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Ind AS 41 ‘Agriculture' 13. ABC Ltd. is in the business of manufacturing an apple beverage and requires a large quantity of apples to manufacture…

CA Final · Financial Reporting · RTP · November 2024

Ind AS 41 ‘Agriculture' 13. ABC Ltd. is in the business of manufacturing an apple beverage and requires a large quantity of apples to manufacture such beverage. In order to satisfy its requirement of apples, it enters into 3 years lease contracts with owners of apple orchards. The lease contracts are mainly of two types: (1) Contract 1: The owner of the apple orchard (i.e. the lessor) raises the apple trees to produce apples. ABC Ltd. (i.e. lessee) makes a fixed annual payment to the owner of the apple orchard who is required to cultivate the produce as per the specifications of ABC Ltd. ABC Ltd. harvests the apples itself for fulfilling its requirement of apples. (2) Contract 2: ABC Ltd. obtains the apple orchard from owner (i.e. the lessor) to raise the apple trees for subsequent harvest of the apples to ensure that the apples are as per the requirements of ABC Ltd. ABC Ltd. makes a fixed annual payment to the owner of the apple orchards (i.e. the lessor). Whether ABC Ltd. is engaged in agricultural activity as per Ind AS 41 in both of the cases?

Suggested Answer and Working Notes:

Contract 1: As per contract 1, during the 3 years of the contract, ABC Ltd. only harvests apples from the apple orchards whereas biological transformation is managed by the owners of the apple orchards (i.e. the lessor). Since ABC Ltd. is not involved in the biological transformation of the apple orchards and is only harvesting biological assets, it cannot be said to be an agricultural activity as per Ind AS 41. Hence, ABC Ltd. is not engaged in agricultural activity as per Ind AS 41. Contract 2: As per contract 2, ABC Ltd. obtains the apple orchard from owner (i.e. the lessor) to raise the apple trees for subsequent harvest of the apples to ensure that the apples are as per its requirements. Since, it is actively managing the biological transformation and harvest of biological asset. Hence, ABC Ltd. is engaged in agricultural activity as per Ind AS 41.

Topics: Ind AS 41

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Ind AS 41 ‘Agriculture' 13. ABC Ltd. is in the business of manufacturing an apple beverage and requires a large quantity of apples to manufacture…

Suggested Answer and Working Notes:

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