Measuring a farming client's biological assets
How a farming client measures livestock, growing crops and produce at harvest at fair value less costs to sell under IAS 41, and what the file needs.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A cattle farmer's herd grows, ages and calves during the year. A maize grower's crop moves from seed in the ground to a standing field to grain in the silo. A broiler operation turns day-old chicks into birds ready for slaughter within weeks. In each case the asset itself changes while it sits on the farm. Cost-based accounting struggles to describe that, so IAS 41 measures these assets at fair value instead.
For firms with farming clients across South Africa, Nigeria and Kenya, the measurement question returns every year, and the answer depends on exactly what is on the farm at the reporting date.
What counts as agricultural activity
IAS 41 defines agricultural activity as the management of the biological transformation of biological assets, meaning living animals or plants, and their harvest for sale or for conversion into agricultural produce or into additional biological assets.
Three parts of that definition help with scoping:
- Management. The standard is about farming, where someone manages the growth and harvest. A wild herd that nobody tends is a different matter.
- Biological transformation. The animal grows, the cow produces milk and calves, the crop ripens.
- Harvest. The point where the living asset yields something detached from it, or is itself harvested.
Bearer plants, such as fruit trees and vines, are a carve-out: they fall under IAS 16 instead, as explained in bearer plants, their produce and the land beneath.
Fair value less costs to sell
Under IAS 41, biological assets other than bearer plants are measured at fair value less costs to sell. IAS 41 states that costs to sell include commissions, levies, and transfer taxes and duties.
For each class of biological asset, the preparer needs three things:
- A source of fair value. For livestock, sale-yard or abattoir prices for animals of similar age, breed and condition. For crops still in the field, a reasoned value based on the expected harvest and its price, reflecting the work and risk that remain.
- Costs to sell. The commissions, levies and transfer taxes or duties that a sale would attract, as IAS 41 lists them.
- A count. Head of cattle by category, hectares planted by crop, birds in each house, confirmed by a physical count close to year end.
Write down the source of each price and the date it relates to. A price from three months after year end, or for animals in a different condition, needs adjusting before it can be used.
Produce at the point of harvest
Under IAS 41, agricultural produce at the point of harvest is also measured at fair value less costs to sell. That measurement is the handover point. The milk, the harvested grain and the shorn wool leave the biological asset at that value, and from then on they are dealt with as stock.
The practical consequence is that the harvested produce does not begin its life in the books at a cost built up from seed, fertiliser and labour. It begins at its value on the day of harvest, less the costs of selling it. Clients who are used to costing their crops find this odd at first, and it is worth explaining before they see the statements.
Fair value changes in profit or loss
Under IAS 41, changes in the fair value of biological assets are included in profit or loss. A herd that grows in number and weight produces a gain; a fall in sale-yard prices produces a loss. Both go through profit or loss in the year they occur.
This makes a farming client's profit more volatile than its cash, and the client needs to understand why. A presentation that shows the fair value movement separately from trading results lets a reader see both. The client should also understand that the gain is not money in the bank; the cash arrives only when the animals or crops are sold. IAS 41 also requires biological assets attached to land, such as plantation trees, to be measured separately from that land.
Is the client on the right framework?
Full IFRS is not the only framework a farming company might use. A small farming business may report under IFRS for SMEs instead, and the framework decides which measurement rules apply. Settle that question before measuring anything; see choosing a reporting framework.
Lines, notes and policy in the Studio
In Achekam's Financials Studio, a firm can add its own statement lines and groups and change the wording of any row title, and later builds keep those choices. A farming client's statements can show "Livestock" and "Growing crops" as separate lines, and a "Fair value adjustment on biological assets" line in profit or loss, each still totalling into a standard line so the notes and the cash flow statement stay consistent.
The Studio's policy library is based on IFRS for SMEs and each standard policy is labelled for review before issue; staff can write their own. For a full IFRS client applying IAS 41, the agriculture policy will usually be the firm's own wording. Notes take their figures from the mapped trial balance; the counts, price sources and assumptions the trial balance cannot hold are left as "[to be completed]".
Treat those placeholders as a checklist. Each one asks for evidence: the count sheet, the sale-yard report, the price source, the costs-to-sell working.
A year-end routine for a farming client
- Confirm the reporting framework and the classes of biological assets.
- Count the animals and measure the crops close to year end.
- Gather fair value evidence for each class and work out the costs to sell.
- Record produce harvested in the year at fair value less costs to sell at harvest.
- Post the fair value movement to profit or loss, with the working on file.
- Complete the policy and note placeholders from that evidence.
The IFRS Foundation's IAS 41 summary page sets out the accounting treatment, presentation and disclosures for agricultural activity.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
