Agriculture - Core Flashcards
What are the primary types of biological assets? Under IAS 41
Consumable biological assets
- plant/trees that intend to be harvested/sold
- animals that is the end product with the intention to be harvested or sold.
Bearer biological assets (except bearer plants)
- the animal is raised to supply a product (milk/wool)
What criteria are applied to bearer plants?
- They are used in the production or supply of agricultural produce
- They are expected to produce for more than one period
- They have a remote likelihood of themselves being sold as agricultural produce
i.e. Apple trees - they are not the end product themselves but produce apples which are then sold.
How are bearer plants categorized under IAS 16?
Bearer plants are considered PP&E, but the produce growing on bearer plants is included within the scope of IAS 41.
What are the criteria required when recognizing a biological asset/agricultural produce?
1) The entity controls the asset as a result of past events
2) It is probable that future economic benefits with the asset will flow to the entity
3) The fair value or cost of the asset can be measured reliably.
How are biological assets measured and recorded as?
Produce is measured at its FV less cost to sell and is updated at the end of each reporting period based on the current condition and market value of the asset.
Can you explain IAS 2 and how the standard is applied to agricultural produce once it is harvested?
After it is harvested and the initial measurement is determined, it then becomes inventory and falls under IAS 2. IAS 2 states that future measurement is dependent on the lower of cost or net realizable value - any gains or losses recognized should be recorded as profit or loss in that time.
How can you simplify the ongoing measurement of biological assets?
You can group assets together making it easier - however, this must be done based on attributes that are important to the market, i.e, age or weight.
If the farm has signed a set contract price for X amount of livestock on a certain day, what would you record as the value for the biological assets?
This is a common practice, but it is not relevant to the entity’s measurement of the asset. It must be set to current market conditions. Furthermore, costs incurred to bring the asset to the condition are consistent with IAS 36 Impairment of Asset - which includes commissions, regulatory duties, commodity exchange fees, and transfer taxes.
In recent times, farmers have been struggling and thus received government grants/lenience. How would you record this?
Government grants that are directly related to covering assets are recorded as income. They should be recognized once they become receivable unless they are conditional on meeting ga certain criteria - in which you will only record it as a receivable only when it is met. (IAS 41)
What are ASPE/IFRS differences in regards to agriculture?
There is no ASPE section correlating to IAS 41. thus, some may record their produce at NRV, meanwhile others may be accounted for at cost under ASPE Section 3061 (PP&E).
When facing these questions under ASPE/IFRS, it is important to note what the industry norm is for accounting - if there is none, then it is appropriate to apply IFRS as a proxy for guidance.
