
example, some plants that are generally thought of as consumable are harvested
twice, but with the first harvest having the principal purpose of improving the yield
of the second harvest. It is not clear whether the fact that there are two harvests is
sufficient to make these plants bearer assets.
For certain plants, new produce may be capable of being grown from various parts
of the plant (e.g. pineapples). For others, the plant itself may be cut back and re-
grown. For example, after a harvest of bananas, the banana plant may be cut down
to its base and re-grown the next year to produce more bananas. In such situations,
judgement may be needed to determine which part of the plant might be the bearer
plant (e.g. the banana palm or the base).
• Expected to bear produce for more than one period
The definition of a bearer plant requires that a plant be expected to bear produce
for more than one period. It would seem appropriate to think of an annual period
in this context. However, the standard does not use this term, so an entity needs to
consider if an interim period, a season or a production cycle (i.e. through to
harvest) might also be appropriate.
• Incidental scrap sales
Whether the likelihood of the plant being sold as agricultural produce is remote is
also a matter of judgement. However, it is intended to be a high hurdle. The
standard does allow for the fact that there may be some ‘incidental scrap sales’, but
this term is not defined.
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The s
tandard notes that bearer plants might be cut down and sold as scrap, (e.g. for
firewood) at the end of their productive life and states that ‘such incidental scrap
sales would not prevent the plant from satisfying the definition of a bearer plant’.
[IAS 41.5B]. However, in the example given in the standard (i.e. firewood), it is
reasonably evident that such sales would be ‘incidental’. Since no further guidance
is given in the standard, entities need to apply judgement in determining what
constitutes ‘scrap sales’ (e.g. would it include ad-hoc sales before the productive
life has ended, such as selling trees removed while thinning?). Furthermore, the
standard does not clarify at what level sales cease to be incidental and whether this
is a qualitative or quantitative assessment. Therefore, judgement may be needed.
In addition to the considerations above, an entity may also need to reassess whether a
plant meets the definition of a bearer plant after initial recognition. If a plant initially meets
the definition of a bearer plant, but this subsequently changes, would IAS 41 then apply
instead of IAS 16? Neither IAS 16 nor IAS 41 address this question or specify how to
transfer such assets between IAS 16 and IAS 41 (or vice versa). Once again, management
will need to apply judgement in developing an accounting policy in these situations.
2.2.2 General
definitions
IAS 41 defines the general terms it uses throughout the standard as follows: [IAS 41.8]
• Carrying amount is the amount at which an asset is recognised in the statement of
financial position.
• Government grants are as defined in IAS 20 – Accounting for Government Grants
and Disclosure of Government Assistance (see Chapter 25).
IFRS 13 – Fair Value Measurement – defines fair value as ‘the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date’. [IAS 41.8, IFRS 13.9]. Measuring fair value in
accordance with IFRS 13 is discussed further at 4 below and in Chapter 14.
2.3 Scope
IAS 41 applies to most biological assets, agricultural produce at the point of harvest and
government grants involving biological assets measured at fair value less costs to sell.
However, to be within the scope of IAS 41, these items must relate to agricultural
activity. [IAS 41.1]. As discussed at 2.2.1 above, agricultural activity refers to ‘the
management by an entity of the biological transformation and harvest of biological
assets for sale or for conversion into agricultural produce or into additional biological
assets’. [IAS 41.5]. It is important to note that this definition does not focus on the primary
purpose of holding such assets or the number of sales that may result. In fact, the
definition refers to ‘sale or conversion’; therefore, an entity need not intend to sell the
biological assets or agricultural produce in order for the entity to be undertaking
agricultural activity. Furthermore, the standard contemplates an entity applying IAS 41
to assets that it will use itself; the Basis for Conclusions refers, as an example, to an entity
accounting for trees as biological assets within IAS 41 when it intends to use the
harvested logs in the construction of a building for its own use. [IAS 41.B8].
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IAS 41 explicitly excludes the following assets from its scope: [IAS 41.2]
• bearer plants (see 2.2.1.A above), which are within the scope of IAS 16 (see
Chapter 18), however, produce growing on a bearer plant is still within the scope
of IAS 41;
• government grants that relate to bearer plants, to which IAS 20 applies (see
Chapter 25);
• land related to agricultural activity, which should be accounted for under either IAS 16
(see Chapter 18) or IAS 40 – Investment Property (see Chapter 19); [IAS 41.B55-B57]
• intangible assets related to agricultural activity, for instance the costs of developing
new disease resistant crops, which should be accounted for under IAS 38 –
Intangible Assets (see Chapter 17); [IAS 41.B58-B60] and
• right-of-use assets arising from a lease of land related to agricultural activity, which
is accounted for under IFRS 16 – Leases (see Chapter 24). IFRS 16 is effective for
annual periods beginning after 1 January 2019.
2.3.1
Biological assets outside the scope of IAS 41
Biological assets may be outside the scope of IAS 41 when they are not used in agricultural
activity. For example, animals in a zoo (or game park) that does not have an active
breeding programme and rarely sells any animals or animal products would be outside the
scope of the standard. Another example is activities in the pharmaceutical industry that
involve the culture of bacteria. Such activity would not fall within the scope of IAS 41.
While the bacteria may be considered a biological asset, the development of a culture by
a pharmaceutical company would not constitute agricultural activity.
Biological assets outside the scope of IAS 41 will normally fall within the scope of either
IAS 16 (see Chapter 18) or IAS 2 – Inventories (see Chapter 22).
2.3.2
Agricultural produce before and after harvest
IAS 41 only applies to agricultural produce (i.e. harvested produce) at the point of
harvest; not prior or subsequent to harvest. Under IAS 41, unharvested agricultural
produce is considered to be part of the biological asset from which it will be harvested.
Therefore, before harvest, agricultural produce should not be accounted for separately
from the biological asset from which it comes. For example, milk is accounted for as
part of the dairy cow right up to the moment at which the cow is milked.
Subsequent to harvest, agricultural produce is accounted for under IAS 2 or another
standard, if applicable. [IAS 41.3]. Under IAS 2, agricultural produce is initially recognised
as inventory at its fair value less costs to sell (measured in accordance with IAS 41),
which becomes its cost for IAS 2 purposes (see Chapter 22). [IAS 41.B41, B45].
2.3.3
Bearer plants and produce growing on a bearer plant
IAS 41 explicitly excludes bearer plants (see 2.2.1.A above) from its scope; instead IAS 16
applies to these assets (see Chapter 18). However, the produce growing on a bearer plant
remains within the scope of IAS 41. [IAS 41.2(b)].
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Entities will need to carefully assess which of its plants meet the definition of a bearer
plant. This is because the scope exclusion, while focused on the definition of a bearer
plant, also affects the accounting treatment for the produce growing on a bearer plant
and any related government grants (see 3.3 below).
Bearer plants and their agricultural produce are considered to be two separate assets for
accounting purposes (i.e. two units of account), with different measurement models
being applied under different standards (see 3.2.3 below for further discussion).
In developing the requirements for bearer plants, the Board noted that bearer plants are
held by an entity solely to grow produce over their productive life, similar to plant and
equipment and, therefore, do not directly affect the entity’s future cash flows. As a
result, it decided that bearer plants should be treated as property, plant and equipment
in accordance with IAS 16. However, the IASB believes that ‘the same argument is not
true for the produce growing on the bearer plants that is undergoing biological
transformation until it is harvested (for example, grapes growing on a grape vine). The
Board observed that the produce is a consumable biological asset growing on the bearer
plant and the growth of the produce directly increases the expected revenue from the
sale of the produce. Consequently, fair value measurement of the growing produce
provides useful information to users of financial statements about future cash flows that
an entity is expected to realise’. [IAS 41.BC4B]. The Board also indicated that such produce
ultimately has a market value on its own, whereas the bearer plants on which they grow
generally do not. As such, the Board decided that produce growing on a bearer plant
should remain within the scope of IAS 41, which is expected to keep consistency
between produce growing in the ground and produce growing on a bearer plant.
[IAS 41.BC4A-BC4D].
2.3.4
Products that are the result of processing after harvest
IAS 41 does not deal with the processing of agricultural produce after harvest. The
standard makes it clear that, even if the processing is considered ‘a logical and natural
extension of agricultural activity, and the events taking place ... bear some similarity to
biological transformation, such processing is not included within the definition of
agricultural activity’. [IAS 41.3]. For example, the process of brewing beer – in which yeast
(a fungus) converts sugars into alcohol – would not meet the definition of agricultural
activity in the standard. Similarly, cheese production would fall outside the definition
of agricultural activity.
2.3.5
Leases of biological assets (excluding bearer plants)
Leases involving biological assets are common in many jurisdictions, for example, the
leasing of a sheep farm, where the lessee rents the farm, including the land, sheep and
other assets, tends the sheep and sells the wool.
Whether or not a leased biological asset (other than a leased bearer plant) is within the
scope of IAS 41 will depend on the specific facts and circumstances of each
arrangement. It will also depend on whether an entity is applying IAS 17 – Leases – or