The IAS 41 Agriculture is the original standard to specifically cover the main sector. Read on this Audit firm in Dubai summary of IAS Agriculture to learn more
IAS 41 introduces an agricultural accounting fair value model. This represents a significant shift from the cost model that is widely used in primary industries in Dubai, UAE. IAS 41 applies to agricultural activities in which the income-producing biological resources are living animals and plants. This will include harvested products of those assets. Bearer plants are:
- Used in the production and supply of agricultural products;
- Expected to bear produce for more than one period.
- There is a very low chance that they will be sold as agricultural produce.
Tea bushes, grapevines, and rubber trees would be considered bearer plants. Company audit experts would account for these plants using IAS 16, which is the accumulated cost from maturity. After that, they are subject to impairment and depreciation. Internal auditors could also use the revaluation model. They will account for the agricultural products they produce using IAS 41 or IAS 2.
In contrast, in the example of an annual wheat crop, where the plants are expected to have a useful lifespan that doesn’t exceed the next year, the introduction and maintenance of the fair value model shouldn’t have such a significant impact.
Areas That IAS 41 Applies
Biological assets are living plants and animals. For example, trees in an orchard or plantation, cultivated plants, sheep or cattle, are related to managed agriculture activity. For instance, livestock raising, forestry, perennial cropping, or fish farming. Agricultural activity refers to the management of biological transformation. This is the process of growing, producing, and procreating that results in qualitative or quantitative changes in biological assets.
- At the harvest point, agricultural produce.
- Grants from the government for agricultural assets
Areas Where IAS 41 Does Not Apply
- Bearer plants that are related to agricultural activity (IAS 16 Property, Plant and Equipment).
- Products that result from processing after harvest are yarn/carpet, wine, rubber, and logs – IAS 2 Inventories applies
- Land on which biological assets grow, regenerate and/or die (IAS 16, Property, Plant and Equipment, IFRS 16 Leases or IAS 40, Investment Properties)
- Any intangible asset that is associated with agricultural activity, such as licenses or rights (IAS 38 – Intangible Assets) applies.
- Non-managed agricultural activity, such as harvesting from ocean fishing
- Minerals, oil, natural gases, and other non-regenerative resources are not yet covered by the IAS.
Because IAS 41 covers biological assets that are related to managed agricultural activities, the following accounting standards do not apply.
- IAS 2 until the harvest of agricultural produce
- IAS 16, IFRS 16 and IAS 40
IFRS 15 Revenue from Contracts With Customers.
This refers to revenue arising out of the initial recognition of agricultural products and initial recognition and modifications in fair value for biological assets.
- IAS 20 Accounting for Government Grants, and Disclosure of Government Assistance
- IAS 36, Impairment Of Assets, is when biological assets are valued at fair value.
IAS 41 addresses the following primary issues:
- What should be the appropriate time for a statement of financial position to recognize a biological asset?
- What value should an agricultural product or biological asset be valued?
- How should the value difference between two years of an agricultural product or biological asset be considered?
IAS 41 outlines the most common tests that audit services in UAE in order for a biological asset, or agricultural product, to be recognized on the statement financial position.
- The Dubai enterprise must be able to claim ownership of the rights or control similar to those that are a result of a past event
- The entity will reap future economic benefits from the asset’s ownership or control.
- It is possible to measure the asset’s fair or cost value reliably.
At initial recognition, biological assets should be assessed at fair value less the estimated selling costs. At the point of harvest, agricultural produce is measured at its fair value less the estimated cost to sell it at that time. The point of harvest is the transition from accounting for agricultural produce items using IAS 2 and IAS 41. IAS 2 defines ‘cost’ as the difference between fair value and the selling costs at the point of harvest.
The incremental costs of selling are the costs directly attributable to the disposal. They exclude taxation and finance cost. These costs do not include transport costs, which are necessary for assets to reach a market. They are considered in arriving at fair values. IAS 41 includes a rebuttable assumption that fair value can only be established for all agricultural products and biological assets. The presumption can only be refuted if such assets are first recognized.
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Theshani is a Senior auditor and has experience of 4+ years in providing audit assurance and advisory services to a wide range of industry clients. She continues to stay on top of ever-changing industry dynamics by continuously learning and developing expertise.