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Chapter
32 /
Agriculture (lAS 41)
Solution
Balance sheet at December 3 1, 20X2:
Biological assets-
Fair valuation (included in profit or loss year ended 12/31/01)
Carrying value 1I1/20X2
Change in fair value
Decrease due to harvest
Carryi ng value at December 3 1, 20X2
Income sta teme nt for year ended December 3 1, 20X2:
Biological assets change in fair value
Decrease due to harvest
Net gain
$m
600
700
1,300
100
-i2Q)
1310
100
(90)
LQ
355
Practical Insight
Stora Enso Oyj , a Finni sh entity, applied lAS
41
in its financial statements for the year ended
December
3 1, 2003.
The entity is a producer of timber and timber products. It previously classi–
fied its forests as land within noncurrent assets and valued them at cost. Following the adoption
of lAS
41,
the entity reclassified the forests as biolog ical asse ts and measu red them at fair
value. The effect was to increase the carrying value of the forests from
€706
milli on to
€ 1,562
million.
5. FAIR VALUE RELIABILITY
5.1 lAS
4 1
presumes that fair value can be measured reliabl y for a biological asset. However, it is
possible that this presumption can be rebutted for a biological asse t that, when it is first recogn ized,
does not have a quoted market price in an active market and for which other valuation methods are
clearly inapp ropriate or unworkable. In this case, the asset is measured at cos t less accumulated
depreciation and any impairment losses. All the other biological asse ts of the entity still must be
measured at fair value. If circumstances do change and fair value becomes reliably measurable,
then the entity must switch its valuation method to fair value less point- of-sale cos ts.
5.2 If a noncurrent biological asse t meets the criteria to be classified as held for sale or is in–
cluded in a disposal group in accordance with IFRS 5, then it is presumed that fair value can be
measured reliably.
5.3 In determining cos t, depreciation , and impairment losses, the entity should use lAS 2, lAS
16,
and lAS
36.
6. GOVERNMENT GRANTS
6.1 A government grant that is related to a biological asse t meas ured at fair value less estimated
point-of-sale cos ts should be recognized as income when the gove rnment grant becomes recei v–
able. If there are conditions attached to the gove rnment grant, then the gove rnment grant shall be
recogni zed only when those conditions are met. lAS
20
is applied only to a gove rnment grant that
is related to a biological asset which has been measured at cost less accumulated depreciati on and
impairment losses.
6.2 lAS
41
does not deal with government grants that relat e to agricultural produc e. These grant s
may include subsidies. Subsidies are normall y payable when the produce is sold and would there–
fore be recognized as income on the sale.
7. ISSUES IN lAS 41
7.1 The change in the fair value of biological asse ts is twofold : There can be physical change
through growth, and there can be a price change. Separate disclosure of these two elements is en–
couraged but not required. Where biological assets are harvested, then fair value measurement
stops at the time of the harvest, and lAS 2,
Inventories,
applies after that date .