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IAS 41 FAIR VALUE MEASUREMENT ISSUES IN AGRICULTURE

IAS 41 Agriculture requires:

Biological assets and agricultural produce be recognized and measured at theirfair value.

IAS 41 requires that the cash ows eclude !an" increases in value from

additional biological transformation!.

#he issue initiall" addressed in this pro$ect is whether a fair value measurement

ob$ective can be achieved if these future increases are ecluded.

Obecti!e "# $AS 41

#he ob$ective of %AS 41 is to establish standards of accounting for agricultural

activit" & the management of the biological transformation of biological assets

'living plants and animals( into agricultural produce 'harvested product of the

enterprise)s biological assets(.

Agricultur%l %cti!it&

Is the management b" an entit" of the biological transformation of biological

assets for sale* into agricultural produce* or into additional biological assets.

I'iti%l Rec"g'iti"'

An enterprise should recognize a biological asset or agriculture produce onl"when the enterprise controls the asset as a result of part events* it is probable

that future economic bene+ts will ow to the enterprise* and the fair value or

cost of the asset can be measured reliabl".

Me%sure(e't

Biological assets should be measured on initial recognition and at subsequentreporting dates at fair value less estimated point,of,sale costs* unless fair value cannot bereliabl" measured. Agricultural produce should be measured at fair valueless estimated point,of,sale costs at the point of harvest. Because harvested produce

is a mar-etable commodit"* there is no )measurement reliabilit") eception for produce.#he gain on ini tial recogni tion of biological assets at fair va lue* andchanges in fair value of biological assets during a period* are reported in net pro+t orloss .A gain on initial recognition of agricultural produce at fair value should beincluded in net pro+t or loss for the period in which it arises. All costs related tobiological assets that are measured at fair value are recognized as epenseswhen incurred* other than costs to purchase biological assets. %AS 41 presumes that fairvalue can be reliabl" measured for most biological assets.

T)e #"ll"*i'g gui+%'ce is ,r"!i+e+ "' t)e (e%sure(e't "# #%ir !%lue:

A quoted mar-et price in an active mar-et for a biological asset or

agricultural produce is the most reliable basis for determining the fairvalue of that asset. If an active mar-et does not eist* %AS 41 provides

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guidance for choosing another measurement basis. irst choice would be amar-et,determined price such as the most recent mar-et price for thatt"pe of asset* or mar-et prices for similar or related assets/ if reliablemar-et,based prices are not available* the present value of epectednet cash ows from the asset should be use* discounted at a currentmar-et,determined pre,ta rate.

Ot)er Issues:

#he change in fair value of biological assets is part ph"sical change

'growth* etc.( and part unit price change. Separate disclosure of the two

components is encouraged* not required.

air value measurement stops at harvest.%AS 0* Inventories* applies after

harvest

Agricultural land is accounted for under %AS 1* %ropert"* %lant and

2quipment. 3owever* biological assets that are ph"sicall" attached to land

are measured as biological assets separate from the land. Intangible assets relating to agricultural activit" 'for eample* mil- quotas(

are accounted for under %AS 5* Intangible asset.

-iscl"sure require(e'ts i' $AS 41 i'clu+e:

67arr"ing amount of biological assets

68escription of an enterprise)s biological assets* b" broad group

67hange in fair value during the period

6air value of agricultural produce harvested during the period

68escription of the nature of an enterprise)s activities with each group of

biological assets and non,+nancial measures or estimates of ph"sical quantities

of output during the period and assets on hand at the end of the period

6Information about biological assets whose title is restricted or that are pledged

as securit"

67ommitments for development or acquisition of biological assets

6inancial ris- management strategies

69ethods and assumptions for determining fair value

6:econciliation of changes in the carr"ing amount of biological assets* showing

separatel"changes in value* purchases* sales* harvesting* business combinations

* and foreign echange di;erences 8isclosure of a quanti+ed description of each

group of biological assets* distinguishing between consumable and bearer assets

or between mature and immature assets* is encouraged but not required. If fair

value cannot be measured reliabl"* additional required disclosures include

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-escri,ti"' "# t)e %ssets:

An eplanation of the circumstances

If possible* a range within which fair value is highl" li-el" to fall

=ain or loss recognized on disposal

8epreciation method >seful lives or depreciation rates

=ross carr"ing amount and the accumulated depreciation* beginning and

ending If the fair value of biological assets previousl" measured at cost

now becomes available* certain additional disclosures are required.

8isclosures relating to government grants include the nature and etent of

grants* unful+lled conditions* and signi+cant decreases in the epected

level of grants.

Tr%'siti"'

A change in accounting polic" to adopt %AS 41 ma" be accounted forin accordance with either of the treatments for changes in accounting policies

allowed in %AS 5* ?et %ro+t or @oss for the %eriod* undamental 2rrors and

7hanges in Accounting %olicies.

IAS ./ ACCOUNTING FOR GOVERNMENT GRANTS AN- -ISCLOSURE OF

GOVERNMENT ASSISTANCE

O!er!ie*

IAS 0 Accounting for =overnment =rants and 8isclosure of =overnment

Assistance outlines how to account for government grants and other assistance.=overnment grants are recognized in pro+t or loss on a s"stematic basis over the

periods in which the entit" recognizes epenses for the related costs for which

the grants are intended to compensate* which in the case of grants related to

assets requires setting up the grant as deferred income or deducting it from the

carr"ing amount of the asset.

IAS 0 was issued in April 15 and is applicable to annual periods beginning on

or after 1 Canuar" 154.

Obecti!e "# IAS ./

#he ob$ective of IAS 0 is to prescribe the accounting for* and disclosure of*

government grants and other forms of government assistance.

Sc",e

IAS 0 applies to all government grants and other forms of government

assistance. DIAS 0.1E 3owever* it does not cover government assistance that is

provided in the form of bene+ts in determining taable income. It does not cover

government grants covered b" IAS 41 Agriculture* either. DIAS 0.0E #he bene+t

of a government loan at a below,mar-et rate of interest is treated as a

government grant. DIAS 0.1AE

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Acc"u'ti'g #"r gr%'ts

A government grant is recognized onl" when there is reasonable assurance that

'a( the entit" will compl" with an" conditions attached to the grant and 'b( the

grant will be received. DIAS 0.FE

#he grant is recognized as income over the period necessar" to match them with

the related costs* for which the" are intended to compensate* on a s"stematic

basis. DIAS 0.10E

?on,monetar" grants* such as land or other resources* are usuall" accounted for

at fair value* although recording both the asset and the grant at a nominal

amount is also permitted. DIAS 0.0E

2ven if there are no conditions attached to the assistance speci+call" relating to

the operating activities of the entit" 'other than the requirement to operate in

certain regions or industr" sectors(* such grants should not be credited to equit".DSI7,1E

A grant receivable as compensation for costs alread" incurred or for immediate

+nancial support* with no future related costs* should be recognized as income in

the period in which it is receivable. DIAS 0.0E

A grant relating to assets ma" be presented in one of two wa"s< DIAS 0.04E as

deferred income* or B" deducting the grant from the asset)s carr"ing amount.

A grant relating to income ma" be reported separatel" as )other income) or

deducted from the related epense. DIAS 0.0E

If a grant becomes repa"able* it should be treated as a change in estimate.

Ghere the original grant related to income* the repa"ment should be applied +rst

against an" related unamortized deferred credit* and an" ecess should be dealt

with as an epense. Ghere the original grant related to an asset* the repa"ment

should be treated as increasing the carr"ing amount of the asset or reducing the

deferred income balance. #he cumulative depreciation which would have been

charged had the grant not been received should be charged as an epense. DIAS

0.0E

-iscl"sure "# g"!er'(e't gr%'ts

#he following must be disclosed< DIAS 0.E accounting polic" adopted for

grants* including method of balance sheet presentation nature and etent of

grants recognized in the +nancial statements unful+lled conditions and

contingencies attaching to recognized grants.

G"!er'(e't %ssist%'ce

=overnment grants do not include government assistance whose value cannot

be reasonabl" measured* such as technical or mar-eting advice. DIAS 0.4E

8isclosure of the bene+ts is required. DIAS 0.'b(E

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