IPSAS 27 is based on IAS 41 Agriculture.
IPSAS 27 outlines the accounting treatment for agricultural activity, the biological transformation and harvest of biological assets and conversion into agricultural produce. Biological assets are to be measured at fair value less costs to sell unless fair value measurement is unreliable. For agricultural produce the standard presumes that the fair value can be determined reliably, which serves as the costs basis for application of IPSAS 12 Inventories subsequently.
IPSAS 27 was issued in December 2009 and applies to annual periods beginning on or after 1 April 2011.
History of IPSAS 27
Annual periods beginning on or after 1 April 2011
Refer to IFAC website here
Summary of IPSAS 27 Agriculture
IPSAS 27 prescribes the accounting treatment for agricultural activity [IPSAS 27.1].
This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 27.2]. IPSAS 27 applies to all public sector entities other than GBEs [IPSAS 27.7].
Entities applying this standard should apply this standard for following types of agricultural activity [IPSAS 27.2]:
• Biological assets
• Agricultural produce at the point of harvest.
IPSAS 27 does not apply to:
• Land related to agricultural activity (IPSAS 16, Investment Property and IPSAS 17, Property, Plant, and Equipment);
• Intangible assets related to agricultural activity (IPSAS 31, Intangible Assets)
• Biological assets held for the provision or supply of services.
Key definitions [IPSAS 27.9]
Agricultural activity: the management by an entity of the biological transformation and harvest of biological assets for:
• Distribution at no charge or for a nominal charge
• Conversion into agricultural produce or into additional biological assets for sale or for distribution at no charge or for a nominal charge.
Agricultural produce: is the harvested product of the entity’s biological assets.
Biological asset: a living animal or plant.
Harvest: the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.
Costs to sell: the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes.
A biological asset or agriculture produce should be recognized only when [IPSAS 27.13]
• the entity controls the asset as a result of past events
• it is probable that future economic benefits will flow to the entity
• the fair value or cost of the asset can be measured reliably
Biological assets must be measured on initial recognition and at subsequent reporting dates at its fair value less costs to sell, except when fair value cannot be reliably measured [IPSAS 27.16].
At the point of harvest, agricultural produce must be measured at fair value less costs to sell [IPSAS 27.18].
Attention point: Fair value measurement stops at harvest, IPSAS 12 Inventories applies after harvest. The fair value determined at harvest serves as the cost for application of IPSAS 12 [IPSAS 27.18]
The gain or loss that arises on initial recognition of biological assets at fair value less costs to sell, and from subsequent changes in fair value less during a period, are reported in surplus or deficit [IPSAS 27.30].
The gain or loss that arises from the initial recognition of agricultural produce at fair value less costs to sell should be included in surplus or deficit in the period in which it occurs [IPSAS 27.32].
A consequence of valuing all biological assets at fair value is that all costs related to these assets are expensed when incurred, other than costs to purchase biological assets (i.e. purchase price should approximate fair value).
IPSAS 27 presumes that fair value can be reliably measured for biological assets [IPSAS 27.34]. However, this presumption can be rebutted, for a biological asset, only when the asset does not have a market determined price and for which alternative methods of estimating fair value are clearly unreliable. In that case, the asset is measured at cost less accumulated depreciation and impairment losses. If afterwards the fair value becomes reliably measurable, the entity has to measure the biological asset at fair value less costs to sell [IPSAS 27.34]
Regarding the determination of fair value of a biological asset or agricultural produce, IPSAS 27 includes following guidance:
• the quoted market price in an active market is a reliable and preferred basis for determining the fair value of that asset. If an active market does not exist, a market-determined price such as the most recent market price for that type of asset, or market prices for similar or related assets, or sector benchmarks [IPSAS 27.21-22]
• the fair value of a biological asset is based on the current market and is not adjusted to reflect the existence of a contract that stipulates delivery at a future date [IPSAS 27.20]. The stipulations of IPSAS 19 apply to determine if the sale contract may be an onerous contract.
• if reliable market-determined prices are not available, the present value of expected net cash flows from the asset must be used, discounted at a current market-determined rate [IPSAS 27.24-27]
• the cost of the asset could be an indicator of its fair value, particularly when little biological transformation has taken place or the impact of biological transformation on price is not expected to be material [IPSAS 27.28]
Following disclosures are required:
• aggregate gain or loss arising [IPSAS 27.38]
o on initial recognition of biological assets and agricultural produce
o from the change in fair value less costs to sell of biological assets
• description of an entity's biological assets that distinguishes between [IPSAS 27.39]
o Consumer and bearer biological assets
o Biological assets held for sale and those held for distribution at no charge or for a nominal charge
A description of the nature of the activities with regard to each group of biological assets [IPSAS 27.44].
Non-financial measures or estimates of physical quantities of the asset held at reporting date and the output during the period [IPSAS 27.44].
Disclosure of methods and significant assumptions with regard to the determination of the fair value of each group of agricultural produce at the point of harvest and for each group of biological assets [IPSAS 27.45].
For agricultural produce, the entity is required to disclose the fair value less costs to sell determined at the time of harvest [IPSAS 27.46].
Furthermore an entity should disclose [IPSAS 27.47]:
• Carrying amount and existence of biological assets whose title is restricted or that are pledged as security [IPSAS 27.47]
• Nature and extent of restrictions to use or sell biological assets [IPSAS 27.47]
• commitments for development or acquisition of biological assets [IPSAS 27.47]
• financial risk management strategies related to the agricultural activity [IPSAS 27.47]
• reconciliation of changes in the carrying amount of biological assets, including [IPSAS 27.48]:
o changes in fair value
o acquisition via non-exchange transactions
o decrease due to distributions at no charge or for a nominal charge
o decrease related to harvesting
o entity combinations
o net exchange differences
o other changes
When fair value cannot be measured reliably, additional required disclosures for biological assets include [IPSAS 27.52]
• description of the biological assets
• the reason why fair value cannot measured reliable
• if possible, a range of estimates within which fair value is highly likely to lie
• depreciation method
• useful lives or depreciation rates applied
• gross carrying amount and the accumulated depreciation, at begin and end of the reporting period
In case biological assets are measured at cost less accumulated depreciation and impairment losses [IPSAS 27.53]:
• gain or loss upon disposal of these assets
• a reconciliation of the carrying amounts at the begin and end of the period, taking into account the items included in IPSAS 27.48 (cf supra)
• following amounts included in surplus or deficit
o impairment losses
o reversal of impairment losses
In case the fair value of biological assets previously measured at cost now becomes available, following additional disclosures are required [IPSAS 27.54]:
• description of the biological assets
• explanation of why fair value has become reliably measurable
• effect of the change
Issuance of IPSAS 27: Agriculture
1 April 2011
Effective date of IPSAS 27