As per the various sections of the IFRS for SMEs (IASB, 2015) of IFRS, an entity using this IFRS which is engaged in agricultural activity shall disclose its accounting policy for each class of its biological assets as follows:
(a) Fair value model in paragraphs 34.4–34.7 will be used by the entity for all biological assets for which fair value is readily determinable without undue cost or effort.
(b) Cost model in paragraphs 34.8–34.10 will be applied by the entity for all other biological assets.
2.4.1 Recognition
Biological assets or agricultural produce will be recognised by the entity when and only when:
(a) The control is in the hands of the entity as a result of past dealings;
(b) It is likely that economic benefits in the future associated with the asset will flow to the entity; and
(c) The fair value or cost of the asset can be reliably calculated with no excessive cost or effort (IASB, 2015: par 34.3).
2.4.2 Measurement – fair value model
Biological assets shall be measured by an entity on initial recognition and at each reporting date at its fair value less costs to sell. Changes in fair value less costs to sell shall be recognised in profit or loss (IASB, 2015).
Harvested agricultural produce from the biological assets of an entity shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 Inventories or another applicable section of this IFRS (IASB, 2015 sec. 34.5).
According to the IASB (2015) in the determination of fair value, an entity shall factor in the following:
(a) The quoted price in that market is the appropriate basis for determining the fair value only if an active market exists for a biological asset or agricultural produce in its present location and condition. The existing market price is expected to be used if an entity has access to different active markets.
(b) An entity shall use one or more of the following, when available, in determining fair value if an active market does not exist:
(i) Given that there is insignificant change in economic conditions between the transaction date and the end of the reporting period, the most recent market transaction price shall be used;
(ii) Market prices for comparable assets with modification to reflect differences; and
(iii) Sector benchmarks such as the value of oil palm plantation expressed for every hectare and the value of sheep expressed per kilogram of meat.
(c) In diverse situations, the sources of information mentioned in (a) or (b) could propose diverse conclusions regarding fair value of a biological asset or agricultural produce. An entity factors in the grounds for individual disparities, to reach the most consistent fair value estimate surrounded by a comparatively slight series of realistic estimates.
(d) In a number of situations, fair value may possibly be determined devoid of excessive cost or effort even though the information to determine prices or values of biological assets may not be available in the market. An entity shall factor in whether the present value of expected net cash flows from the asset discounted at a current market determined rate results in a reliable measure of fair value (IASB, 2015 sec. 34.6).
2.4.3 Disclosures – fair value model
According to IASB (2015) an entity shall unveil the following with reference to its biological assets calculated at fair value:
(a) A description of every group of its biological assets.
(b) The mode and important assumptions used in the determination of the fair value of every class of agricultural produce at the time of harvest and every class of biological assets.
(c) A reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period. The reconciliation shall include:
(i) The gain or loss arising from changes in fair value less costs to sell; (ii) Increases as a result of purchases;
(iii) Reductions as a result of harvest;
(iv) Increases as a result of business combinations;
(v) Net exchange disparities resulting from the conversion of financial statements into a dissimilar presentation currency and on the conversion of a foreign operation into the presentation currency of the reporting entity; as well as
(vi) Other changes (IASB, 2015 sec. 34.7). 2.4.4 Measurement – cost model
In cases where the fair value of biological assets is not readily determinable without excessive cost or effort, the entity shall measure at cost less any accumulated depreciation and any accumulated impairment losses (IASB, 2015 par. 34.8).
To sell at the point of harvest, harvested agricultural produce from biological assets shall be measured by an entity using fair value less estimated costs. Such measurement is the cost at that date when Section 13 or other sections of this IFRS is applied (IASB, 2013 sec. 34.9).
2.4.5 Disclosures – cost model
The following shall be disclosed by an entity relating to its biological assets calculated by means of the cost model:
(i) An account of every group of its biological assets;
(ii) A justification of reasons fair value cannot be calculated dependably; (iii) The method of depreciation used;
(iv) The depreciation rates or useful lives used; and
(v) The gross book value and the accrued depreciation (amassed with accumulated impairment losses) at the start and end of the period (IASB, 2015 sec. 34.10).