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IAS 41 and IFRS 13 — Valuation of biological assets using a residual method

Date recorded:

At its September 2012 meeting, the Committee discussed a request seeking clarification on paragraph 25 of IAS 41. This paragraph permits the use of a residual method to arrive at the fair value of biological assets that are physically attached to land if the biological assets have no separate market but an active market exists for the combined assets.

The Committee previously observed that the valuation premise in IFRS 13 requires that the fair value of other assets within an asset group must also reflect their use on a stand-alone basis. It is on this basis that the asset group as a whole provides maximum value to market participants. The Committee acknowledged that the value of the biological assets might be minimal or nil when a residual method is used, however, it also noted that IAS 41 does not require the use of a residual method.

As the Committee acknowledged the IASB would be discussing whether to add a limited-scope project on IAS 41 for bearer biological assets to its technical agenda at its September 2012 meeting, the Committee noted at its September meeting that it would consider the results of the Board’s discussions before finalising its assessment of this issue. Both the IASB and the IFRS Advisory Council subsequently expressed support for the addition of a limited-scope project on bearer biological assets to the IASB agenda.

At this meeting, the Committee staff summarised the discussions of the IASB and IFRS Advisory Council, while also highlighting past discussions by the Committee. Consistent with their request at the September 2012 meeting, the staff proposed that this issue not be added to the Committee agenda on the basis that the IASB had tentatively decided to undertake a limited-scope project on IAS 41 to address the accounting for bearer biological assets.

The Committee reiterated the fact that the IASB has tentatively decided to undertake a limited-scope project on IAS 41 to address the accounting for bearer biological assets. Several Committee members questioned whether, when you are valuing the biological asset, you should look at the highest and best use for the combined group of assets or just the biological assets themselves. If combined, then the biological assets could conceivably have a nil value but the answer would be different if looking at the highest and best use of the biological asset only.

The Committee also noted that guidance on the application of highest and best use concept in IFRS 13 will form part of the broader educational material planned for IFRS 13. The Committee discussed the nature of the educational material and how this was not unique to IAS 41 and hence a common area of implementation, and on that basis, no specific guidance in relation to IAS 41 should be forthcoming.

On the basis of the above, the Committee tentatively decided not to take this issue onto its agenda and to issue the staff’s proposed agenda decision.

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