European Parliament Passes IAS 41 in 2000
The European Parliament passed the International Accounting Standard, also known as IAS 41 Agriculture, in 2000. The main goal for IAS 41 was to establish guidelines of agricultural activity in accounting such as the management of biological assets into agricultural produce. Biological assets include living plants and animals. Therefore, agricultural produce includes a harvested product of the entity’s biological asset. There is one exception that applies to IAS 41 being that of bearer plants. Bearer plants include a living plant that is used in the production/supply of agricultural produce, expected to bear produce for more than one year, and has a likelihood of being sold as agricultural produce. IAS 41 was originally enacted in December of 2000 and was first applied to annual financial periods beginning on or after January 2003. IAS 41 established a set of precedent for agricultural activities. Those activities included animals and plants are capable of biological transformation, the management of transformation, and the evaluation of the transformation. The management of transformation aids the biological transformation, and/or stabilizes the conditions that are important. In the evaluations of transformation phase the qualitative and quantitative modification is evaluated by a routine management task. Biological assets are acknowledged when the entity controls the asset as a result of past’s events, there is likelihood for economic benefits correlated with the assets that enter the company, and when the cost of the asset can be conducted. Biological assets initial acknowledgment is done at the acquisition or production cost. Biological assets are evaluated at their fair value after the initial accounting process. IAS 41 introduced the evaluation model based on fair value at which the estimated sales costs are subtracted. The evaluation based on fair value is a major shift from the traditional model for evaluation. The fair value evaluation allows for readily finding information. IAS 41 Agriculture asks businesses that are in agricultural to use approaches that are based on fair value when evaluating biological assets in agricultural activity. The standard of Agriculture has one exception from the fair value evaluation. The asset can be evaluated at acquisition or product cost if the biological asset has no market price and the other evaluation of fair value are not relevant. IAS 41 Agriculture issues another element of government subsidies that are related to agricultural activity. According to authors Argiles and Slof in New Oppurtunities for Farm Accounting, they believe that the general idea for fair value is beneficial for small family farms, which posses’ limited liabilities and limited resources to calculate their costs. There are two points as to why the entity will account for the government grant, which is available for biological assets. One of them is if the biological asset is accounted for at fair value less cost to sell, that biological asset will be accounted for if the government grant is unconditional or conditional. The government grant is unconditional when biological assets are less cost to sell in profit or loss when the grant becomes available. A government grant is conditional, when an entity does not engage in certain agricultural activity; the entity then sees when a grant is in a profit or loss when the conditions have been met. The second reason the business will account for government grant is because if the biological asset is measured at cost less accumulated depreciation, because the fair value was not accounted for, then any government grant available for an asset will be taken into consideration. The IAS 41 Agriculture contains a description of an entity’s biological assets; the total gain/loss recognized on the initial recognition of biological assets and harvested agricultural produce for the year, etc. According to IAS 41, if fair value is not able to be conducted in a reliable manner description of assets must be known, an explanation as to why fair value cannot be conducted, depreciation method, a range as to what fair value is likely to be, depreciation rates, and beginning and ending gross amount and accumulated depreciation. Standard IAS 41 has been implemented in a wide range of countries and has led to a profound change in accounting in the agricultural society. The standard allows biological assets to be evaluated on the basis of fair value. IAS 41 Agriculture has been a progressive standard through the years.
IGNAT, Gabriela, et al. "Aspects Regarding the International Accounting Standard I.A.S. 41 - Agriculture." Agronomy Series of Scientific Research / Lucrari Stiintifice Seria Agronomie, vol. 57, no. 2, July 2014, pp. 257-260. EBSCOhost, proxy wcupa.klnpa.org/login?url=http://search.ebscohost.com/login.aspx?direct=
“IAS Plus.” IAS 41 - Agriculture, 2 Apr. 2012, www.iasplus.com/en/standards/ias/ias41.