ACCA Strategic Business Reporting (SBR) Practice Exam

How are biological assets measured under IAS 41?

1. At cost minus accumulated depreciation

2. At fair value less costs to sell

3. At historical cost

4. At average market price over the year

The correct answer is: At fair value less costs to sell

Biological assets are accounted for under IAS 41 Agriculture, which specifically mandates that they should be measured at fair value less costs to sell. Fair value reflects the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. This measurement approach aims to provide a more relevant and timely view of the value of biological assets as it captures changes in market conditions, allowing users of financial statements to understand the current worth of these assets more accurately. Costs to sell are subtracted from fair value to account for any expected costs that would be incurred to sell the asset, ensuring that the reported value is not overstated. This measurement basis is particularly suitable for biological assets, which can experience significant fluctuations in value based on market conditions, biological transformation, and other factors. The other choices do not align with the requirements of IAS 41, as biological assets are not measured at historical cost or at any average market price, nor is the concept of accumulated depreciation applicable to biological assets that experience growth and transformation, rather than wear and tear as in fixed assets.