Agriculture Flashcards
Provide an example of a biological asset?
Biological assets would include living animals or plants.
How is agricultural produce accounted for once it is harvested?
Up to the point of harvest, agriculture produce is classified in the Agriculture Section of the Handbook. Once the produce is harvested, the standard on Inventory is applicable and the asset would be accounted for as inventory, at lower of cost and net realizable value.
What is the definition of a bearer plant?
A bearer plant is defined as follows:\n\n(a) It is used in the production or supply of agricultural produce;\n\n(b) It is expected to bear produce for more than one period; and\n\n(c) It has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
Give an example of a bearer plant?
Various types of bushes and trees that are planted with the intent that the produce which grows on it will be harvested, would be treated as bearer plants. An apple tree would be a bearer plant.
Would a tree grown for its lumber be accounted for under the Agriculture Section of the Handbook?
A tree that is grown for its lumber is essentially harvested for its agriculture produce and is not considered a bearer plant. Therefore, it would fall into the Agriculture Section.
If the main purpose of a tree is to supply produce (fruit) and once the tree is no longer able to provide produce, it will be cut down for firewood, how would one account for the tree?
The tree would be a bearer plant, as the primary purpose is to supply produce and it would fall into the PPE Standard of the Handbook. The fact that the tree would eventually be cut down and used for firewood, is considered as “incidental scrap sale” and does not impact the classification of the plant.
In what Section of the Handbook does bearer plants fall, Agriculture or PPE?
Bearer plants fall into the PPE Section, IAS 16.
In what Section of the Handbook does the produce that grows on bearer plants fall, Agriculture or PPE?
The produce that grows on bearer plants falls into the Agriculture Section of the Handbook, IAS 41.
What Handbook section would one apply for government grants that relate to bearer plants, the section on agriculture (IAS 41) or the section on government grants (IAS 20)?
Government grants related to bearer plants should be accounted for in the Accounting for Government Grants Section (IAS 20) and the special rules for government grants related to biological assets do not apply to bearer plants.
How does one account for a plant that has dual use - the plant bears produce and the plant is being sold as either a living plant or agricultural produce (beyond incidental scrap sales)?
Plants that have a dual use would not meet the definition of a bearer plant and would therefore not be accounted under IAS 16 (PPE). rather the full plant would be accounted for under IAS 41 (agriculture).
How does one account for land used by an entity for agriculture purposes (e.g. the land is being used for farming)?
Land used for agricultural purposes would be accounted for under the PPE Standard (IAS 16).
How would land owned by a third party and rented to an entity for agricultural purposes, be accounted for?
The land would be classified as investment property (IAS 40).
How does one measure a biological asset?
Biological asset would be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell, except in cases where fair value cannot be measured reliably.
Are biological assets depreciated?
No
Provide examples of what would be included in “costs to sell” and what costs would not be included in “costs to sell” when measuring a biological asset?
Costs to sell include incremental costs such as commissions, fees etc. Allocated costs would not be included. Costs to sell would also exclude finance costs and income taxes.
When is it not appropriate to use fair value for agriculture assets?
The normal presumption is that fair value can be used to measure biological assets. However, this presumption can be rebutted only on initial recognition, if market prices or values are not available andalternative estimates of fair value are clearly unreliable.
How should one account for a biological asset when fair value is not used?
The asset should be measured at cost and depreciation should be taken, similar to PPE.
Are there situations where one would measure an agriculture asset at cost over the duration of its life?
Yes, assuming that the fair market value is not available or market prices are unreliable over the duration of the asset’s life. However, if at some point fair market value becomes reliable, the measurement basis should change to fair value less costs to sell.
Can an entity value a biological asset at fair value less costs to sell and the later change the accounting to the cost method?
No Once an asset is measured based on fair value less costs to sell, the entity continues to use this basis until disposal (similar to investment property).
What is the journal entry if a new born calf has a value of $100 and the cost to sell is $3?
The journal entry is:\n\nDr. Biological asset (calf) $97\n\nCr. Fair value gain on initial recognition of biological asset $97\n\n
What is the journal entry if a new cow is purchased for $200 and the cost to sell is $7?
The journal entry is:\n\nDr. Biological asset (cow) $193\n\nDr. Fair value loss on initial recognition of biological asset $7\n\nCr. Cash $200\n\nThere is a loss because of the costs to sell which are deducted in determining fair value of the asset.
How does one account for an agricultural grant that contains a condition that the land not be worked on for a period of 3 years?
A conditional grant related to agriculture can only be recognized when the conditions attached to the grant are met. Therefore, in this case the grant could only be recognized at the end of 3 years.
How does an agricultural grant differ from a standard grant that falls into the Accounting for Government Grants Section IAS 20?
In IAS 20, a conditional grant can be recognized as long as there is reasonable assurance that the conditions will be met, similar to any accrual. In IAS 41, Agriculture, a conditional grant can only be recognized once all of the conditions are met.
ABC owns a mango plantation. During the year ABC harvested 100,000 mangos. At the date of harvest the market value per mango was $0.21 and the incremental cost to sell the mangos was $0.01 per mango. ABC Inc. however sells the mangos through forward contracts. ABC Inc, entered into a forward contract to sell all of its harvest produced during the year for $0.18 a mango (net of selling costs). During the year 80,000 mangos were sold and the remainder were in inventory at year end. What is the balance sheet amount for the mangos and the impact on the income statement, if any, for those mangos which had not yet been sold by year end?
Given that ABC harvested 100,000 mangos during the year, there would have been 20,000 mangos in inventory at year end. At the time of harvest the mangos had a fair value less costs to sell of $0.20 ($0.21 - $0.01) so the value was $4,000. Note that under IAS 41 an entity specific value is not used, so the price in the forward contract would not be used. Hence at the date of harvest when the mangos are classified as inventory, they would have been valued at $4,000 (i.e. $4,000 is the initial cost base of the inventory).\n\nAs at year end, the mangos would be valued at the lower of cost and NRV. For the purpose of determining the NRV, the forward contract would be taken into account as NRV is an entity-specific value. Based on the forward contract the NRV is 20,000 mangos X $0.18 which equals $3,600. Hence based on valuing the inventory at the lower of cost and NRV the mango inventory at year end would be valued at $3,600 and there would be a writedown of $4,000 less $3,600 which equals $400.
