Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IAS 41 - Agriculture

Indian equivalent: Ind AS 41 - Agriculture

Objective and scope

IAS 41 covers the accounting for living plants and animals used in farming (biological assets) and the produce harvested from them, requiring most to be measured at fair value less costs to sell, with changes going to profit as the assets grow.

Core principle

Farm assets are unusual - they grow and change biologically, adding value before any sale. IAS 41 says: measure living crops and livestock at fair value less costs to sell and recognise the change in profit each period, capturing the value of growth as it happens, not only when sold.

Defined terms and technical terminology

Term	Technical meaning
Biological asset	A living animal or plant (dairy cattle, sheep, fruit trees, growing crops).
Agricultural produce	The harvested product of biological assets (milk, wool, picked fruit, harvested grain).
Biological transformation	The processes of growth, degeneration, production and procreation that change a biological asset.
Fair value less costs to sell	Market value of the asset minus the costs to get it to market.
Bearer plant	A plant used to grow produce over many years (e.g., a grape vine, apple tree) - accounted as PPE under IAS 16, not IAS 41.

Application and worked illustrations

The fair-value model

Biological assets are measured at fair value less costs to sell at each reporting date, and the change is recognised in profit. Agricultural produce is measured at fair value less costs to sell at the point of harvest - that value then becomes its 'cost' for IAS 2 (inventory) purposes afterwards. If fair value genuinely cannot be measured reliably (rare), a cost model is used.

Worked example

A dairy farm owns cattle with a fair value less costs to sell of ₹40,00,000 at the start of the year. Through growth and the birth of calves, the herd's fair value less costs to sell rises to ₹48,00,000 by year-end. IAS 41 recognises the ₹8,00,000 increase in profit, even though no animal has been sold - the value was created by biological transformation. Separately, milk harvested during the year is measured at fair value less costs to sell at harvest and recorded as inventory.

Journal entry - Recognise gain from biological growth
Account	Debit (₹)	Credit (₹)
Biological assets (cattle)	8,00,000
Gain from change in fair value (P&L)		8,00,000

Bearer plants - the important carve-out

A bearer plant (a grape vine, tea bush or apple tree used to produce crops year after year) is not an IAS 41 biological asset - it is accounted for as PPE under IAS 16 and depreciated, because it functions like a machine. But the fruit growing on it is still a biological asset under IAS 41 until harvest.

Common mistake: measuring growing crops/livestock at cost. IAS 41 generally requires fair value less costs to sell, with growth-driven changes in profit.

IND AS LINK

Ind AS 41 aligns with IAS 41, including the bearer-plant treatment (bearer plants under Ind AS 16). This is especially relevant for Indian tea, coffee, rubber and horticulture companies.

Further worked illustrations

Extra numeric example - livestock born during the year

A sheep farm starts with 100 sheep at fair value less costs to sell of ₹5,000 each = ₹5,00,000. During the year 20 lambs are born and all sheep grow; at year-end the flock's total fair value less costs to sell is ₹7,20,000. The ₹2,20,000 increase is recognised in profit - split conceptually between the price change and the physical change (growth and new births) - even though not a single animal was sold.

Journal entry - Gain from biological growth and births
Account	Debit (₹)	Credit (₹)
Biological assets (livestock)	2,20,000
Gain - change in fair value (P&L)		2,20,000

INDIAN REGULATORY CONTEXT

For Indian plantation companies, the bearer plants (tea bushes, coffee shrubs, rubber trees) are PPE under Ind AS 16 and depreciated, while the harvested leaf/bean/latex is agricultural produce under Ind AS 41, measured at fair value less costs to sell at harvest. This split is central to how Indian plantation accounts are prepared.

TECHNICAL EDGE CASE

Grapes ripening on the vine are a biological asset under IAS 41 (measured at fair value less costs to sell), even though the vine itself is PPE under IAS 16. At harvest, the picked grapes become agricultural produce, valued at fair value less costs to sell, and that value becomes their 'cost' as inventory (IAS 2) thereafter. So one vineyard involves three standards at once - IAS 16 (vine), IAS 41 (growing grapes), IAS 2 (harvested grapes).

Part B - International Financial Reporting Standards (IFRS)