Agricultural activity is a specific type of economic activity, as it involves management measures of the biological transformation of plants and animals. An assessment of the results of these activities in the accounting and their presentation in the financial statements of companies that transferred to the application of international accounting standards is governed by IAS 41 Agriculture.
Cases of application
IAS 41 is used to account for crops in the field, live animals and agricultural products collected as a crop from biological assets of the company. In addition, products are accounted for by IAS 41 only at the time of harvesting. After that, agricultural products fall under the regulation of IAS 2 Stocks or another appropriate standard.
Consequently, IAS 41 is used to measure and record and report:
- biological assets;
- agricultural products at the time of harvesting;
- state grants for the cultivation of biological assets.
Cases of non-application
At the same time, this standard should not be applied to:
- land related to agricultural activity. In this case, IAS 16 and IAS 40 are to be applied;
- fruit plants associated with agricultural activities; since maturity, they fall under IAS 16 (although it is used to their products);
- intangible assets related to agricultural activity; in this case IAS 38 “Intangible Assets” is used.
Common features of agricultural activity
Agricultural activities include a variety of activities: livestock, forestry, growing of annual and perennial plants, orchards and plantings, flowering and water management. The following common features are typical for all these types of activities:
- ability to change: biological transformation is inherent in live animals and plants;
- change management: management simplifies biological transformation by improving or stabilizing the conditions necessary for this process;
- evaluation of changes: the measurement and control of the quality change (genetic property, maturity, fiber strength, etc.) or quantity (progeny, weight, length or diameter of fiber, etc.) caused by biological transformation or harvest is a permanent management function.
That is, all biological assets are subject to biotransformation, which includes processes of growth, degeneration, production and reproduction that result in qualitative and quantitative changes in biological assets.
