FRS 102 Section 34 lets a farming business choose, for each class of livestock or crop, between a fair value model (measure the living animals and plants at fair value less costs to sell, with changes going through profit or loss) and a cost model (cost less depreciation and impairment). Whichever model is chosen, produce stops being part of the biological asset at harvest and is then accounted for as inventory, at a harvest date measurement that becomes its cost.

What counts as a biological asset and as agricultural produce?

The FRS 102 glossary defines a biological asset as a living animal or plant that may or may not be intended for use on a continuing basis in the entity’s activities. Agricultural produce is the harvested product of the entity’s biological assets, and agricultural activity is the management by an entity of the biological transformation of biological assets for sale, into agricultural produce or into additional biological assets.

In practice that means a dairy herd, a breeding flock, beef cattle being finished, an orchard, a vineyard and a standing crop of wheat are biological assets. The milk, the wool, the picked apples, the grapes and the harvested grain are agricultural produce. Goods made later from produce, such as cheese or wine, fall outside the definition, which covers only the harvested product.

Paragraph 34.3 sets the recognition test. A biological asset or item of agricultural produce is recognised only when the entity controls it as a result of past events, it is probable that future economic benefits will flow to the entity, and its fair value or cost can be measured reliably. Paragraph 34.3C adds that before harvest, produce is not distinguished from the biological asset it grows on. Apples on the tree are part of the orchard until they are picked.

How does the choice between the cost model and the fair value model work?

Paragraph 34.2 requires an accounting policy for each class of biological asset and its related agricultural produce, and paragraph 34.3A gives the choice between the fair value model (paragraphs 34.4 to 34.7B) and the cost model (paragraphs 34.8 to 34.10A). Because the choice is made class by class, a mixed farm could carry its commercial pig unit at fair value and its suckler herd at cost.

The choice is not freely reversible. Paragraph 34.3B says that once the fair value model has been chosen for a class, the entity cannot later change that class to the cost model. There is no equivalent bar on moving a class from cost to fair value, but any voluntary change of policy must meet paragraph 10.8, which allows it only if the result is reliable and more relevant information (see accounting policies, estimates and errors).

The FRC’s basis for conclusions explains that fair value information was seen as inconsistent with the way most agricultural businesses are managed, so a policy choice was introduced.

How is the fair value model applied?

Under paragraph 34.4 a biological asset is measured on initial recognition and at every reporting date at fair value less costs to sell, and changes in fair value less costs to sell go to profit or loss. So the effects of growth, ageing, births and price movements on fair value are reported in the profit and loss account each year.

Fair value is measured using Section 2A Fair Value Measurement. Paragraph 34.6 notes that valuation techniques may use sector benchmarks, such as the value of an orchard per export tray, bushel or hectare, or the value of cattle per kilogram of meat.

If the fair value of a particular biological asset cannot be measured reliably, paragraph 34.6A requires the cost model for that asset until fair value can be measured reliably. Paragraph 34.7A then requires an explanation of why fair value cannot be measured, and, if it later becomes measurable, why and with what effect.

Disclosures under paragraph 34.7 include a description of each class, the methods and significant assumptions used to determine fair value, and a reconciliation of the carrying amount from the start to the end of the period, showing fair value gains or losses, purchases, sales, decreases from harvest, business combinations and other changes. The reconciliation need not be given for prior periods.

How is the cost model applied?

Paragraph 34.8 measures biological assets under the cost model at cost less accumulated depreciation and accumulated impairment losses. Paragraph 34.9A sets out what cost includes:

  • purchase price, including legal and brokerage fees, import duties and non refundable purchase taxes, after trade discounts and rebates;
  • costs directly attributable to bringing the asset to the location and condition needed for it to operate as management intends;
  • the initial estimate of removal and site restoration costs recognised under Section 21; and
  • borrowing costs capitalised under paragraph 25.2.

The glossary lists biological assets among possible qualifying assets for borrowing cost capitalisation, which can be relevant to long establishment periods such as new orchards (see borrowing costs capitalisation). Impairment is tested under Section 27 (see impairment of assets under FRS 102).

Paragraph 34.10 requires, for each class at cost, a description, the depreciation method, the useful lives or depreciation rates, and a reconciliation of the carrying amount that includes purchases, sales, harvest, business combinations, and impairment losses recognised or reversed.

What happens to produce at the point of harvest?

Harvest is the moment produce leaves Section 34’s biological asset rules. What happens next depends on the model:

Model for the class Measurement of produce at harvest Reference
Fair value model Fair value less costs to sell Paragraph 34.5
Cost model Either the lower of cost and estimated selling price less costs to complete and sell, or fair value less costs to sell (with any gain or loss on initial recognition in profit or loss) Paragraph 34.9

In both cases that harvest measurement becomes the cost of the produce for Section 13 Inventories or another applicable section. The FRC’s basis for conclusions notes that cost measurement of produce is limited to entities that chose the cost model for the related biological assets, though those entities may still use fair value for produce. Where produce is measured at fair value less costs to sell, paragraph 34.10A (cost model) and paragraph 34.7B (fair value model) require disclosure of the methods and significant assumptions used at the point of harvest. Once produce is inventory, the normal rules on stock valuation apply.

What does a worked example look like?

Illustration only. A farming company keeps a flock of breeding ewes and grows wheat. It chooses the fair value model for the flock and the cost model for wheat.

  • Flock. At the start of the year the flock is carried at £60,000, its fair value less costs to sell. During the year the company buys ewes for £8,000 and sells culls carried at £5,000. At the year end, fair value less costs to sell is £66,000. The reconciliation shows opening £60,000, purchases £8,000, sales £5,000 and a fair value gain of £3,000 in profit or loss, giving £66,000.
  • Wheat. The crop costs £40,000 to grow to harvest. Estimated selling price less costs to complete and sell is £52,000. Under the cost model the grain goes into inventory at £40,000, the lower amount, unless the company elects to measure the harvested grain at fair value less costs to sell.

How does HMRC look at farm stock valued under FRS 102?

For tax, HMRC’s Helpsheet 232, reproduced at BIM55410, sets out the farm stock valuation basis acceptable to HMRC. It notes that FRS 102 states stock may be valued by reference to fair value less costs to sell, and it describes the cost model in tax terms as a figure representing cost or, if lower, net realisable value. HMRC asks to be told if the basis of valuation changes.

Where actual costs cannot be found from the farmer’s records, the helpsheet accepts deemed cost as a percentage of open market value: 60% for cattle, 75% for sheep and pigs, and 75% for harvested crops. BIM55420 limits deemed cost to cattle, sheep, pigs and harvested crops and says it should not be used where it does not give a reasonable estimate of cost, such as pedigree stock. HMRC does not accept cull value as the net realisable value of production animals, because it ignores the income from their produce and progeny.

Separately, farmers can elect for the herd basis under sections 111 to 129 of the Income Tax (Trading and Other Income) Act 2005 or sections 109 to 127 of the Corporation Tax Act 2009. BIM55501 explains that production animals in an elected herd are excluded from trading stock and treated, in most circumstances, like a capital asset. The election is irrevocable and must specify the class of animals. The herd basis is a tax election only; it does not change how the herd is presented under FRS 102.

What mistakes come up most often?

  • Switching from fair value back to cost. Paragraph 34.3B prohibits it for a class once fair value has been chosen.
  • Valuing growing produce separately. Before harvest, produce is part of the biological asset under paragraph 34.3C.
  • Leaving out the reconciliation. Both models require a movement reconciliation by class, and readers of farm accounts rely on it.
  • Using cull value for production animals. HMRC says this is not acceptable as net realisable value.

For an overview of the wider standard, see FRS 102 explained.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.