When the trees that can generate carbon credits fall into IAS 41, because they are managed for agricultural activities, they are accounted for as biological assets and measured at fair value less costs to sell. This will include economic benefits related to the carbon offsets to be generated (see FAQ 33.21.3 in PwC Manual of accounting). Carbon offsets are generated over the life of the trees and they are separately recognised. The fair value of the trees is reduced by the fair value less costs to sell off the carbon offsets as the future cash flows of the trees no longer include these carbon offsets. It is therefore appropriate to treat the reduction in the carrying amount of the trees when carbon credits are generated, that is the fair value less costs to sell of the carbon credits, as the initial cost of the carbon offsets generated. The accounting outcome is similar to agricultural produce harvested from biological assets at the point of harvest.