IFRIC January 2007

The IFRIC continued its discussion about the prohibition on taking into account ‘increases in value arising from additional biological transformation’ in paragraph 21 of IAS 41. The IFRIC also discussed the potential impact of the Board project on fair value measurement and concluded that there would be substantial benefits from complementary amendments to IAS 41. The IFRIC agreed that the staff should propose to the Board that IAS 41 should be amended to remove the prohibition in paragraph 21on taking into account ‘additional biological transformation’ when estimating fair value using discounted cash flows and to clarify that biological transformation was not limited to physical growth. In making this recommendation, the IFRIC agreed that the proposed amendment should:

• retain the fair value objective when measuring the present value of expected net cashflows at the beginning of paragraph 21
• ensure that the revised paragraph 21 continues to make clear that fair value is measured in relation to the asset’s current location and condition
• amend paragraph 17 to make clear that, if an active market is used to estimate the fair value of an asset, it should be an active market for the asset in its current location and condition
• make clear that a market for a dead asset (for example a scrap, pulp, or damaged goods market) is not an active market for a growing crop
• make clear that future risks should be factored into the cash flow projections or discount rates but not both.

In drafting the amendment, the IFRIC stressed that it was necessary to consider any changes to paragraph 21 in the context of paragraphs 17–20. For example, a paragraph 21 discounted cash flow model will not be used when a relevant active market exists for a biological asset as the asset can be valued with reference to that market using paragraph 17.