Illustrative Examples

These examples, which were prepared by the IASC staff but were not approved by the IASC Board, accompany, but are not part of, IAS 41. They have been updated to take account of the changes made by IAS 1 Presentation of Financial Statements (as revised in 2007) and Improvements to IFRSs issued in 2008.

A1

Example 1 illustrates how the disclosure requirements of this Standard might be put into practice for a dairy farming entity. This Standard encourages the separation of the change in fair value less costs to sell of an entity’s biological assets into physical change and price change. That separation is reflected in Example 1. Example 2 illustrates how to separate physical change and price change.

A2

The financial statements in Example 1 do not conform to all of the disclosure and presentation requirements of other Standards. Other approaches to presentation and disclosure may also be appropriate.

Example 1 XYZ Dairy Ltd

Gains (losses) on fair value adjustment attributable to physical changes, biological assets Example Xduration IAS 41.51 Example 824180
Gains (losses) on fair value adjustment attributable to price changes, biological assets Example Xduration IAS 41.51 Example 824180

Statement of financial position

XYZ Dairy LtdStatement of financial position Notes 31 December20X1 31 December20X0
ASSETS          
Non‑current assets [Refer:IAS 1 paragraphs 60⁠–⁠68]          
Dairy livestock – immature(a) [Refer:paragraphs 41⁠–⁠45]     52,060   47,730
Dairy livestock – mature(a) [Refer:paragraphs 41⁠–⁠45]     372,990   411,840
  Subtotal – biological assets [Refer:IAS 1 paragraph 54(f)] 3   425,050   459,570
Property, plant and equipment [Refer:IAS 1 paragraph 54(a)]     1,462,650   1,409,800
  Total non‑current assets     1,887,700   1,869,370
             
Current assets [Refer:IAS 1 paragraphs 66⁠–⁠68]          
Inventories [Refer:IAS 1 paragraph 54(g)]     82,950   70,650
Trade and other receivables [Refer:IAS 1 paragraph 54(h)]     88,000   65,000
Cash [Refer:IAS 1 paragraph 54(i)]     10,000   10,000
  Total current assets     180,950   145,650
Total assets     2,068,650   2,015,020
             
EQUITY AND LIABILITIES          
Equity          
Issued capital     1,000,000   1,000,000
Retained earnings     902,828   865,000
  Total equity     1,902,828   1,865,000
Current liabilities [Refer:IAS 1 paragraphs 69⁠–⁠76]          
Trade and other payables [Refer:IAS 1 paragraph 54(k)]     165,822   150,020
  Total current liabilities     165,822   150,020
Total equity and liabilities     2,068,650   2,015,020
 
(a)

An entity is encouraged, but not required, to provide a quantified description of each group of biological assets, distinguishing between consumable and bearer biological assets or between mature and immature biological assets, as appropriate. An entity discloses the basis for making any such distinctions.

Statement of comprehensive income1

XYZ Dairy LtdStatement of comprehensive income Notes Year ended 31 December  20X1
Fair value of milk produced [Refer:paragraph 40]     518,240
Gains arising from changes in fair value less costs to sell of dairy livestock [Refer:paragraph 40] 3   39,930
      558,170
Inventories used     (137,523)
Staff costs     (127,283)
Depreciation expense     (15,250)
Other operating expenses     (197,092)
      (477,148)
Profit from operations     81,022
Income tax expense [Refer:IAS 1 paragraph 82(d)]     (43,194)
Profit/comprehensive income for the year [Refer:IAS 1 paragraph 82(f)]     37,828

Statement of changes in equity

XYZ Dairy LtdStatement of changes in equity       Year ended31 December 20X1
  Sharecapital   Retainedearnings   Total
Balance at 1 January 20X1

1,000,000

[Refer:IAS 1 paragraph 106(d)]

  

865,000

[Refer:IAS 1 paragraph 106(d)]

  1,865,000

Profit/comprehensive income for the year

[Refer:IAS 1 paragraph 106(a)]
    

37,828

[Refer:IAS 1 paragraph 106(d)]

  37,828
Balance at 31 December 20X1

1,000,000

[Refer:IAS 1 paragraph 106(d)]

 

902,828

[Refer:IAS 1 paragraph 106(d)]

  1,902,828

Statement of cash flows2

XYZ Dairy LtdStatement of cash flows Notes Year ended31 December 20X1
Cash flows from operating activities [Refer:IAS 7 paragraph 10]  
Cash receipts from sales of milk [Refer:IAS 7 paragraph 14]     498,027
Cash receipts from sales of livestock [Refer:IAS 7 paragraph 14]     97,913
Cash paid for supplies and to employees [Refer:IAS 7 paragraph 14]   (460,831)
Cash paid for purchases of livestock [Refer:IAS 7 paragraph 14]     (23,815)
      111,294
Income taxes paid [Refer:IAS 7 paragraphs 35 and 36]     (43,194)
  Net cash from operating activities     68,100
Cash flows from investing activities [Refer:IAS 7 paragraph 10]  
Purchase of property, plant and equipment [Refer:IAS 7 paragraph 21]   (68,100)
  Net cash used in investing activities     (68,100)
Net increase in cash     0
Cash at beginning of the year     10,000
Cash at end of the year     10,000

Notes

1

Operations and principal activities

XYZ Dairy Ltd (‘the Company’) is engaged in milk production for supply to various customers. [Refer:paragraph 46(a)] At 31 December 20X1, the Company held 419 cows [Refer:paragraph 46(b)(i)] able to produce milk (mature assets) and 137 heifers [Refer:paragraph 46(b)(i)] being raised to produce milk in the future (immature assets). The Company produced 157,584kg of milk [Refer:paragraph 46(b)(ii)] with a fair value [Refer:paragraph 8] less costs to sell [Refer:paragraph 5] of 518,240 [Refer:paragraph 48] (at the time of milking) in the year ended 31 December 20X1.

[Refer:paragraphs 41⁠–⁠45]

2

Accounting policies

Livestock and milk

Livestock are measured at their fair value [Refer:paragraph 8 (definition of fair value)] less costs to sell [Refer:paragraph 5 (definition of costs to sell)]. The fair value of livestock is based on quoted prices of livestock of similar age, breed, and genetic merit in the principal (or most advantageous) market for the livestock. Milk is initially measured at its fair value less costs to sell at the time of milking. The fair value of milk is based on quoted prices in the local area in the principal (or most advantageous) market for the milk.

[Refer:paragraph 47]

3

Biological assets

Reconciliation of carrying amounts of dairy livestock 20X1
Carrying amount at 1 January 20X1 [Refer:paragraph 50] 459,570
Increases due to purchases [Refer:paragraph 50(b)] 26,250
Gain arising from changes in fair value less costs to sell attributable to physical changes(a) [Refer:paragraphs 50(a), 51 and 52] 15,350
Gain arising from changes in fair value less costs to sell attributable to price changes(a) [Refer:paragraphs 50(a) and 51] 24,580
Decreases due to sales [Refer:paragraph 50(c)] (100,700)
Carrying amount at 31 December 20X1 [Refer:paragraph 50] 425,050
 
(a)

Separating the increase in fair value less costs to sell between the portion attributable to physical changes and the portion attributable to price changes is encouraged but not required by this Standard.

4

Financial risk management strategies

The Company is exposed to financial risks arising from changes in milk prices. The Company does not anticipate that milk prices will decline significantly in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in milk prices. The Company reviews its outlook for milk prices regularly in considering the need for active financial risk management.

[Refer:paragraph 49(c)]

Example 2 Physical change and price change

[Refer:paragraphs 50(a), 51 and 52]

The following example illustrates how to separate physical change and price change. Separating the change in fair value [Refer:paragraph 8 (definition of fair value)] less costs to sell [Refer:paragraph 5 (definition of costs to sell)] between the portion attributable to physical changes and the portion attributable to price changes is encouraged but not required by this Standard.

A herd of 10 2 year old animals was held at 1 January 20X1. One animal aged 2.5 years was purchased on 1 July 20X1 for 108, and one animal was born on 1 July 20X1. No animals were sold or disposed of during the period. Per‑unit fair values less costs to sell were as follows:
 
2 year old animal at 1 January 20X1 100      
Newborn animal at 1 July 20X1 70      
2.5 year old animal at 1 July 20X1 108      
Newborn animal at 31 December 20X1 72      
0.5 year old animal at 31 December 20X1 80      
2 year old animal at 31 December 20X1 105      
2.5 year old animal at 31 December 20X1 111      
3 year old animal at 31 December 20X1 120      
 
Fair value [Refer:paragraph 8 (definition of fair value)] less costs to sell [Refer:paragraph 5 (definition of costs to sell)] of herd at 1 January 20X1 (10 × 100)     1,000  
Purchase on 1 July 20X1 (1 × 108)     108  
Increase in fair value less costs to sell due to price change:      
  10 × (105 – 100) 50      
  1 × (111 – 108) 3      
  1 × (72 – 70) 2   55  
 

Increase in fair value less costs to sell due to physical change:

[Refer:paragraph 52]
  10 × (120 – 105) 150      
  1 × (120 – 111) 9      
  1 × (80 – 72) 8      
  1 × 70 70   237  
Fair value less costs to sell of herd at 31 December 20X1      
  11 × 120 1,320      
  1 × 80 80   1,400  
  

Footnotes

1

This statement of comprehensive income presents an analysis of expenses using a classification based on the nature of expenses. IAS 1 Presentation of Financial Statements requires that an entity present, either in the statement of comprehensive income or in the notes, an analysis of expenses using a classification based on either the nature of expenses or their function within the entity. IAS 1 encourages presentation of an analysis of expenses in the statement of comprehensive income. (back)

2

This statement of cash flows reports cash flows from operating activities using the direct method. IAS 7 Statement of Cash Flows requires that an entity report cash flows from operating activities using either the direct method or the indirect method. IAS 7 encourages use of the direct method. (back)