Agricultural Assets and IAS 41: Simplifying Agriculture Accounting

Agriculture is one of the world’s biggest industries, and in Australia, it’s dominated by sectors like grains, meat, wool, dairy, and horticulture. But unlike other industries, agriculture deals with living animals and plants—things that grow, reproduce, and eventually die. So, how do we account for all this in the books? Let's dive into agricultural activities and assets, as outlined by International Accounting Standard 41 (IAS 41).

What Counts as Agricultural Activity?

Not every plant or animal-related activity qualifies as agriculture. According to IAS 41, agricultural activity involves managing the growth and transformation of living animals and plants for specific purposes:

1. Sale

2. Conversion into agricultural products

3. Creating additional biological assets

Common examples of agricultural activities are raising livestock, fish farming, breeding horses, forestry, and cultivating vineyards or orchards. But here’s the catch: to qualify as agricultural activity, the process has to be managed.

For instance, fish farming counts as agricultural activity because the growth of the fish is controlled. In contrast, ocean fishing doesn’t count—it’s harvesting, but from an unmanaged environment.

The development of living organisms like cultures, cells, semen, bacteria, and viruses is considered an agricultural activity when these organisms are produced for sale or used to create agricultural products or additional assets—for example, using semen for livestock breeding or bacteria for dairy production. However, if these organisms are developed solely for research, they don’t count as agricultural activities.

Similarly, growing plants for medicines is considered agricultural, while growing plants just to beautify a park or office isn’t. And, if you’re managing animals in a zoo, that’s not agricultural unless there's a breeding program aimed at producing animals for sale.

Types of Agricultural Assets

Now, let’s talk about the assets in agriculture. Agricultural assets are categorized to help us apply the right accounting standards and valuation methods. Here’s a breakdown:

1. Biological Assets
   These assets are the actual living plants and animals. They can be further divided into:

   • Consumable biological assets: These are meant for harvesting or selling, like crops harvested for grain or pigs raised for meat. According to IAS 41, consumable biological assets are measured at fair value minus the cost of selling.

   • Bearer biological assets: These are long-term assets, like apple trees for fruit production or dairy cows for milk. They’re expected to produce over multiple periods. Bearer animals fall under IAS 41 and are also valued at fair value minus selling costs. However, bearer plants, like orchards, are measured according to IAS 16 (Property, Plant, and Equipment), which allows for either a cost model or revaluation model.

2. Agricultural Produce
   Agricultural produce is what you harvest from the biological assets—apples, milk, grains, meat, etc. Right at the harvest point, produce is measured at fair value minus costs to sell. After that, it’s treated as inventory (per IAS 2) and tracked as regular stock.

It’s worth noting that the produce stops being “agricultural” once it’s processed. So, while milk is agricultural produce, yogurt made from that milk is not.

3. Agricultural Land
   The land used for farming falls under IAS 16 and is accounted for using either a cost model or revaluation, depending on the approach that fits the business best.

Summing It Up

Agriculture accounting under IAS 41 might sound complex, but it all comes down to knowing what qualifies as agriculture, managing the biological transformation process, and categorizing assets appropriately. By understanding the purpose and lifecycle of each asset—from livestock to orchards to harvested crops—we can ensure they’re recorded accurately, helping farmers and businesses keep a clear view of their financial landscape.