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Required
Value of biological asset at cost 12/31/X8 600
Fair valuation surplus on initial recognition at fair value 12/31/X8 700
Change in fair value to 12/31/X9 due to growth and price fluctuations 100
Decrease in fair value due to harvest 90
Show how these values would be incorporated into the financial statements at December 31, 20X9.
Solution
Extract from “Statement of Financial Position” at December 31, 20X9:
Biological assets 600
Fair valuation (included in profit or loss year ended 12/31/X8) 700
Carrying value 1/1/20X9 1,300
Change in fair value 100
Decrease due to harvest (90)
Carrying value at December 31, 20X9 1,310
Extract from “Statement of Comprehensive Income” for year ended December 31, 20X9:
Biological assets change in fair value 100
Decrease due to harvest (90)
Net gain 10
PRACTICAL INSIGHT
Stora Enso Oyj, a Finnish entity, applied IAS 41 in its financial statements for the year ended December 31, 2003. The entity is a producer of timber and
timber products. It previously classified its forests as land within noncurrent assets and valued them at cost. Following the adoption of IAS 41, the entity
reclassified the forests as biological assets and measured them at fair value. The effect was to increase the carrying value of the forests from €706 million to
€1,562 million.
FAIR VALUE RELIABILITY
IAS 41 presumes that fair value can be measured reliably for a biological asset. However, it is possible that this presumption can be rebutted for a biological asset
that, when it is first recognized, does not have a quoted market price in an active market and for which other valuation methods are clearly inappropriate or
unworkable. In this case, the asset is measured at cost less accumulated depreciation and any impairment losses. All the other biological assets 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 pointof-sale
costs.
If a noncurrent biological asset meets the criteria to be classified as held for sale or is included in a disposal group in accordance with IFRS 5, then it is presumed
that fair value can be measured reliably.
In determining cost, depreciation, and impairment losses, the entity should use IAS 2, IAS 16, and IAS 36.
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