The Objective and the Scope
Chapter Six
Syllabus topic 5, "Introduction, Objective and Scope."
Pages 12 to 13 of 110
The objective
One sentence, and the standard's own:
The objective of this Standard is to prescribe the accounting treatment and disclosures related to agricultural activity.
Two words in it do work. Treatment covers recognition, measurement, and gains and losses. Disclosures is the whole of paragraphs 40 to 57. And the subject is not agriculture at large but agricultural activity, which paragraph 5 defines and the next chapter takes up.
The scope: what is in
Paragraph 1 is a bold paragraph, so it is a main principle:
This Standard shall be applied to account for the following when they relate to agricultural activity:
(a) biological assets;
(b) agricultural produce at the point of harvest; and
(c) government grants covered by paragraphs 34 and 35.
Three things, and each is limited.
Biological assets, without qualification. A living animal or plant held for agricultural activity.
Agricultural produce at the point of harvest, and no further. Five words that decide a great deal, and paragraph 3 explains them below.
Government grants covered by paragraphs 34 and 35, which is not every grant a farm receives. Only grants related to a biological asset measured at fair value less costs to sell. The chapter on government grants works out what falls outside.
The scope: what is out
Paragraph 2 excludes four things, and it is worth learning the list because each exclusion sends the item to a different standard.
| Excluded | Goes to |
|---|---|
| (a) Land related to agricultural activity | Ind AS 16, Property, Plant and Equipment, or Ind AS 40, Investment Property |
| (b) Bearer plants related to agricultural activity | Ind AS 16. But the produce ON those bearer plants is inside Ind AS 41 |
| (c) Government grants related to bearer plants | Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance |
| (d) Intangible assets related to agricultural activity | Ind AS 38, Intangible Assets |
The sting is in (b), and paragraph 2 itself puts it there. After excluding bearer plants it adds, in the same paragraph: However, this Standard applies to the produce on those bearer plants. A tea bush is Ind AS 16. The leaves growing on it are Ind AS 41. The chapter on the bearer plant is entirely about that line.
The point of harvest, and what happens after it
Paragraph 3 is the paragraph that decides where this standard stops.
This Standard is applied to agricultural produce, which is the harvested produce of the entity's biological assets, at the point of harvest. Thereafter, Ind AS 2 Inventories or another applicable Standard is applied.
And it gives the example that settles the commonest confusion. The processing of grapes into wine by a vintner who has grown the grapes is not within Ind AS 41.
The Objective and the Scope
While such processing may be a logical and natural extension of agricultural activity, and the events taking place may bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity in this Standard.
So there are three stages and only the first two are here.
- The living plant or animal. Ind AS 41.
- The moment of harvest. Ind AS 41 measures the produce at that instant.
- Everything after harvest. Ind AS 2, with the paragraph 13 measurement as the cost brought forward.
Paragraph 4: the table the examiner likes
Paragraph 4 sets out examples in three columns, and it is the clearest thing in the standard. It is reproduced here as the standard prints it.
| Biological assets | Agricultural produce | Products that are the result of processing after harvest |
|---|---|---|
| Sheep | Wool | Yarn, carpet |
| Trees in a timber plantation | Felled Trees | Logs, lumber |
| Dairy Cattle | Milk | Cheese |
| Pigs | Carcass | Sausages, cured hams |
| Cotton plants | Harvested cotton | Thread, clothing |
| Sugarcane | Harvested cane | Sugar |
| Tobacco plants | Picked leaves | Cured tobacco |
| Tea bushes | Picked leaves | Tea |
| Grape vines | Picked grapes | Wine |
| Fruit trees | Picked fruit | Processed fruit |
| Oil palms | Picked fruit | Palm oil |
| Rubber trees | Harvested latex | Rubber products |
Column one and column two are Ind AS 41. Column three is not.
Paragraph 4 then adds the sentence that connects the table to the bearer plant exclusion:
Some plants, for example, tea bushes, grape vines, oil palms and rubber trees, usually meet the definition of a bearer plant and are within the scope of Ind AS 16. However, the produce growing on bearer plants, for example, tea leaves, grapes, oil palm fruit and latex, is within the scope of Ind AS 41.
Read the two together and the table sorts itself. Rows 8 to 12 have a bearer plant in column one, so column one of those rows is Ind AS 16 and only column two is Ind AS 41. Rows 1 to 7 have a consumable biological asset in column one, and column one is Ind AS 41.
A short exam drill
Say which standard governs each, and why.
- A herd of dairy cattle on 31 March. Ind AS 41, a biological asset.
- The milk in the tank at the moment of milking. Ind AS 41, agricultural produce at the point of harvest.
- The same milk, unsold, three days later. Ind AS 2, by paragraph 3.
- The cheese made from it. Ind AS 2. Processing after harvest, paragraph 3.
- The tea bushes. Ind AS 16, a bearer plant, paragraph 2(b).
- The tea leaves growing on those bushes. Ind AS 41, paragraph 2 and paragraph 4.
- The land the bushes grow in. Ind AS 16 or Ind AS 40, paragraph 2(a).
- A subsidy for planting the bushes. Ind AS 20, paragraph 2(c).
- A subsidy on the dairy herd, which is carried at fair value less costs to sell. Ind AS 41, paragraph 1(c).
- Standing sugarcane in the field. Ind AS 41, a biological asset. Sugarcane is not a bearer plant, because it is harvested as agricultural produce.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.