Biological Assets (Ind AS 41)

Ind AS 41 applies to companies engaged in agricultural activity: the management of the biological transformation of living animals and plants to produce agricultural produce or additional biological assets. This standard is relevant for Indian companies in aquaculture (shrimp farming), horticulture (plantations, orchards), livestock operations, and forestry, making it significant for companies like Avanti Feeds, Apex Frozen Foods, and tea plantation companies.

Biological assets include: animals held for dairy, breeding, or draught; fish in fish farms; plants grown for fruit production; trees grown for timber; and crops in the growing cycle before harvest. Agricultural produce — the harvested product of a biological asset — is valued at fair value less costs to sell at the point of harvest under Ind AS 41 and then transferred to inventory under Ind AS 2 for subsequent processing.

The fair value measurement requirement is a significant departure from historical cost. For biological assets with active markets (live shrimp, standing timber, milk cattle), fair value is relatively observable. For others, income approach valuation (present value of expected net cash flows from the asset) or market-based comparison is used. Changes in fair value, both from biological transformation (growth, maturation, procreation) and from price changes, are recognised in the income statement — creating volatility in reported profits.

For Indian shrimp exporters like Avanti Feeds and Waterbase Ltd, biological assets (shrimp in the culture ponds at period-end) were valued at fair value. During periods of shrimp price volatility — driven by global supply from Ecuador, white spot disease outbreaks, or US/EU demand fluctuations — the fair value changes created material gains or losses in operating profit, making year-on-year earnings comparisons more complex. Analysts required adjustments to strip out fair value movements for underlying business performance assessment.

Tea plantation companies (McLeod Russel, Goodricke Group) with bearer plants — plants that produce agricultural produce repeatedly — apply a different treatment post a 2016 amendment aligned with Ind AS 16. Bearer plants (tea bushes, rubber trees, oil palm trees) are now accounted for as property, plant and equipment under Ind AS 16, while the produce growing on them remains a biological asset under Ind AS 41. This split treatment requires careful reading of accounting policies.