International Financial Reporting Standards_guide.pdf

Chapter 12 Agriculture (IAS 41) 135
12.6 FINANCIAL ANALYSIS AND INTERPRETATION
12.6.1 As with any fair value standard, users should pay particular attention to the disclosure
of key assumptions used to determine fair value and the consistency of those assumptions
from year to year.
12.6.2 In particular, the discount rate estimation and estimation techniques used to determine
volumes of agricultural assets are likely to have a significant impact on the fair value
numbers.
12.7 COMMENTARY
12.7.1 IAS 41 requires that agricultural activities are initially measured at fair value, which
is different from the historical cost model widely applied to the initial measurement of other
assets in terms of IFRSs. The fair value model was adopted by the IASB as they believed that
it provides more relevant information relating to the future economic benefits expected from
biological assets.
12.7.2 The main factor that distinguishes agricultural activities from other activities is the
active management of biological transformation. Management facilitates biological transformation
by enhancing, or at least stabilizing, conditions necessary for the process to take
place—for example, nutrient levels, moisture, temperature, fertility, and light.
12.7.3 Biological assets are measured at fair value and there is a rebuttable presumption
that fair value can be reliably measured. The presumption can be rebutted only on initial
recognition, for biological assets for which market-determined prices or values are not available
and for which other alternative fair value estimates (such as present value of discounted
cash flows) are determined to be clearly unreliable. Where the fair value of the biological
asset cannot be reliably determined the biological asset should be measured at cost less accumulated
depreciation and any accumulated impairment losses.
12.7.4 If the fair value of biological assets cannot be determined directly from quoted market
prices or with reference to market prices, the fair value should be calculated as the present
value of net expected cash flows. Determining the future cash flows and discount rate
requires the entity to make estimates and judgments. These estimates and judgments need to
be disclosed.
12.7.5 IAS 41 is only applied to biological assets and agricultural produce up to the point
of harvest. From this point IAS 2 or another applicable IFRS will be applied. Ageing or
maturation processes that occur after harvest are specifically excluded from the scope.
12.7.6 Currently the guidance on measuring fair value is dispersed across the various IFRSs
and is not always consistent. The IASB is currently busy with a project on fair value measurement
and will issue a standard that will establish a single source of guidance for all fair value
measurements. The standard will clarify the definition of fair value and related guidance and
will enhance the disclosures about fair value measurements.
12.7.7 The IASB issued an Exposure Draft of the proposed Fair Value Standard in 2009 and
will most likely issue a final standard in 2010. The guidance relating to the determination of
fair value currently contained in IAS 41 will be replaced by the new standard on fair value
measurement.