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Commission Regulation (EC) No 1725/2003
of 29 September 2003
adopting certain international accounting standards in
accordance with Regulation (EC) No 1606/2002
of the European Parliament and of the Council
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This International Accounting
Standard was approved by the IASC Board in December 2000 and
becomes effective for financial statements covering periods
beginning on or after 1 January 2003.
Introduction
1. IAS 41 prescribes the
accounting treatment, financial statement presentation, and
disclosures related to agricultural activity, a matter not
covered in other International Accounting Standards.
Agricultural activity is the management by an enterprise of
the biological transformation of living animals or plants (biological
assets) for sale, into agricultural produce, or into
additional biological assets.
2. IAS 41 prescribes, among other
things, the accounting treatment for biological assets during
the period of growth, degeneration, production, and
procreation, and for the initial measurement of agricultural
produce at the point of harvest. It requires measurement at
fair value less estimated point-of-sale costs from initial
recognition of biological assets up to the point of harvest,
other than when fair value cannot be measured reliably on
initial recognition. However, IAS 41 does not deal with
processing of agricultural produce after harvest; for example,
processing grapes into wine and wool into yarn.
3. There is a presumption that
fair value can be measured reliably for a biological asset.
However, that presumption can be rebutted only on initial
recognition for a biological asset for which market-determined
prices or values are not available and for which alternative
estimates of fair value are determined to be clearly
unreliable. In such a case, IAS 41 requires an enterprise to
measure that biological asset at its cost less any accumulated
depreciation and any accumulated impairment losses. Once the
fair value of such a biological asset becomes reliably
measurable, an enterprise should measure it at its fair value
less estimated point-of-sale costs. In all cases, an
enterprise should measure agricultural produce at the point of
harvest at its fair value less estimated point-of-sale costs.
4. IAS 41 requires that a change
in fair value less estimated point-of-sale costs of a
biological asset be included in net profit or loss for the
period in which it arises. In agricultural activity, a change
in physical attributes of a living animal or plant directly
enhances or diminishes economic benefits to the enterprise.
Under a transaction-based, historical cost accounting model, a
plantation forestry enterprise might report no income until
first harvest and sale, perhaps 30 years after planting. On
the other hand, an accounting model that recognises and
measures biological growth using current fair values reports
changes in fair value throughout the period between planting
and harvest.
5. IAS 41 does not establish any
new principles for land related to agricultural activity.
Instead, an enterprise follows IAS 16, property, plant and
equipment, or IAS 40, investment property, depending on which
standard is appropriate in the circumstances. IAS 16 requires
land to be measured either at its cost less any accumulated
impairment losses, or at a revalued amount. IAS 40 requires
land that is investment property to be measured at its fair
value, or cost less any accumulated impairment losses.
Biological assets that are physically attached to land (for
example, trees in a plantation forest) are measured at their
fair value less estimated point-of-sale costs separately from
the land.
6. IAS 41 requires that an
unconditional government grant related to a biological asset
measured at its fair value less estimated point-of-sale costs
be recognised as income when, and only when, the government
grant becomes receivable. If a government grant is conditional,
including where a government grant requires an enterprise not
to engage in specified agricultural activity, an enterprise
should recognise the government grant as income when, and only
when, the conditions attaching to the government grant are
met. If a government grant relates to a biological asset
measured at its cost less any accumulated depreciation and any
accumulated impairment losses, IAS 20, accounting for
government grants and disclosure of government assistance, is
applied.
7. IAS 41 is effective for annual
financial statements covering periods beginning on or after 1
January 2003. Earlier application is encouraged.
8. IAS 41 does not establish any
specific transitional provisions. The adoption of IAS 41 is
accounted for in accordance with IAS 8, net profit or loss for
the period, fundamental errors and changes in accounting
policies.
9. Appendix A provides
illustrative examples of the application of IAS 41. Appendix
B, Basis for conclusions, summarises the Board's reasons for
adopting the requirements set out in IAS 41.
The standards, which have been
set in bold italic type, should be read in the context of the
background material and implementation guidance in this
Standard, and in the context of the "Preface to International
Accounting Standards". International Accounting Standards are
not intended to apply to immaterial items (see paragraph 12 of
the Preface).
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