What Ind AS 41 Is
Chapter Five
Syllabus topic 4, "Unit II: Indian Accounting Standard (Ind-AS) 41"
Pages 9 to 11 of 110
In one line
Ind AS 41, Agriculture, is the Indian Accounting Standard that says how a living animal or plant, and the produce harvested from it, are recognised, measured and disclosed.
Where it comes from, and why we may quote it
This matters, and it takes three sentences.
The Central Government prescribes accounting standards under section 133 of the Companies Act 2013. It did so for the Indian Accounting Standards by the Companies (Indian Accounting Standards) Rules, 2015, notified in the Official Gazette as G.S.R. 111(E) dated 16th February 2015. Ind AS 41 carries that notification in a footnote on its own first page.
So the text is Gazette matter, and these notes quote it directly rather than paraphrasing somebody's summary of it.
Its own statement of purpose
The standard opens with an objective, and it is one sentence:
The objective of this Standard is to prescribe the accounting treatment and disclosures related to agricultural activity.
It also tells the reader how to read it:
The Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.
Bold and plain have equal authority. A student who assumes the plain paragraphs are commentary will drop half the standard.
Why agriculture needed a standard of its own
Because the two standards that would otherwise have governed it both push it away in terms.
AS 2, Valuation of Inventories, does not apply to producers' inventories of agricultural and forest products, agricultural produce after harvest, and minerals, to the extent that they are measured at net realisable value in accordance with well established practices in those industries.
AS 9, Revenue Recognition, does not deal with revenue arising from natural increases in herds and agricultural and forest products.
Both exclusions are taught in Accountancy and Financial Management - I of this same semester. Put them together and the position before Ind AS 41 was this: the two standards that tell an ordinary business how to value its stock and when to recognise its revenue say, in their own words, that agriculture is not their subject. Something had to fill the gap, and this is it.
The problem it actually solves
A trader's cost is a price somebody charged. A crop's cost is not. Between sowing and harvest the wheat in the field becomes more valuable every week, and no transaction records it. If the crop is carried at cost until it is sold, the accounts report nothing at all for months and then report the entire gain in the week of sale, in the year of sale.
Ind AS 41's answer is to stop using cost. A biological asset is carried at fair value less costs to sell, remeasured at the end of every reporting period, and the change goes through profit or loss as it arises. The growth is reported in the period in which the growing happened.
What Ind AS 41 Is
Who has to apply it
Ind AS apply to the companies the Companies (Indian Accounting Standards) Rules 2015 name, by net worth and by listing, and to their holding, subsidiary, joint venture and associate companies. A farmer as an individual does not prepare Ind AS financial statements.
That does not make the standard academic for this paper, and the reason is worth stating. A plantation company, a dairy company, a poultry company, a seed company and an agri-business that runs its own farms all apply it, and they are exactly the employers MU's own preface names for a student of this subject. And the standard's method, measuring the living asset at what it is currently worth rather than at what it cost, is the right way to think about a farm's value whoever is keeping the books.
What it does not cover
Four things, and each is dealt with in the next chapter with the paragraph that says so: land used for agriculture, bearer plants themselves, government grants related to bearer plants, and intangible assets related to agricultural activity. It also stops at the point of harvest: paragraph 3 hands the harvested produce over to Ind AS 2 or another applicable standard from that moment on.
Ind AS 41 and IAS 41
Ind AS 41 corresponds to IAS 41, Agriculture, issued by the International Accounting Standards Board. Its own Appendix 1 sets out the differences, and there are only two of substance:
- Different terminology. Ind AS 41 says balance sheet where IAS 41 says statement of financial position, and statement of profit and loss where IAS 41 says statement of profit or loss and other comprehensive income.
- Certain paragraphs are deleted in IAS 41 but their numbers are retained in Ind AS 41 so that the numbering of the two runs together. Those are paragraphs 9, 14, 17 to 21, 23, 39, and 47 to 48. They print the words Refer Appendix 1 and carry no requirement.
Do not be alarmed by the gaps in the numbering. They are deliberate, they are explained in the standard itself, and a paper that asks for the disclosure paragraphs is not asking about paragraph 39.
The map of the standard
| Paragraphs | What they do |
|---|---|
| Objective, 1 to 4 | Objective and scope |
| 5 to 8 | Definitions |
| 10 to 25 | Recognition and measurement |
| 26 to 29 | Gains and losses |
| 30 to 33 | Inability to measure fair value reliably |
| 34 to 38 | Government grants |
| 40 to 57 | Disclosure |
What Ind AS 41 Is
That is the whole standard, and the chapters that follow take it in that order.
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.