Biological Assets: A transformation

Accounting and fair valuation under Ind AS

Ind AS 41 has introduced the concept of biological assets in India, which had no specific accounting literature for its recognition and measurement under the previous GAAP. This publication from Deloitte India discusses the concept of biological assets and the accounting requirements, including fair valuation, for Ind AS compliant financial statements.

Indian Accounting Standards 41 – Agriculture (Ind AS 41) has introduced the concept of biological assets where a biological asset is defined to be a living animal or plant, and includes produce growing on bearer plants. It also defines agricultural activity as management of biological transformation and harvest of biological assets, where biological transformation comprises various processes that cause qualitative and quantitative changes in the biological asset.

Companies would now be required to recognize and measure biological assets that were hitherto not necessary in previous GAAP. There will be challenges both from determination of volume (e.g., produce on bearer plants) and from a fair valuation perspective. Companies would be required to exercise judgement in determining the best fit valuation technique that would best represent their biological assets, in consultation with external valuation experts. Given that the entire exercise would be based on estimation, companies would be required to make extensive disclosures in their financial statements. Companies would also be required to develop appropriate risk control matrices that address biological assets and maintain robust documentation to support the development and review of estimates.

Download and read this report from Deloitte India to learn more about the transition to Ind AS, how there is no specific first time adoption exemption, income tax implications, and other valuable insights on biological assets accounting.

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