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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding_tablet=”50px|0|50px|0″ custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]Contents
34.2 Agriculture – recognition and measurement.
34.2.1 Extract from FRS102: Section 34.2-.34.3B.
34.2.2.1 The meaning of biological assets and examples.
34.2.2.1.1 Agricultural activity defined.
34.2.2.1.1.1 Requirements for biological transformation.
34.2.2.1.1.2 Requirements for biological transformation to be managed.
34.2.2.1.2 Biological asset defined.
34.2.2.2 Recognition criteria.
34.2.2.3 Accounting for agricultural produce within the scope of Section 34.
34.2.2.4 Items excluded from the definition of agriculture.
34.2.2.5 Accounting policy choices:
34.2.2.5.3 Accounting policy choice by class.
34.2.2.6 Accounting for agricultural produce after point of harvest.
34.3 Measurement – fair value model.
34.3.1 Extract from FRS102: Section 34.4-.34.6A.
34.3.2.1 Initial and subsequent recognition.
34.3.2.2. Fair value hierarchy model.
34.3.2.2.1 Active market defined.
34.3.2.2.1.1. What market to use where there is more than one market and markets in other locations.
34.3.2.2.1.1.1 More than one market to sell the produce.
34.3.2.2.1.1.2 Market in different locations.
34.3.2.2.1.1.3 Use of cash flow model to determine fair value.
34.3.2.3 Application of the fair value model.
34.3.2.4 Fair values cannot be reliably measured.
34.5 Disclosures – fair value model.
34.5.1 Extract from FRS102: Section 34.7-34.7B.
34.5.2.2.1 Extract from accounting policies note for forestry.
34.5.2.2.2 Extract from accounting policies note for livestock (Extracted from Appendix to IAS 41).
34.5.2.3 Critical accounting estimates and judgments disclosure.
34.5.2.4 Notes to financial statements.
34.7 Measurement – cost model.
34.7.1 Extract from FRS102: Section 34.8-34.9.
34.7.2.1 Initial and subsequent measurement/
34.7.2.2 Choices when applying the cost model to agricultural produce.
34.8 Disclosures – cost model.
34.8.1 Extract from FRS102: Section 34.10-34.9.
34.8.2.3 Notes to the financial statements.
34.9.1 Extract from FRS102: Section 34.11-.34.11C.
34.10 Service Concession Arrangements.
34.10.1 Extract from FRS102: Section 34.12-.34.16A.
34.10.2.2 Service conditions arrangements defined.
34.10.2.2.1 Conditions that must apply.
34.11.1 Extract from FRS102: Section 34.17-.34.33.
34.11.2.2 Financial institution defined.
34.12 Retirement Benefit Plans: Financial Statements.
34.12.1 Extract from FRS102: Section 34.34-.34.48.
34.12.2.2 Full set of financial statements.
34.13.1 Extract from FRS102: Section 34.49-.34.56.
34.13.2.1 Heritage asset – defined.
34.13.2.2 Recognition and measurement.
34.13.2.3 What about old heritage assets where there are no records to determine cost.
34.13.2.4 Where should heritage assets be disclosed on the balance sheet.
34.13.2.5.1 Possible reasons for impairment.
34.13.2.6 Useful life and residual value.
34.13.2.7 Heritage assets received free of charge.
34.13.2.8.2 Illustration of some of the disclosure requirements for heritage assets.
34.14.1 Extract from FRS102: Section 34.57-.34.63 and Appendix A to Section 34.
34.15 Public benefit entities: Incoming Resources from Non-Exchange Transactions.
34.15.1 Extract from FRS102: Section PBE34.64-.PBE34.74 and Appendix B to Section 34.
34.15.2.1 Public benefit entity defined.
34.15.2.1.1 Requirement to disclose that an entity is a public benefit entity.
34.15.2.2 Special rules for public benefit entities.
34.15.2.2.1 Assets held for provision of social benefits.
34.15.2.2.2 Income resources from non-exchange transactions.
34.15.2.2.2.2 Accounting for non-exchange accounting.
34.15.2.2.2.2.1 Recognition for goods and measurement for goods.
34.15.2.2.2.2.1.1 Performance related conditions defined.
34.15.2.2.2.2.1.2 Conditions that are not performance related.
34.15.2.2.2.2.1.3 Examples of non-exchange resource transactions received in the form of goods.
34.15.2.2.2.2.2 Non-exchange resources received in the form of services/facilities.
34.15.2.2.2.2.2.2 Recognition and measurement.
34.15.2.2.2.2.2.2.1 Examples of non-exchange Transactions where services/facilities provided.
34.15.2.2.3 Public benefit entity combinations.
34.15.2.2.3.1.1 Business combinations defined.
34.15.2.2.3.2 Accounting Requirements.
34.15.2.2.3.2.1 Gift of a business for nil or nominal consideration.
34.15.2.2.3.2.1.1 Example of business combinations which is a gift that is not a merger.
34.15.2.2.3.2.1.2 Disclosures.
34.15.2.2.3.2.2 Examples illustrating merger accounting.
34.15.2.2.3.2.3 Meets the definition of a true acquisition and the purchase method applies.
34.15.2.2.3.2.3.1 Example business combination: Not a merger or gift – Purchase accounting method.
34.15.2.2.4 Public benefit concessionary loans.
34.15.2.2.4.2 Public benefit entity loan defined.
34.15.2.2.4.3 Accounting treatment of public benefit concessionary loans choices. 4
34.15.2.2.4.5 Examples of concessionary loans.
34.15.2.2.5 Government grants and accounting requirements.
34.15.2.2.5.1.1 Grants of all natures – Performance model.
34.15.2.2.5.1.2 Accrual model FRS 102 only.
34.15.2.2.5.2 Example of government grant accounting of PBE’S.
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34.3 Measurement – fair value model
34.3.1 Extract from FRS102: Section 34.4-.34.6A
34.4 An entity applying the fair value model shall measure a biological asset on initial recognition and at each reporting date at its fair value less costs to sell.
Changes in fair value less costs to sell shall be recognised in profit or loss.
34.5 Agricultural produce harvested from an entity’s biological assets shall be measured at the point of harvest at its fair value less costs to sell.
Such measurement is the cost at that date when applying Section 13 Inventories or another applicable section of this FRS.
34.6 In determining fair value, an entity shall consider the following:
(a) If an active market exists for a biological asset or agricultural produce in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset. If an entity has access to different active markets, the entity shall use the price existing in the market that it expects to use.
(b) If an active market does not exist, an entity uses one or more of the following, when available, in determining fair value:
(i) the most recent market transaction price, provided that there has not been a significant change in economic circumstances between the date of that transaction and the end of the reporting period;
(ii) market prices for similar assets with adjustment to reflect differences; and
(iii) sector benchmarks such as the value of an orchard expressed per export tray, bushel, or hectare, and the value of cattle expressed per kilogram of meat.
(c) In some cases, the information sources listed in (b) may suggest different conclusions as to the fair value of a biological asset or an item of agricultural produce.
An entity considers the reasons for those differences, to arrive at the most reliable estimate of fair value within a relatively narrow range of reasonable estimates.
(d) In some circumstances, fair value may be readily determinable even though market determined prices or values are not available for a biological asset in its present condition. An entity shall consider whether the present value of expected net cash flows from the asset discounted at a current market determined rate results in a reliable measure of fair value.
34.6A If the fair value of a biological asset cannot be measured reliably, the entity shall apply the cost model to that biological asset in accordance with paragraphs 34.8 and 34.10A until such time that the fair value can be reliably measured.
34.3.2 OmniPro comment
34.3.2.1 Initial and subsequent recognition
The fair value model values biological assets at its fair value less costs to sell at initial recognition and subsequently as state in Section 34.4 of FRS 102 with movements in fair value being recognised in the profit and loss. Agricultural produce harvested from a biological asset at the period of harvest is measured at fair value.
34.3.2.2. Fair value hierarchy model
To summarise where the fair value model is applied the following hierarchy should be applied as stated in Section 34.6 of FRS 102:
- Price for the asset in an active market
- Recent transaction price if there is no active market
- Market prices for similar assets
- Sector benchmarks
- The present value of net cash flows from the asset.
34.3.2.2.1 Active market defined
Appendix I of FRS 102 defines an active market as existing when all of the following conditions exist:
- The items traded in the market are homogenous;
- Willing buyers and sellers can normally be found at any time; and
- Prices are available to the public.
Biological assets usually have an active market. For example, calves, cattle, sheep etc. have active markets. Therefore, these prices should be used. The fair value is measured at the end of each reporting period and changes are posted to the profit and loss.
34.3.2.2.1.1. What market to use where there is more than one market and markets in other locations
Given that there may be more than one market for the biological asset Section 34.6 of FRS 102 makes it clear that the price to be used is the market in which the entity will use to sell the assets etc.
34.3.2.2.1.1.1 More than one market to sell the produce
Example 1: Fair value model
Company A owns calves/yearlings. These fall within the definition of biological assets. There are two active markets here, an entity could sell the cattle in a factory or in the mart both of which gives different answers. In determining the value to use the entity should determine whether they will dispose of the cattle in the mart or in the factory. This will require judgment.
34.3.2.2.1.1.2 Market in different locations
It could also be that the price quoted in one part of the country is higher than in the location which the entity is located. In determining the price, the entity should assess whether they will use the local market or go to another market. For example, in one part of the country the price of cattle might be higher than the price of cattle in another part of the country. In determining the value to apply, the entity will need to assess what market it will use to dispose of the biological asset.
34.3.2.2.1.1.3 Use of cash flow model to determine fair value
Where an active market is not available then entities must move to Section 34.6(b) of FRS 102 in line with the hierarchy stated in 34.3.2.2
Where the cash flow model is used it should include all directly attributable cash inflows and outflows. The inflows will be the price in the market of the harvested crop over the asset’s life. The outflows will be those incurred in raising or growing the asset and getting it to the market. The market is where the asset will be sold. The cash flows should exclude the cost of financing the assets, taxation or re-establishing biological assets after harvest. For example, for corn it would be the price that would be received for ripe corn less costs of spraying, harvesting etc. If a value cannot be determined reliably it should be carried at cost.
34.3.2.3 Application of the fair value model
Example 2: Application of the fair value model-corn
Company A has sowed corn during the year. The company has applied the fair value model to biological assets. At the year-end an active market cannot be determined due to very few sales occurring hence a cash flow model can be used as per Section 34.6 of FRS 102. In determining the cash flows the entities uses available information from as much external sources as possible to determine the future price obtainable when the corn is fully mature. These are then present valued at the appropriate market rate.
In assessing the outflows, it should include a notional amount for the cost of renting the land (although this may not be rented in reality – however it allows consistency with individuals who would have to rent the land) and discount all costs including this deemed rental cost to get the corn to its fully matured state. The net cash flow obtained here after discounting should be added to the deemed cost of the rental so as to determine the amount to recognise the field of corn in the financial statements.
Assume at the end of the year the net cash flows were CU10,000. This would be recognised in the financial statements.
| CU | CU | |
| Dr Agricultural/Biological Assets | 10,000 | |
| Cr Profit and Loss | 10,000 |
Assume at the end of the following year the actual fair value at the point of harvest was CU15,000. The difference of CU5,000 would be posted as a credit to the profit and loss account. All further costs and revenues between year-end and that date are recognised in the profit and loss account.
At the point of harvest the journal required would be to:
| CU | CU | |
| Dr Inventory on the Balance Sheet | 15,000 | |
| Cr Agricultural/Biological Assets | 15,000 |
From then on the corn would be dealt with under Section 13 of FRS 102 as per Section 13.9 of FRS 102 (i.e. carried at fair value as determined at point of harvest plus storage costs etc.)
If this was sold straight away there would be no gross profit shown as it is the same as the cost.
Example 3: Application of the fair value model – livestock
Company A had the following transactions in the year.
On 1 November the entity purchased 10 cattle for beef production for CU10,000. If this entity were to sell the same cattle it would incur transportation costs of CU50 and auctioneering fees of CU50.
Therefore the amount to be recognised as a biological asset at that time is the fair value less cost to sell:
| CU | CU | |
|
Dr Biological Assets (CU10,000 less CU100 costs to sell) |
9,900 | |
| Dr Loss on Initial Recognition | 100 | |
| Cr Bank | 10,000 |
At year end 31 December the market value of the cattle was CU11,000 less costs to transport and auctioneer fees of CU50= CU10,950. Therefore the gain should be recognised at year end. It incurred vet fees in the intervening period. The following journal should be posted:
| CU | CU | |
|
Dr Biological Assets (fair value of CU10,950 less CU9,900 original cost) |
1,050 | |
| Cr Profit and Loss with Gain | 1,050 |
Note the vet fees are expensed as incurred.
On 31 March the company sold 5 of the cattle in the factory for CU7,000 and incurred CU300 in transportation fees. The journal required is:
| CU | CU | |
| Dr Bank | 6,700 | |
| Dr Transport Fees in P&L | 300 | |
| Cr Revenue | 7,000 |
The below journal is also required to transfer from biological assets at that date to inventory:
| CU | CU | |
| Dr Inventory | 6,700 | |
|
Cr Biological Asset (CU10,950 / 10 cattle * 5) |
5,475 | |
|
Cr Fair Value Gain on Cattle (CU6,700-CU5,475) |
1,225 |
The journal is then posted to derecognise the inventory and recognise the cost of sales.
At the end of the following year the fair value of the cattle was CU8,000 less cost of transport and auctioneer fees CU100 (CU7,900). The journal required to show the value at the end of that year is:
| CU | CU | |
| Dr Biological Assets | 2,425 | |
|
Cr Gain on Fair Value in P&L (CU7,900-(CU10,950-CU5,475) |
2,425 |
34.3.2.4 Fair values cannot be reliably measured
Where fair values cannot be reliably measured the cost model should be used and the fair value at that time becomes the cost as stated in Section 34.6A of FRS 102. However, when a reliable measure becomes available at a point in the future, the fair value model should be recommenced.
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Examples
Example 2: Application of the fair value model com.
Example 3: Application of the fair value model – livestock.
Example 4: Biological Assets held at fair value.
Example 5: Extract from notes to the financial statements for biological assets held at fair value.
Example 6: Extract from accounting policies notes for livestock/biological assets carried at cost.
Example 14: Donated goods or services – fixed assets.
Example 15: Donated goods or services – donated goods held for resale – impractical to measure.
Example 16: Donated goods or services – donated goods held for resale – practical to measure.
Example 18: Donated goods or services – donated services.
Example 19: Business Combinations: Gifts of business etc.
Example 20: Business Combinations: Mergers.
Example 21: Concessionary loans – option not to discount.
Example 22: Concessionary loans – option to discount.
Example 24: Accruals model (applicable for FRS 102 only and not Charities SORP) – capital grant.
Example 25: Accruals model (applicable for FRS 102 only and not Charities SORP) – revenue grant.
Example 26: Accruals model (applicable for FRS 102 only and not Charities SORP) – revenue grant.
Example 27: Performance model (applicable for FRS 102 and Charities SORP) – revenue grant.
Example 28: Performance model – Revenue Grant.
Example 29: Capital grants (FRS 102 and FRS 102 SORP – performance model).
Example 30: Grants and performance conditions.
Example 31: Grants and performance conditions.
Example 32: Grants and performance conditions.
Example 33: Grants and performance conditions.
Example 34: Grants and performance conditions.
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