INTRODUCTION AND OBJECTIVE
Ind AS 41, Agriculture is the standard that is first specifically covering the accounting and reporting requirements for the primary sector. Before this standard, there were no establishment which is having a guidance on agriculture and allied industry. This Standard also introduces a fair value of a model to a agriculture accounting which is a type of major shift away from the traditional cost model widely applied in primary industry.
Applicability of Ind AS 41 Agriculture
Ind AS 41 Agriculture sets out the accounting for agricultural activity, managing the transformation of a biological assets (living plants and animals). This is into a agricultural produce type of harvested product of the entity’s type of biological assets). The standard is generally requires a biological assets to be measured at fair value fewer costs to selling.
SCOPE of Ind AS 41 Agriculture
This Standard should be applied to the account for the following when they are related to the agricultural activity:
(a) Assets which are related to biology.
(b) The point of harvest from which agricultural product is gained.
(c) A Government grants.
As per Ind AS 41 does not apply to:
(a) Land related to agricultural activity- for example, the land on which the biological assets grow, regenerate and degenerate (Ind AS 16 Property, Plant and Equipment and Ind AS 40 Investment Property).
(b) Bearer plants related to agricultural activity. Such bearer plants are covered within the mention in scope of Ind AS 16, Property, Plant and Equipment as it is accounted as per the provisions of that standard. However, this Standard can be applicable to the produce on those bearer plants.
(c) Government grants related to mainly bearer plants (Ind AS 20 Accounting for Government Grants and a Disclosure of Government Assistance).
(d) Intangible assets which are associated with the activity of agricultural for a example, a licenses and a rights which are being covered under Ind AS 38 Intangible Assets and provisions of this standard will be applicable.
(e) right of using assets arising from a lease of land related to agricultural activity (Ind AS 116, Leases).
This Standard can be applied to agricultural produce, which is then harvested from the entity’s biological assets only at the point of harvest. After that, Ind AS 2 or another applicable Standard is applied.
RELEVANT DEFINITIONS of Ind AS 41 Agriculture
The following are the key Agriculture-related definitions:
(a) Agricultural activity refers to the management of biological transformation and harvest of biological assets for sale or conversion into agricultural produce or additional biological assets.
(b) Biological Asset can be defined as a living animal or plant.
(c) Biological transformation also comprises growth, degeneration, production, and procreation processes that cause qualitative or quantitative changes in biological assets.
(d) Agricultural produce is being harvested product of entity’s biological assets.
(e) Harvest is being detachment of produce from a biological asset or the cessation a type of biological asset’s life processes.
(f) Fair Value is the price that is received to sell an asset or a paid to transfer a known liability in an orderly transaction between a market participants at the given type of measurement date.
(The definition of a Fair value is as given in a Ind AS 113, Fair Value Measurement)
(g) Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes.
(h) Bearer plant may be defined as a type of living plant that:
- Is used in the type of production or a supply of a agricultural produce.
- Is expected to mainly bear produce for a more than one period.
iii. Has a to be remote likelihood of being sold as a agricultural produce, except for incidental scrap sales.
For example, tea bushes, grapevines, oil palms and rubber trees usually meet the definition of a bearer plant and are outside the scope of Ind AS 41 and covered under Ind AS 16.
However, produce growing on bearer plants is a biological asset.
RECOGNITION OF ASSETS in Ind AS 41 Agriculture
Entities are required to recognize a biological asset or agricultural produce when, and only when, all of the following conditions are met:
The entity can control the asset as a result of past events;
Control over biological assets or agricultural produce may be evidenced by legal ownership or rights to control, for example, legal ownership of cattle and the branding or otherwise marking of the cattle on the acquisition, birth, or weaning.
Future economic benefits can be associated with the asset will probably flow to the entity;
Future economic type of benefits that are expected to flow to the enterprise from its ownership or a control of the asset. The future benefits can be normally assessed by measuring the significant physical attributes.
Complete IND AS 41 Agriculture MCA
The fair value of any asset which can be reliably measured.
Biological Asset is needed to be measured on initial recognition and at the end of each reporting period at its fair value fewer costs to sell, except for the case where the fair value cannot be measured reliably.
There is a forwardness that fair value can be measured reliably for a biological asset. In the following cases, the biological asset should be measured at its cost less any accumulated depreciation and any accumulated impairment losses following Ind AS 2, Ind AS 16 and Ind AS 36:
- Quoted a market prices that are not available for the biological assets and;
- Alternative fair value measurements can be determined as it can be unreliable.
One time the fair value of such a biological asset can be measurable reliably, an entity shall measure it at its Fair value fewer costs to selling.
Agricultural product which is harvested from an entity’s biological assets should be measured at its fair value with fewer costs to selling at the point of harvest. Such measurement can be the cost at that date while applying Ind AS 2 or another applicable Standard.
The fair value measurement of a agricultural produce or biological asset may be facilitated by a grouping biological assets or a agricultural produce to according to significant attributes, such as age or quality. An entity can select the attribution which is corresponding to the attributes used in the market as a basis for pricing.
The fair value less than the cost for selling a biological asset can change due to physical changes and a price changes in the market.
Entities are often entering into contracts for selling their biological assets or agricultural produce at a upcoming date. Contract prices are not necessarily relevant for measuring the fair value because fair value can reflect the market conditions in which market participant buyers and sellers enter into a transaction. As according to the conclusion, the fair value of a biological asset or agricultural produce cannot be adjusted because of the existence of a contract.
Cost may be sometimes approximate of the fair value, particularly when:
a) Little biological transformation have taken place since initial cost incurrence (for example, for fruit tree seedlings planted immediately before the end of a reporting period or newly acquired livestock); or
b) The well impact of the biological transformation on price cannot be expected to be material (for e.g., for the initial growth in a 30-years pine plantation production cycle)
Biological assets can be physically attached to land (for example, trees in a plantation forest). There may be no unrelated market for biological assets attached to the land.
Still, an active market may be existed for the combined assets, that is, the biological assets, raw land, and land improvements, as a bundle. An entity may be using information which is regarding the combined assets for measuring the fair value of the biological assets. For e.g., the fair value of raw land and improvements of land may be deducted from fair value of the combined assets to arrive at the fair value of biological assets.
GAINS AND LOSSES
A gain or loss which are arising on initial recognition of a Biological Asset at Fair value fewer costs to selling and from a change in Fair value fewer costs to the selling of a biological asset should be included in Profit or Loss for the period in which it can be arisen.
A loss may be arising on initial recognition of a biological asset because the cost to sell is deducted in determining fair value less cost for selling biological asset. A gain might be arisen on initial recognition of a biological asset, such as when a calf is born.
A gain or loss which is arising on initial recognition of agricultural product at fair value fewer costs to sell shall be included in profit or loss for the period it arises.
A gain or loss might be arising on initial recognition of agricultural produce as a result of harvesting.
Biological Asset can be measured at a fair value less cost for selling:
a) Unconditional Grant
An unconditional government grants which are related to a biological assets which are measured at its fair value fewer costs to selling shall be recognized in profit or loss when, and only when, the government grant becomes receivable.
b) Conditional Grant
Suppose a government grant related to a biological asset is measured at its fair value. Fewer costs to sell are conditional, including when a government grant requires an entity not to engage in specified agricultural activity. In that case, an entity shall recognize the government grant in profit or loss when, and only when, the conditions are attached to the government grant are met.
Terms and conditions of government permits may vary. For example, a grant may be needed an entity to a farm in a particular location for five years. This require that a entity to return the entire grant if it farms for a period shorter than five years.
In this case, the grant cannot be recognized in profit or loss until the period of five years have been passed. However, if the terms of the grant allows part of it to be retained according to the time elapsed, the entity recognizes that part in profit or loss as time passes.
Biological Asset measured at its cost:
If a government grant is related to a Biological Asset which are measured at its cost less any arrevied accumulated depreciation and any accumulated impairment losses (i.e., inability to measure fair value reliably), Ind AS 20 is applied.
DISCLOSURE of Ind AS 41 Agriculture
Description of biological assets and a activities.
The entity is required to a defined description of a each group of biological assets. There is a disclosure may take the form of a narrative or quantified description. An entity have been encouraged for providing a quantified description mention in each group of biological assets, a distinguishing between a consumable and a bearer biological assets or between mature and immature biological assets, as appropriate.
Gains and losses were recognized during the period.
An entity should be disclose that will aggregate gain or loss arising during the mention current period on a initial recognition of biological assets and a agricultural produce and from change in a fair value fewer costs to selling of biological assets.
Reconciliation of changes in biological assets.
A detailed reconciliation is required of changes areies carrying amount of biological assets between the beginning and the end of the current period, which includes:
a) Gain or loss arising from changes in fair value fewer costs to selling.
b) Increases arising from purchases.
c) Reduction in attributable to sales and biological assets classified as held for sale (or included in a type of a disposal group classified as held for sale) following Ind AS 105.
d) Reduction due to harvest.
e) Increases which are resulting from business combinations.
f) Net exchange differences which are arising on the translation of financial statements into a different presentation currency and the translation of a foreign operation into the presentation currency of the reporting entity.
g) Other changes.
4) Restricted assets, a commitments and a risk management strategies.
The entity should disclose:
a) The carrying amounts and existence of biological assets whose title have been restricted, and the mention carrying amounts of biological assets pledged as security for liabilities.
b) The number of commitments for the development or acquisition of biological assets.
c) Financial risk management strategies can be related to several agricultural activity.
5) Additional type of disclosures when a fair value cannot be measured reliably.
If biological assets within the scope of Ind AS 41 are measured at cost less any accumulated depreciation. Any accumulated impairment losses at the mention end of the period, the following disclosures are required:
a) An explanation of the biological assets.
b) An explanation of why fair value are not reliably measured.
c) The range of estimation within which fair value can be highly to lie.
d) Using the depreciation method.
e) Using the useful lives or the depreciation rates.
f) The gross carrying amount and the accumulated depreciation and impairment losses at the beginning and end of the period.
6) Government grants in Ind AS 41 Agriculture
The following disclosures are required for government grants relating to agricultural activity:
a) The extent and nature of government grants recognized.
b) Unfulfilled conditions and other contingencies are attaching to government grants.
c) Significant decreases are expected in the level of government grants.
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