IAS 41 / IFRS 13 — Valuation of biological assets

Date recorded:

In April 2012 the IFRS Interpretation Committee received a request for clarification of paragraph 25 of IAS 41 which refers to the use of a residual method as an example of a possible valuation technique to measure the fair value of biological assets that are physically attached to land, if the biological assets have no separate market but an active market does exist for the combined assets as a group. The submitter’s concern was about how the valuation of the biological assets was linked to the valuation of land, when it was concluded that the value of the assets based on the highest and best use of the land differed when determined on the basis of its current use.  

The Committee discussed this issue at several meeting and in March 2013 it decided to refer this issue to the IASB for clarification. (The IASB was provided with all the analysis performed by the Committee as of today.)

At the May 2013 meeting, the IASB discussed the best way to proceed with this issue; the Staff presented two options:

  1. Option 1 – direct Staff to perform further analysis and to bring it to a future IASB meeting;
  2. Option 2 - consider the issue during the post-implementation review (PIR) of IFRS 13, possibly in late 2015. The issue does not appear to be widespread; however IFRS 13 has recently become mandatory and the issue could potentially affect other standards (e.g. IAS 16, IAS 40 and IFRS 3, e.g. when land and a building are acquired together).

The Staff supported Option 2.

There was an extensive discussion with one Board member believing that the issue could be resolved within IAS 41 and some other Board members believing that it was a bigger issue and should be addressed within IFRS 13.

There was a proposal by a Board member to delete the last sentence of paragraph 25 of IAS 41 so that there was no mention of the residual method. Others responded that the removal of the sentence would not take the valuation problem away.

The Board agreed with the Staff proposal (i.e. wait for the PIR of IFRS 13) and not to amend IAS 41 at the moment.

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