365 / 488
354
Wiley IFRS: Practical Implementation Guide and Workbook
Additionally, the fair va lue or cos t of the asset should be able to be measured reliably . Any biologi–
cal asset should be measured init iall y and at eac h balance sheet date, at its fair value less estimated
point-of-sale cos ts. The only exception to this is where the fa ir va lue cannot be measured reliabl y.
3.2
Agr icultural produ ce should be measured at fair value less esti mated point -of-sale cos ts at the
poin t of the harvest.
Unlike a biological asset, there is no except ion ill cases in which fai r value
cannot be measured reliably.
According to lAS 4 1, agric ultural produ ce can always be meas ured
reliab ly. Point-of-sale costs include brokers' and dealers ' commissions , any levies by regu latory
authori ties and commodity exchanges, and any transfer taxes and duties. They exclude transport
and other costs necessary to get the assets to a market.
3.3
In deciding on the fair value for a biological asset or agricu ltural produ ce, it is possible to
group together items in accordance with, for exa mple, their age or qual ity. Entities often cont ract to
se ll their biological assets or produce at a future date. These contrac t prices do not necessarily rep–
resent fair va lue. Therefore, the fair value of a biological asse t or produce is not necessaril y ad–
justed because of the existe nce of a contract. In many cases, these contracts may in fact be onero us
contrac ts, as defined in lAS
37.
If an active market exists for the asse t or produce, then the price in
that market may be the best way of determining fair value.
3.4
If an entity has access to different active markets, then the entity will choose the most rele–
vant and reliable price that is the one at which it is most like ly to se ll the asset.
3.5
If an active market does not exist, then these methods can be used to determin e fair value:
• The most recent market transac tion price
• Market prices for similar assets after adj ustment to refl ect any differences in the asset
• Any benchmarks within the sec tor, such as the value of cattle per kilogram
3.6
In some cases, market prices or values may not be ava ilab le for an asse t in its present condi–
tion . In these cases, the entity can use the present value of the expected net cash flow from the asse t
discounted at a current market pretax rate. In some circumstances , costs may be an indicator of fair
value, especially where little biological transformation has taken place or the impact of biological
transform ation on the price is not expected to be significant.
4. GAINS AND LOSSES
4.1
Any gai n on the initial recogn ition of biological assets at fa ir value less estimated point-of–
sale costs and any chan ges in the fair value less estimated point-of- sale costs of biological assets
during the reporting period are included in profit or loss for the period. Any gain on the initial
recognition of agricultura l produce at fair value less estimated point-of-sale costs will be included
in pro fit or loss for the period to which it relat es. All cos ts related to biological assets that are
measured at fair value are recognized in profit or loss when incurred , except for cos ts to purchase
biological assets.
4.2
The Standard does not explicitly prescribe how to acco unt for subsequent expe nditure related
to biological asse ts. A gai n or loss can, therefore, arise when an animal is born, plants and animals
grow, plants are harve sted , or anima ls genera te agric ultura l produce. Losses can arise on the initial
recognition of the purchase of animals, as their fair value less es timated point-of-sale costs are
likely to be less than the purchase price plus any transaction and transportation costs.
Case
Study 2
Facts
An entity has these balances in its financial records:
Value of biological asset at cost l2/3l/X1
Fair valuation surplus on initial recognitionat fair value l2/31/X
I
Change infair value to
I
2/31/X2 due
to
growth and price fluctuations
Decrease in fair valuedue to harvest
~
600
700
100
90
Required
Show how these values would be incorporated into the financial statements at December 31, 20X2.