Section 27 – Specialised Activities

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Section 27 – Overview

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Section 27 Detailed Guide

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Section 27: Specialist Activities

Summary

Section 27 deals with the reporting requirements for entities applying FRS 105 in the specialist area of agriculture.

What is new when compared to previous GAAPs – General?

Only disclosures required under Section 27 relate to contingencies, commitments and guarantees in relation to biological assets (whether they are recognised on the balance sheet or not). This compares to the requirements of FRS 102/FRSSE/old GAAP which required significantly more disclosures.

What is new when compared to FRSSE/old GAAP?

Section 27 defines biological assets and agricultural produce, this was not defined under old GAAP and as a result would have been dealt with under SSAP 9. Under Section 27, entities must apply the cost model. Under the cost model, the assets are measured at cost less depreciation and, where relevant, impairment. Under SSAP 9 such assets would be measured at the lower of cost or net realisable value which is somewhat similar to the rule in Section 27 so no adjustments would be expected on transition.

What is new when compared to FRS 102?

FRS 102 provide a choice to carry agricultural assets either under the cost model or the fair value model. Section 27 does not permit the fair value model instead the cost model should be utilised.

What are the key points?

Biological assets are living animals or plants. Agricultural produce are the harvested product of the entity’s biological asset.

Agricultural produce after point of harvest is not within the remit of Section 27, instead these come within the remit of Section 10 Inventories.

Section 27 only applies to agricultural produce (i.e. harvested crops) at the point of harvest and not prior to or subsequent to harvest. Unharvested produce is considered to form part of the biological asset e.g. wool which has not been extracted from a sheep cannot be valued separately.

Land and agricultural property do not come within this section as these are dealt with by Section 12.

Cost is the lower of cost and estimated selling price less cost to complete and sell. Probable future economic activities will flow to be entity.

The recognition criteria for biological assets is similar to any other asset, there must be:

Ownership of the asset and have ability to control it.
Cost is the lower of cost and estimated selling price less cost to complete and sell.
Probable future economic activities will flow to the entity.
The cost can be reliably measured.

What do accountants need to know?

Review their client portfolio to identify clients which will be affected by this standard and advise clients accordingly as to the inability to carry biological assets at fair value (applicable to entities transitioning from FRS 102) and advise on my tax implications.

Assess the impact on distributable reserve and on the net assets in the balance sheet as a result of the requirement to restate biological assets from fair value to cost less depreciation and impairment as applicable (applicable to entities transitioning from FRS 102 only who previously applied the fair value model).

What do Companies need to do?

Identify the adjustment required on transition from the fair value model to the cost model where applicable.

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