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ACCA Applied Skills · Financial Reporting · Inventories and agriculture

Under IAS 41, which statement about a biological asset for which fair value cannot be measured reliably on initial recognition is correct?

If fair value clearly cannot be measured reliably at initial recognition, the biological asset is carried at cost less accumulated depreciation and impairment losses. Once fair value becomes reliably measurable, it moves to fair value less costs to sell.

  1. AIt is measured at cost less accumulated depreciation and impairment losses until fair value becomes reliably measurableCorrect
  2. BIt must not be recognised in the financial statements
  3. CIt is measured at fair value estimated by the directors
  4. DIt is measured at net realisable value with gains taken to OCI

Explanation

IAS 41 contains a rebuttable presumption that fair value can be measured reliably. If it clearly cannot be at initial recognition, because no market-determined prices are available and alternative estimates are clearly unreliable, the asset is held at cost less depreciation and impairment. Once fair value becomes reliable, it is remeasured to fair value less costs to sell.

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