OUT OF SCOPE
- Land related to agricultural activity (Ind AS 16)
- Bearer plants related to agricultural activity (Ind As 16)
- government grants related to bearer plants(Ind AS 20)
- intangible assets related to agricultural activity(Ind AS 38)
Note: This Standard is applied to agricultural produce, which is the harvested produce of the entity’s biological assets, at the point of harvest, thereafter Apply Ind AS 2,after applying processing on agricultural produce. (For example grapes include in agricultural produce but wine preparing from grapes included in Ind AS 2)
|Biological||Agricultural produce covered under Ind As 41||Products that are the result of processing after harvest out of scope Ind AS 41|
|Trees in a timber plantation||Felled Trees||logs, lumber|
|Tea bushes||Picked leaves Tea||Tea|
|Grapes Vines plant||Picked grapes||Wine|
|Rubber trees||Harvested latex||Rubber products|
|Tea bushes (plant), grape vines plants and rubbers trees included in the definition of bearer plant and covered in Ind AS 16, but tea leaves, grapes , harvested latex have met the definition of agricultural produce and covered in Ind AS 41.|
An entity shall recognise a biological asset or agricultural produce when and only when:
a) The entity controls the asset as a result of past events;
(b) It is probable that future economic benefits associated with the asset will flow to the entity; and
(c) The fair value or cost of the asset can be measured reliably.
Biological assets measured at Fair value less cost to sell.
(In simple terms all acquisition expenses and expenses which are required for further selling are deducted while measuring.) For example:
Cow Cost: 10,000
Transportation cost: 1050
And expected Brokerage to sell: 2%
In the above cases 1050 and brokerage of 2% (i.e. 200) is transferred to P&L. and Cows are recorded as 9800(10,000-200) in Financials.
All the expenses related to growth & routine maintenance of biological Assets written off in P&L expenses. (For example: pesticides, fertilizer, seeds, new breed generation, food for animals)
Thus it is clear from the above Plant are not recognised on the basis of cost incurred, but when they have certain fair value. (So we can recognize the plants or trees value when they have some market value or on the basis of present value of future inflows.)
Cost may sometimes approximate fair value, particularly when:
(a) little biological transformation has taken place since initial cost incurrence (for example, for seedlings planted immediately prior to the end of a reporting period or newly acquired livestock); or
(b) the impact of the biological transformation on price is not expected to be material (for example, for the initial growth in a 30-year pine plantation production cycle).
Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs to sell at the point of harvest. (gain is transferred in the P&L statement when initial measurement)
At each reporting period, it is measured at fair value less cost to sell and any change in fair value is recognize in P&L statement.
As after initial recognition of agricultural produce, it may become the cost of inventory and deal in accordance with Ind AS 2
1. The fair value measurement of a biological asset or agricultural produce may be facilitated by grouping biological assets or agricultural produce according to significant attributes; for example, by age or quality
2. The entity enters into a contract for the sale of biological assets at future date, such prices are not relevant for measuring fair value because fair value reflects the current market conditions in which market participant buyers and sellers would enter into a transaction.
3. The fair value change can be divided into price change and physical change. For example
When we purchased 2- year cow as on 1.04.2020 at 10,000
And at the end (31.03.2021), 3 -year cow is 15,000.
And at the end (31.03.2021), 2- year cow is 12,000
Thus 2,000 is price change and 3,000 is a physical change.
4. Biological assets are often physically attached to land (for example, trees in a plantation forest). There may be no separate market for biological assets that are attached to the land but an active market may exist for the combined assets, that is, the biological assets, raw land, and land improvements, as a package. An entity may use information regarding the combined assets to measure the fair value of the biological assets. For example, the fair value of raw land and land improvements may be deducted from the fair value of the combined assets to arrive at the fair value of biological assets
In the case of new born Animals
In such case, the entity should measure the newborn baby at its fair value less cost to sell at initial recognition of new born animals in Balance sheet. And gain on initial recognition transfer to P&L statement.
And any change in fair value at each reporting period is transfer in P&L.
Inability to measure fair value reliably
There is a presumption that fair value can be measured reliably for a biological asset. However, that presumption can be rebutted only on initial recognition for a biological asset for which
- quoted market prices are not available and;
- Alternative fair value measurements are determined to be clearly unreliable.
In such a case, that biological asset shall be measured at its cost less any accumulated depreciation and any accumulated impairment losses.
It is the rebuttable presumption only on initial recognition. An entity that has previously measured a biological asset at its fair value less costs to sell continues to measure the biological asset at its fair value less costs to sell until disposal.
In all cases, an entity measures agricultural produce at the point of harvest at its fair value less costs to sell. This Standard reflects the view that the fair value of agricultural produce at the point of harvest can always be measured reliably.
Unconditional grants: An unconditional government grant related to a biological asset measured at its fair value less costs to sell shall be recognised in profit or loss when, and only when, the government grant becomes receivable.
Conditional grants: when the grant is conditional, an entity recognize in profit and loss only when all conditions are met
Note: If a government grant relates to a biological asset measured at its cost less any accumulated depreciation and any accumulated Impairment losses, Ind AS 20 is applied.
Gain and Loss:
An entity shall disclose 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 of biological assets.
Description of Assets:
An entity shall provide a description of each group of biological assets. And encouraged to provide in narrative or quantified description (ie. Description between consumable or bearer assets or between mature or immature biological assets
Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. For example: livestock intended for the production of meat, livestock held for sale.
Biological assets may be classified either as mature biological assets or immature biological assets. Mature biological assets are those that have attained harvestable specifications (for consumable biological assets) or are able to sustain regular harvests (for bearer biological assets).
If not disclosed elsewhere in information published with the financial statements, an entity shall describe:
(a) the nature of its activities involving each group of biological assets; and
(b) non-financial measures or estimates of the physical quantities of:
(i) each group of the entity’s biological assets at the end of the period; and
(ii) output of agricultural produce during the period.
An entity shall disclose the following related to agricultural activity covered by this Standard:
(a) the nature and extent of government grants recognised in the financial statements;
(b) unfulfilled conditions and other contingencies attaching to government grants; and
(c) significant decreases expected in the level of government grants.
An entity shall disclose:
(a) the existence and carrying amounts of biological assets whose title is restricted, and the carrying amounts of biological assets pledged as security for liabilities;
(b) the amount of commitments for the development or acquisition of biological assets; and
(c) financial risk management strategies related to agricultural activity.
Reconciliation of Biological Assets
An entity shall present a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period. The reconciliation shall include:
(a) the gain or loss arising from changes in fair value less costs to sell;
(b) increases due to purchases;
(c) decreases attributable to sales and biological assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105;
(d) decreases due to harvest;
(e) increases resulting from business combinations;
(f) net exchange differences arising on the translation of financial statements into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting entity; and
(g) other changes.
Disclosure of Price Change and Physical Change
Separate disclosure of physical and price changes is useful in appraising current period performance and future prospects, particularly when there is a production cycle of more than one year
Biological transformation results in a number of types of physical change—growth, degeneration, production, and procreation, each of which is observable and measurable. Each of those physical changes has a direct relationship to future economic benefits. A change in fair value of a biological asset due to harvesting is also a physical change.
Disclosure in the event of climatic, disease
Agricultural activity is often exposed to climatic, disease and other natural risks. If an event occurs that gives rise to a material item of income or expense, the nature and amount of that item are disclosed in accordance with Ind AS 1 Presentation of Financial Statements.
Additional disclosure when fair value can’t measure
When biological assets measured at cost less any accumulated depreciation or accumulated impairment loss, the following disclosure required:
- A description of biological assets
- Explanation why fair value can’t measure.
- Depreciation method used or useful life or depreciation rate used.
- the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period.
When any biological assets measuresd at cost model and now becomes reliably measurable during the current year, then an entity shall disclose the
- description of biological assets.
- Explanation why fair value has reliably measure.
- The effect of change.
Reconciliation in cost model as in case of Ind AS 16.