IFRS 16 · Agriculture

IFRS 16 Lease Calculator
for Agriculture

Pre-configured for agricultural entities with farmland leases, equipment agreements, and the interaction between IFRS 16 and IAS 41 biological asset accounting. Addresses EU Common Agricultural Policy subsidy considerations.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 for Agriculture — Practical Guidance

Agricultural entities hold lease portfolios dominated by farmland and agricultural equipment — tractors, harvesters, irrigation systems, and livestock housing. Farmland leases are typically long-term (10–25 years or longer), reflecting the investment required for soil preparation, drainage, and crop establishment. IFRS 16 creates a significant on-balance-sheet impact for agricultural entities that previously classified farmland leases as operating leases. The interaction between IFRS 16 and IAS 41 Agriculture (biological assets) affects how lease costs flow through to the fair value measurement of biological assets and agricultural produce.

Measurement Considerations for Agriculture

For agricultural land leases, the discount rate should reflect the entity's borrowing capacity against agricultural assets. Agricultural mortgage rates provide a reference point, adjusted for the specific lease term and currency. In the EU, agricultural entities may benefit from subsidised lending programs (European Investment Bank facilities, national agricultural development banks), but the IBR should reflect the entity's actual borrowing capacity, not subsidised rates unless those rates are genuinely available for the specific borrowing type.

ROU Asset Depreciation for Agriculture

Agricultural land ROU assets are not depreciated if the land has an indefinite useful life and ownership transfers or a purchase option is reasonably certain. However, most agricultural land leases do not transfer ownership, so the ROU asset is depreciated over the lease term. For agricultural equipment, depreciation reflects the useful life, which is typically shorter than the lease term for major machinery items. Consider seasonal usage patterns when assessing useful life — equipment used only during specific seasons may have longer calendar-year useful lives but the same wear-based useful life.

Industry-Specific Considerations

EU Common Agricultural Policy (CAP) subsidies are linked to land usage, and the entity must assess whether the recognition of a ROU asset for leased farmland creates any implications for CAP payment eligibility. Generally, CAP direct payments are linked to the farmer who activates the entitlements, regardless of whether the land is owned or leased. However, the entity should verify that IFRS 16 recognition does not create unintended reporting consequences. In the Netherlands, nitrogen regulation (stikstofbeleid) may affect the value and availability of agricultural leases, and entities should consider impairment indicators for farmland ROU assets in the context of evolving environmental regulations.

Worked Example: 10-Year Farmland Lease

A Dutch agricultural entity leases 50 hectares of arable land for 10 years commencing 1 January 2025. Monthly rent is €4,000 payable in arrears with no escalation. The entity's IBR is 4.5% based on agricultural mortgage rates. There is a restoration obligation of €20,000 to reinstate field drainage at lease end.

Initial Liability
€385,564
Initial ROU Asset
€405,564
Total Interest
€94,436
Total Payments
€480,000

Audit Considerations

For Dutch agricultural entities, auditors should consider the interaction between IFRS 16, CAP regulations, and nitrogen legislation. ISA 540 applies to the estimation of restoration obligations for farmland. For cooperative structures common in Dutch agriculture, the entity-level versus consolidated treatment of leases may require careful assessment.

Frequently Asked Questions — Agriculture

How does IFRS 16 interact with IAS 41 biological asset accounting?
IFRS 16 and IAS 41 operate independently, but both affect the same balance sheet. The ROU asset for leased farmland is measured under IFRS 16, while biological assets growing on that land are measured at fair value less costs to sell under IAS 41. Lease costs (depreciation and interest) are not directly included in the fair value of biological assets, but they do form part of the entity's cost structure and affect profit or loss alongside the IAS 41 fair value gains and losses.
Do CAP subsidy payments affect IFRS 16 lease calculations?
CAP payments are government grants accounted for under IAS 20, independent of IFRS 16 lease accounting. However, if the lease agreement links rental payments to subsidy levels (e.g., rent indexed to CAP payment rates), this may create variable payments linked to an index under IFRS 16. Assess whether the linkage creates a variable payment that should be included or excluded from the lease liability.
How do I handle seasonal agricultural equipment leases?
Equipment leased for specific harvest seasons (e.g., a combine harvester hired for 3 months) may qualify for the short-term lease exemption if the total term is 12 months or less. For equipment under multi-year leases but used seasonally, IFRS 16 costs (depreciation and interest) are recognised evenly over the year, not just during the usage season. Consider whether seasonal usage affects the useful life assessment for depreciation purposes.
What are the IFRS 16 implications of Dutch nitrogen regulation for farmland leases?
If evolving nitrogen regulations reduce the economic utility of leased farmland (e.g., mandatory extensification, livestock density limits), assess whether an impairment trigger exists for the ROU asset under IAS 36. A reduction in the recoverable amount of the farming operation may indicate impairment of the associated ROU asset. Also consider whether the regulatory change affects the lease term assessment — would the entity exercise termination options earlier?
How do I classify agricultural land leases for tenant farmers under IFRS 16?
Tenant farming agreements that provide the tenant with the right to use specific parcels of farmland for a period in exchange for rent are leases under IFRS 16. Apply the standard measurement — present value of lease payments. For sharecropping arrangements where the rent is a percentage of crop output, this is variable rent excluded from the lease liability (IFRS 16.38(b)), similar to turnover rent in retail.

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