Financial Reporting · Inventories and agriculture

IAS 41 Agriculture: Biological Assets and Produce

Updated 11 October 2026

IAS 41 covers living plants and animals (biological assets) and what they yield at harvest (agricultural produce). Measure both at fair value less costs to sell. Take changes in a biological asset's value to profit or loss. After harvest, the produce's value at the point of harvest becomes its cost under IAS 2.

Understand IAS 41 Agriculture: Biological Assets and Produce

IAS 41 Agriculture applies to three things when they relate to farming activity: biological assets, agricultural produce at the point of harvest, and government grants related to biological assets measured at fair value less costs to sell. A biological asset is a living animal or plant, such as a dairy cow, a sheep or a vine. Agricultural produce is what you get from it, such as milk, wool or grapes.

The key idea is that living things grow and change. Cost does not show their value, so IAS 41 uses fair value less costs to sell (FVLCTS). Costs to sell are the incremental costs of selling, such as commissions and transport to market. Use fair value in line with IFRS 13. IAS 41 presumes fair value can be measured reliably. The only exception applies to a biological asset at initial recognition, when no market-determined price is available and other estimates of fair value are clearly unreliable. In that case the asset is held at cost less depreciation and impairment until fair value can be measured reliably. Produce is always measured at FVLCTS at harvest, because its fair value can always be measured.

You remeasure biological assets at each reporting date. The gain or loss from a change in FVLCTS goes to profit or loss in the period it arises. This includes gains from growth, and from price changes. Gains or losses on initial recognition also go to profit or loss.

Produce is measured at FVLCTS at the point of harvest, and any gain or loss goes to profit or loss. After that point, IAS 41 stops. The produce is inventory and follows IAS 2, with its FVLCTS at harvest treated as its cost. Processing, such as turning grapes into wine, is also IAS 2.

Government grants related to a biological asset measured at FVLCTS follow IAS 41, not IAS 20. An unconditional grant is recognised in profit or loss when it becomes receivable. A conditional grant is recognised in profit or loss when the conditions are met. This is not tested in detail.

Bearer plants, such as fruit trees and vines that only produce crops, are outside IAS 41's measurement rules and follow IAS 16. The crops growing on them stay in IAS 41. Land is not a biological asset. It follows IAS 16 or IAS 40.

Key rules to remember

Measurement of biological assets: Carrying amount = Fair value − Costs to sell; Applies at initial recognition and at every reporting date.
Gain or loss on a biological asset: Gain/(loss) = Closing FVLCTS − Opening FVLCTS (adjusted for purchases, sales and harvest in the year); Recognise in profit or loss. Remove the effect of purchases, sales and harvest before you find the gain. The reconciliation below does this.
Agricultural produce at harvest: Produce at harvest = Fair value − Costs to sell at point of harvest; Gain or loss goes to profit or loss. This value is the cost for IAS 2.
Reconciliation of carrying amount: Closing = Opening + Purchases − Sales − Harvest + Gain/(loss); Deduct sales and harvest at their FVLCTS. Harvest is deducted at its FVLCTS at the point of harvest. The gain/(loss) is the net change in FVLCTS, including growth and price changes, after removing purchases, sales and harvest. Use it to find the missing figure, usually the gain.
Scope boundary: Growing = IAS 41; at harvest = IAS 41; after harvest = IAS 2; Bearer plants go to IAS 16. Land goes to IAS 16 or IAS 40.

How to solve IAS 41 Agriculture: Biological Assets and Produce questions

Use this order for any IAS 41 question, whether it is a Section A objective question or a Section C written answer.

1Classify each item: biological asset, agricultural produce at harvest, bearer plant, land or processed product.
2Pick the measurement rule. Biological assets and produce at harvest use FVLCTS. Bearer plants use IAS 16. Processed goods use IAS 2.
3Work out FVLCTS for each date: fair value minus costs to sell. Do not use fair value alone.
4Find the movement. Closing FVLCTS minus opening FVLCTS, then adjust for purchases, sales and the value of produce harvested.
5Post the gain or loss to profit or loss. Do not put it in other comprehensive income or in a revaluation surplus.
6Handle harvest separately. Record produce at FVLCTS at harvest and then carry it as inventory at that amount under IAS 2.
7State the answer clearly with the label and the amount, and show the working so you pick up method marks.

Quickest way: Three-line FVLCTS check

When to use it: Use this for Section A and Section B objective questions where time is short and you need the carrying amount or the gain.

Compute FVLCTS now: fair value minus costs to sell, per unit, then multiply by the number of units.
Compute FVLCTS at the start, or purchase date, in the same way.
Gain = closing − opening, adjusted for any purchases or sales. Treat any harvested produce as a separate item at its harvest-date FVLCTS.

Common mistakes in IAS 41 Agriculture: Biological Assets and Produce

Measuring biological assets at cost or at fair value without deducting costs to sell.
Students link measurement to IAS 16 or IAS 2 habits and forget the 'less costs to sell' wording.
Fix: Write FVLCTS next to every biological asset and deduct selling costs before you calculate anything else.
Taking the gain on a biological asset to a revaluation surplus in other comprehensive income.
Students confuse IAS 41 with revaluation of property, plant and equipment.
Fix: Remember that all IAS 41 gains and losses go to profit or loss.
Applying IAS 41 to produce after harvest.
Students think the standard covers all farm products at fair value.
Fix: Stop IAS 41 at the point of harvest. After that, use IAS 2 with the harvest FVLCTS as cost.
Treating bearer plants such as fruit trees as biological assets at FVLCTS.
Trees are living, so they look like biological assets.
Fix: A bearer plant only bears produce and is used for more than one period. Use IAS 16 for the plant and IAS 41 for the crop growing on it.
Including purchases and sales in the gain.
Students just subtract opening from closing carrying amount.
Fix: Use a reconciliation: opening plus purchases less sales less harvest plus gain equals closing. Solve for the gain.
Treating land as part of the biological asset.
The farm is seen as one combined item.
Fix: Account for land separately under IAS 16 or IAS 40.

Worked examples

Example 1

A farm holds 200 sheep at 31 December 20X1. Fair value is ₹6,000 per sheep. Costs to sell are ₹300 per sheep. At 1 January 20X1 the herd was 200 sheep with FVLCTS of ₹5,200 per sheep. No sheep were bought or sold in the year. Calculate the closing carrying amount and the gain for profit or loss.

Show the solution

Closing FVLCTS per sheep = ₹6,000 − ₹300 = ₹5,700.
Closing carrying amount = 200 × ₹5,700 = ₹11,40,000.
Opening carrying amount = 200 × ₹5,200 = ₹10,40,000.
Gain = ₹11,40,000 − ₹10,40,000 = ₹1,00,000.
The gain goes to profit or loss.

Answer: Closing carrying amount is ₹11,40,000 and the gain of ₹1,00,000 is recognised in profit or loss.

Example 2

A vineyard company harvests grapes in October. At the last measurement date before harvest, the growing grapes were carried at their FVLCTS of ₹6,90,000. At the point of harvest the grapes have a fair value of ₹8,00,000 and costs to sell of ₹50,000. By the year end, none of the grapes have been sold. Explain the accounting treatment and give the amounts.

Show the solution

The growing grapes are biological assets. Immediately before harvest they are remeasured to FVLCTS.
FVLCTS at the point of harvest = ₹8,00,000 − ₹50,000 = ₹7,50,000.
Change in FVLCTS of the growing grapes up to harvest = ₹7,50,000 − ₹6,90,000 = ₹60,000. This gain goes to profit or loss.
The grapes picked are agricultural produce. They are recognised at their FVLCTS at the point of harvest, ₹7,50,000. There is no further gain on the produce itself, because the growing grapes were already remeasured to ₹7,50,000.
After harvest, the grapes are inventory under IAS 2. Their cost is ₹7,50,000.
At the year end, measure inventory at the lower of cost (₹7,50,000) and net realisable value.

Answer: The growing grapes are remeasured to FVLCTS of ₹7,50,000 immediately before harvest. The ₹60,000 increase from ₹6,90,000 is recognised in profit or loss. The produce is then recognised at ₹7,50,000, and it becomes inventory under IAS 2 with a cost of ₹7,50,000.

Exam tips

In objective questions, check each option for 'costs to sell'. An answer at plain fair value is usually a trap.
Section C questions often give a table of opening, closing, purchases and sales. Lay out a reconciliation first and find the gain as the balancing figure.
State the link to IAS 2 in your written answer: harvest FVLCTS becomes cost. Examiners reward this.
Say clearly that gains go to profit or loss, and not to other comprehensive income.

Practice questions from Inventories and agriculture

IAS 41 Agriculture: Biological Assets and Produce: frequently asked questions

What is the difference between a biological asset and agricultural produce?

A biological asset is a living plant or animal, such as a cow or a growing crop. Agricultural produce is the harvested product from it, such as milk or picked fruit. Both are measured at fair value less costs to sell, but produce is measured only at the point of harvest.

Where do IAS 41 gains and losses go?

They go to profit or loss in the period they arise. This covers changes in the FVLCTS of biological assets and the gain or loss on initial recognition of produce at harvest. They are not taken to a revaluation surplus.

How does IAS 41 differ from IAS 2 for harvested produce?

IAS 41 applies up to the point of harvest and values produce at FVLCTS. After that point, IAS 2 applies, and the harvest FVLCTS is the cost. At the year end, inventory is held at the lower of cost and net realisable value.

What if fair value cannot be measured reliably?

IAS 41 presumes fair value can be measured reliably. The only exception is at initial recognition of a biological asset where no market-determined price is available and other estimates are clearly unreliable. In that case, use cost less depreciation and impairment until fair value becomes reliable.