IAS 41 Agriculture - Bearer Plants

Project History

This limited scope project relates to accounting for bearer biological assets under IAS 41 Agriculture.

IAS 41 sets out rules for the accounting for agricultural activities i.e. the managing the biological transformation of living animals or plants (biological assets) for sale, into agricultural produce, or into additional biological assets. Based on the principle that biological transformation is best reflected by fair value measurement, IAS 41 measures biological assets at fair value less costs to sell.

IAS 41 mentions two classes of biological assets: consumable biological assets (CBAs), and bearer biological assets (BBAs). The first class, CBAs, are the assets intended to be grown and then either be harvested and then sold as an agricultural produce or be sold as biological assets. The latter class, BBAs, includes all other biological assets, not intended to be sold or harvested, however used to grow agriculture produce. IAS 41 distinguishes between bearer and consumable biological assets only for disclosure purposes and not for measurement purposes.

The principle supporting fair value measurement of biological assets was criticised as being not appropriate for BBAs, as it is argued that they do not longer undergo biological transformation. Once reached maturity, instead of being growing assets, these assets are now productive assets. The use of mature BBAs to produce agricultural produce is similar to the use of machinery to manufacture goods and though, in that context, BBAs could meet the definition of property, plant and equipment. Despite the fact that BBAs are not similar to plant and equipment in form, the similarities in how they are used provide support for accounting for them under IAS 16 Property, Plant and Equipment.

As a response to comments received on the IASB's Agenda Consultation, at the May 2012 meeting the IASB decided to give priority to developing a proposal to amend to IAS 41 for accounting for bearer biological assets (BBA). In September 2012 the IASB tentatively decided to add this project to its technical agenda and that a discussion paper is not required due to the existing research that had already been undertaken in the area. After a series of discussions the IASB tentatively decided to limit the scope of the proposed amendments to bearer plants only.

The IASB published Exposure Draft Agriculture: Bearer Plants (ED) on 26 June 2013 with a 120-day comment period. The ED proposed to measure bearer plants under IAS 16 at cost less accumulated depreciation and impairment model or a fair value less subsequent depreciation and impairment model. The ED proposed to measure agricultural produce growing on bearer plants at fair value less costs to sell under IAS 41.

EFRAG's Comment Letter

EFRAG issued its final comment letter on 28 October 2013. EFRAG agreed that bearer plants should be accounted for under the cost model or the revaluation model of IAS 16. EFRAG however recommended the IASB to consider broadening the scope of the amendment. EFRAG, based on the feedback received from constituents, suggested the IASB to take the opportunity to discuss the accounting model applicable to agricultural produce also.

EFRAG's Endorsement Advice

On 30 June 2014, the IASB issued Agriculture: Bearer Plants - amendments to IAS 16 and IAS 41 (the Amendments). The Amendments define a bearer plant as a living plant that is used in the production or supply of agricultural produce, is expected to bear produce for more than one period and has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. The Amendments remove bearer plants from the scope of IAS 41 and include them within the scope of IAS 16. As a result it will no longer be mandatory to measure bearer plants at fair value less costs to sell, instead entities will measure bearer plants either at cost less accumulated depreciation and impairment, or at fair value less accumulated subsequent depreciation and impairment. Additionally, the Amendments confirm that produce growing on bearer plants is a biological asset and remains within the scope of IAS 41, carried at fair value less costs to sell.

On 23 July 2014 EFRAG issued an Invitation to Comment relating to the endorsement of the Amendments for use in the European Union and European Economic Area. EFRAG's initial assessment is that the Amendments satisfy the technical criteria for EU endorsement and EFRAG should therefore recommend their endorsement. Comments were requested by 5 September 2014.

On 19 September 2014, EFRAG issued its Endorsement Advice and Effects Study Report relating to the endorsement of the Amendmnets for use in the European Union and European Economic Area. EFRAG supported the adoption of the Amendments and recommended its endorsement. EFRAG's recommendation is explained in the letter to the European Commission and the accompanying Basis for Conclusions and the Effects Study Report on the costs and benefits of implementing the Amendments.

On 9 July 2015, the Accounting Regulatory Committee (ARC) voted by written procedure in favour of Amendments.