Scope of IPSAS 27
IPSAS 27 does not apply to every animal, tree, or farm-related item. It applies where a public entity manages living animals or plants through biological transformation, such as growth, reproduction, production or harvest. Once that point is clear, the accounting question becomes whether the item is a biological asset, agricultural produce at harvest, or another asset covered by a different IPSAS.
1. The Big Picture
Think of a public entity that runs a dairy farm, a fish breeding program, a seedling distribution program, or a timber plantation. The assets are not like chairs, computers or vehicles. Cows give birth, fish grow, crops mature, and trees increase in volume. The asset changes while the entity is still holding it.
That is the problem IPSAS 27 solves. It tells us how to account for living animals and plants, how to measure the produce when it is harvested, and how to show fair value changes in the financial statements.
Key point: IPSAS 27 follows the asset from biological transformation to harvest. Once the produce is harvested, IPSAS 27 normally stops, and IPSAS 12 Inventories or another relevant IPSAS takes over.
2. Basic Terms
Biological asset
A living animal or plant controlled by the entity.
Examples: dairy cattle, sheep, fish stock, maize crop, trees in a timber plantation.
Agricultural produce
The harvested product from the biological asset.
Examples: milk, wool, harvested maize, felled trees, picked tea leaves.
Processed product
The product made after harvest. This is normally outside IPSAS 27.
Examples: cheese, carpet, flour, timber, packed tea.
| Biological asset | Agricultural produce at harvest | Processed product after harvest |
|---|---|---|
| Dairy cattle | Milk | Cheese or yoghurt |
| Sheep | Wool | Carpet or yarn |
| Trees in a timber plantation | Felled trees | Logs or lumber |
| Maize crop | Harvested maize | Maize flour |
Reference guide: IPSAS 27 paragraphs 5–6.
3. What IPSAS 27 Covers and What It Does Not Cover
Covered by IPSAS 27
- Biological assets, except bearer plants.
- Agricultural produce at the point of harvest.
- Biological assets managed for sale.
- Biological assets managed for distribution at no charge or nominal charge.
- Biological assets managed for conversion into agricultural produce or more biological assets.
Not covered by IPSAS 27
- Agricultural land — use IPSAS 16 or IPSAS 45.
- Bearer plants — use IPSAS 45, although produce on those plants remains under IPSAS 27.
- Intangible assets related to agriculture — use IPSAS 31.
- Biological assets held for service provision, such as security dogs or park trees.
- Right-of-use assets from leased agricultural land — use IPSAS 43.
Important: A living asset is not automatically IPSAS 27. Ask: is the entity managing biological transformation and harvest for sale, distribution, conversion into produce, or creation of more biological assets? If yes, IPSAS 27 is likely relevant. If the animal or plant is mainly used to provide a service, IPSAS 27 is not the right standard.
Reference guide: IPSAS 27 paragraphs 2–4 and 9.
4. The Core Principle
IPSAS 27 is built around one central principle: biological assets change naturally. A calf becomes a mature cow. A fish grows in size. A crop moves from seedling to harvest. A timber tree increases in volume. Accounting must capture that change because the entity’s asset has changed.
Normal assets are often measured at cost and depreciated. Agriculture is different because the asset can grow in value through biological transformation. IPSAS 27 therefore uses fair value less costs to sell as the main measurement basis.
Fair value less costs to sell = Fair value − Direct costs to sell
Fair value is the price that reflects the asset’s current value. Costs to sell are the incremental costs directly attributable to disposal, such as auction fees, broker commission or sale levies. Finance costs and income taxes are not costs to sell.
5. Recognition: When Does the Entity Record the Asset?
The entity recognises a biological asset or agricultural produce when three conditions are met.
1. Control
The entity controls the asset because of a past event.
Control may be shown by ownership records, tagging, branding, custody, purchase records or birth records.
2. Benefits or service potential
The asset is expected to provide future economic benefits or service potential.
This may come from sale, distribution, milk, wool, offspring or harvest.
3. Reliable measurement
The fair value or cost of the asset can be measured reliably.
If fair value is not reliable at initial recognition, the cost model exception may apply.
Reference guide: IPSAS 27 paragraph 13.
6. Measurement: The Main Rule
The main measurement rule is as follows.
Biological assets are measured at fair value less costs to sell on initial recognition and at each reporting date.
Agricultural produce harvested from the entity’s biological assets is measured at fair value less costs to sell at the point of harvest.
| Item | Measurement |
|---|---|
| Biological asset at initial recognition | Fair value less costs to sell |
| Biological asset at reporting date | Fair value less costs to sell |
| Agricultural produce at harvest | Fair value less costs to sell |
| Produce after harvest | IPSAS 12 Inventories or another applicable IPSAS |
| Biological asset where fair value is not reliable at initial recognition | Cost less accumulated depreciation and accumulated impairment losses |
Reference guide: IPSAS 27 paragraphs 16, 18 and 34.
7. Worked Example: Dairy Cattle and Milk
Scenario: A public entity operates a dairy farm for training and milk distribution. At year-end, it has dairy cattle with a market value of KSh 5,000,000. Direct auction and selling costs would be KSh 200,000. During the year, the entity harvests 12,000 litres of milk. Market price is KSh 60 per litre and direct costs to sell are KSh 5 per litre.
Step 1: Measure the biological asset
Fair value of dairy cattle: KSh 5,000,000
Less costs to sell: KSh 200,000
Biological asset = KSh 5,000,000 − KSh 200,000 = KSh 4,800,000
Step 2: Measure the milk at harvest
Fair value per litre: KSh 60
Less costs to sell per litre: KSh 5
Fair value less costs to sell per litre: KSh 55
Milk at harvest = 12,000 litres × KSh 55 = KSh 660,000
Step 3: Record the accounting entries
If the milk is held after harvest, it becomes inventory at its fair value less costs to sell at harvest.
Dr Inventory — milk KSh 660,000
Cr Gain on harvest / agricultural produce KSh 660,000
If the fair value less costs to sell of the cattle at year-end is higher than the previous carrying amount, the increase is recognised in surplus or deficit.
Dr Biological assets KSh XXX
Cr Fair value gain KSh XXX
Why this makes sense: The cattle are still living biological assets, so they remain under IPSAS 27. The milk has been harvested, so IPSAS 27 measures it at harvest. After that point, the milk is treated under IPSAS 12 as inventory if still held by the entity.
8. Gains and Losses
IPSAS 27 takes fair value gains and losses to surplus or deficit. This is because the biological asset has changed in value during the period, and that change belongs in the statement of financial performance.
Gain example
Carrying amount of fish stock: KSh 1,500,000
Fair value less costs to sell at year-end: KSh 1,900,000
Gain: KSh 400,000
Dr Biological assets KSh 400,000
Cr Fair value gain KSh 400,000
Loss example
Carrying amount of crop: KSh 2,400,000
Fair value less costs to sell at year-end: KSh 2,100,000
Loss: KSh 300,000
Dr Fair value loss KSh 300,000
Cr Biological assets KSh 300,000
Reference guide: IPSAS 27 paragraphs 30–33.
9. The Harvest Point: Where IPSAS 27 Hands Over
The harvest point is a very important line. Before harvest, the living animal or plant is a biological asset. At harvest, the harvested produce is measured at fair value less costs to sell. After harvest, the produce is normally accounted for under IPSAS 12 Inventories or another applicable standard.
| Stage | Example | Standard |
|---|---|---|
| Before harvest | Growing maize crop | IPSAS 27 |
| At harvest | Harvested maize | IPSAS 27 measurement at harvest |
| After harvest | Maize stored for distribution or sale | IPSAS 12 or another applicable IPSAS |
Watch the timing: IPSAS 27 does not deal with processing after harvest. Turning milk into yoghurt, grapes into wine, or harvested cane into sugar is not agricultural activity under IPSAS 27.
Reference guide: IPSAS 27 paragraphs 5 and 18.
10. Bearer Plants and Produce on Bearer Plants
Bearer plants are not accounted for under IPSAS 27. They are accounted for under IPSAS 45 because they are used repeatedly to grow produce over more than one period.
But the produce growing on those bearer plants is still under IPSAS 27. This is where many people get confused.
| Item | Correct treatment | Reason |
|---|---|---|
| Tea bush | IPSAS 45 | The bush is a bearer plant. |
| Tea leaves growing on the bush | IPSAS 27 | The produce is still biological produce growing on the bearer plant. |
| Picked tea leaves at harvest | IPSAS 27 at harvest, then IPSAS 12 | IPSAS 27 measures at harvest; inventory rules apply after harvest. |
Reference guide: IPSAS 27 paragraphs 3(b), 6 and 9C.
11. When Fair Value Cannot Be Measured Reliably
IPSAS 27 starts with a strong presumption: fair value of a biological asset can normally be measured reliably. The cost model exception is narrow.
The exception applies only at initial recognition and only where market prices are not available and alternative fair value measurements are clearly unreliable.
If the exception applies, the entity measures the biological asset at:
Cost − accumulated depreciation − accumulated impairment losses
Once fair value becomes reliably measurable, the entity moves to fair value less costs to sell.
Example: A public entity receives a rare biological asset. There is no active market and alternative valuation methods are clearly unreliable at initial recognition. Cost is KSh 1,000,000. Accumulated depreciation is KSh 100,000. Impairment is KSh 50,000. Carrying amount is KSh 850,000.
Carrying amount = KSh 1,000,000 − KSh 100,000 − KSh 50,000
Carrying amount = KSh 850,000
Reference guide: IPSAS 27 paragraphs 34–37.
12. Public Entity Lens: Sale and Distribution at No Charge
This is where IPSAS 27 becomes very public-sector friendly. Agricultural activity is not limited to commercial sale. It can also include biological assets managed for distribution at no charge or nominal charge.
Example: A public entity grows seedlings for distribution to farmers at no charge. Even though the entity is not selling the seedlings for profit, the activity can still fall under IPSAS 27 because public sector agricultural activity includes distribution at no charge or nominal charge.
So do not reject IPSAS 27 just because the entity is not making profit. Ask whether the entity is managing biological transformation and harvest for sale, distribution, conversion into produce or creation of more biological assets.
Reference guide: IPSAS 27 paragraph 9.
13. Disclosures: What the Financial Statements Must Explain
Users need to understand what biological assets the entity holds, how they were measured, and how fair value movements affected surplus or deficit.
| Disclosure area | What to explain |
|---|---|
| Aggregate gains or losses | Gains or losses from initial recognition and from changes in fair value less costs to sell. |
| Description of biological assets | Groups of biological assets, such as mature cattle, immature cattle, fish stock or seedlings. |
| Nature of activities | What the entity does with the biological assets: sale, milk production, seedling distribution, fish breeding or timber production. |
| Quantities | Physical quantities such as number of animals, hectares, litres, kilograms or number of seedlings. |
| Reconciliation | Movement from opening carrying amount to closing carrying amount, including purchases, births, gains, losses, harvest and disposals. |
| Fair value method | Valuation techniques, assumptions and inputs used to measure fair value. |
Reference guide: IPSAS 27 paragraphs 38–54.
14. Common Confusions and Corrections
| Confusion | Correction |
|---|---|
| Thinking every living animal or plant is IPSAS 27. | Only use IPSAS 27 where the asset relates to agricultural activity. Service animals and park trees are outside IPSAS 27. |
| Using cost automatically. | The main rule is fair value less costs to sell. Cost is only a narrow exception at initial recognition. |
| Forgetting the harvest point. | At harvest, measure agricultural produce under IPSAS 27. After harvest, move to IPSAS 12 or another applicable IPSAS. |
| Treating bearer plants as IPSAS 27 assets. | Bearer plants are under IPSAS 45. The produce growing on them remains under IPSAS 27. |
| Ignoring free distribution programs. | IPSAS 27 can still apply where biological assets are managed for distribution at no charge or nominal charge. |
15. Chapter Summary
IPSAS 27 is about agricultural activity. The focus is on biological assets and agricultural produce at harvest.
Biological assets are living animals or plants. They are measured at fair value less costs to sell at initial recognition and at each reporting date.
Agricultural produce is measured at harvest. The harvest value becomes the cost for inventory or another applicable IPSAS after harvest.
Fair value gains and losses go to surplus or deficit. The entity reports the effect of biological transformation and market changes.
Public entities may distribute produce or biological assets for free. IPSAS 27 still applies if the activity meets the definition of agricultural activity.
16. Application Question
The key application is to separate the biological asset, the agricultural produce at harvest, and the processed product after harvest. Once the item is classified correctly, the measurement and journal entry become easier to follow.
Application Question
A public entity operates an agricultural training farm. At 30 June 2026, the entity has mature dairy cattle with a fair value of KSh 8,000,000 and estimated direct costs to sell of KSh 300,000. During the year, the entity harvested 20,000 litres of milk. The market price of milk at harvest was KSh 70 per litre and direct costs to sell were KSh 4 per litre. The milk was still in stores at year-end.
Required:
- Measure the dairy cattle at year-end.
- Measure the milk at harvest.
- Show the journal entry for the harvested milk.
- Explain what standard applies to the milk after harvest.
Answer Guide
1. Dairy cattle:
KSh 8,000,000 − KSh 300,000 = KSh 7,700,000
2. Milk at harvest:
20,000 litres × (KSh 70 − KSh 4) = KSh 1,320,000
3. Journal entry:
Dr Inventory — milk KSh 1,320,000
Cr Gain on harvest / agricultural produce KSh 1,320,000
4. After harvest: IPSAS 27 measures the milk at the point of harvest. After harvest, the milk is accounted for under IPSAS 12 Inventories or another applicable IPSAS.
17. Key Lines to Remember
Core phrase
“IPSAS 27 follows the living asset up to harvest. After harvest, another IPSAS usually takes over.”
Measurement line
“The biological asset is measured at fair value less costs to sell, and the gain or loss is recognised in surplus or deficit.”
Public entity line
“Even if the entity distributes seedlings or produce at no charge, IPSAS 27 may still apply because public sector agricultural activity includes distribution at no charge or nominal charge.”
Warning line
“Do not account for park trees, police dogs or service animals under IPSAS 27 simply because they are living assets.”
