ReSA The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989 PRACTICAL ACCOUNTING E C._Uberita/C EspenillaiG, Macariola AGRI LECTURE Biological assets ~ living plants and snimals Agricultural produce ~ the harvested product of the entity's biological assets Biological transformation ~ relates o the pro ture in a bilo sses of growth, degeneration and production that can cause changes ical asset “ oily or improvement in quality of an animal or plant) ¥ rease in the quantity oF deterioration in quality of an animal of plant) oF 4 1 of additional living animals or plants: bo Production of agricultural produce such a lafex, tea leaf: wool, and milk, Agricultural setivity - is the management by an entity of the biological transformation of biological assets for sale, into agricultural produce, or int’ additional biological assets, such as the following: 1. Raising livestock Floriculture 1b. Annual of perenitial cropping £ Cultivat ©. Cultivating orehards and plantation’. Pérestry Aquaculture (including fish farming) A group of biologi gation of similar living animals or plants Harvest —is the detachment of produce from a biological asset or the cessation of a biological asset's life processes. sels, agricultural produce, and products that are the result of processing after harvest: ‘Agricultaral Products That Are The Produce Result a __Of Processing After Harvest Sheep Wool Yarn, carpet Trees in plantat Legs Lumber. 4 Plants Cotton Harvested cane Sugar Dairy cattle Milk Cheese Pigs Careass Sausage Bushes Loot Tea, cured tobacco Vines Wine Fruit ees, Picked fruit Processed fruit Recognition An entity shall recognize a biological asset or agricultural produce when and only when: a. The enti of past events bb. Ibis probable that future economic bene‘its associated with the asset will Tow to the entity, and ¢The fair value or cost of the asset ean be measured reliably Biological asset - shall be measured on initial recognition and at each balance sheet date at its Fair Value bess estimated point of sale casts. IP the fair value ean sured reliably, it shall be measured at cost less any ac ed depreciation and any impairment tosses. . Once the fair value of the biological asset becomes reliably ‘measurable, the entity shall measure wt its thir value less estimated point of sale costs, ot be Agricultural produce harvested from entity"s biological assets — shall be measured at its fair value JeSs estimated point of sale costs at the point of harvest and losses ns and losses arising on initial roeogn froma change in fair value less estimated point of sale costs « fie the period in which it arises. fair vali tess est ated point ofisale costs and neluded in profit or loss Gains anid losses arising on initial recognition of agricultural produce at fair value less estimated point of sale costs shall be included in profit or loss for the period in which oint of sale cost ine ullowin, commission to brokers and dealers b. levies by regulatory agencies and commodity exchanigeSA/PRACTI WUNTING 1 2of3 transler taxes and duties) Loint of sale casts does not includle transport and other costs necessary to yet the assets to a market The requirement for the measurement of fair value to take account of the location of an asset seems to contradict paragraph 14 of PAS 41, which states thar “cost to sell exclude transport and other costs necessary to get assets to ‘a market". Clarificaion ks provided in the basis for conclusions section of the standard which states that costs to sell exclude transport and other costs necessary to get assets 10 4 market, because such casts have already been considered in determining fair value Hence, paragraph 14 aims to ensure that transport tosts are recognized only. ‘once und not that they are ignored. This requirement to measure biological assets by taking transport costs into ‘account when determining far vatue as well as future costs to sell would most likely result in a loss on quisition of biological assets Differ ces between IFRS for SMEs und Full IE S for SME Full ERS ‘An undue cost and etfort west chided | The fair value measurably for for the determination of fair values of | biological assets is presumed biological assets vane Ching che] | recognition of biological assets must be | recoanized in profit or loss ‘changes on the Bearer plants ~ the new requirements Agriculture: Bearer Plants (Amendments 0 TAS 16 and IAS 41) chan, assets that meet the definition of bearer pl 5 the aceou ig requirements for biole Bearer plants will no longer be within the scope of TAS 41. | od to bearer plants. The amendments are iy 2016, with curly adoption permitted. apply to government grants re periods beyinning on or after 1 Ta The International Accounting Standards Board (ASB) issued Agriculture: Bearer Pkauts (Amendments to [AS 16 and IAS 41) on 30 June 2014, which d the accounting requirements for biological assets that meet the definition of bearer plants (e.g. fruit tres), Bearer plants will now be within the seope of LAS 16 Property, Pant snd Equipment and will be subject to all of the requirements therein. This includes the ability to choose between the cost ‘model and revaluation medet for subsequent measurement, Agricultural produce growing on bearer plants (e9,. fruit rowing on a tree) will remain within the seope of IAS 41 Agriculture, Government grants relating to bearer plants will now be accounted for in accordance with IAS 20 Accour Government Assistance, instead of in accordance with TAS 41 12 for Government Grants and Disclosure of on of a bearer plant ‘The amendment defines a bearer plant as “living, plant tht js used in the production or supply of agricultural produce: expected to bear produce than one period and thas a remote likelihood of being sold as agricultural produc - exvept for ycidental serap sales, All ofthe above criteria need to be inet lor u biolog Bearer plants will be ace ted for as property, plant and equipment, separate from any reluted agricultural produce captures plants that would intuitively be considered to be bearers, for instance, grape vines. In some plants that may appear to be consumable, such as the root systems of perennial plants (6. cane or bamboo) are expected to nicet the definition of a bearer plant. Annual crops ang other plants solely to be harvested as agricultural produce (-2., many triditional arable crops such as maize, whcat aed 9 ‘well as trees grown for lumber), are not expected to meet the definition of a bearer plant. In addition, plants that hhave a dual use, that is, both bearing produce and the plant itself being sold as either a living plant or weri produce (beyond ineidental serap sales), will not meet the definition. Uhis may be the eave when, for example, an tentity holds rubber trees to sell both the rubber milk as agricultural produce and the trees as tumber. Bearer animal, le hearer lait my teed solely fo the proce thal hey He, However, Bearer imal see explicitly continue 19 be accounted for under IAS 41 on the basis that the 1ore complex if applied to such assets, measurement model would become Careful assessment will, therefore, be important. In addition, itis not clear whether an whether a plant meets the definition of a bearcr plant after initial recognition. For example, if x plant meets the definition of a bearer plant and that changes subsequently, would IAS 41 then apply instead of IAS 16? The ‘amendments do not address this question or specify how to transter such assets between {AS 16.and LAS 41 (ot vice versa) Scparating bearer plants from their agricultural produce — impact on eurre Currently, bearer plants and their agricultural produce are considered to be ty would need to reassess and_no asset prior to huirvest (ic Resa ‘The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989__ReSA ‘The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3969 PRACTICAL ACCOUNTING 1 __ —__C. Uberita/C. Espeniiia GOVERNMENT GRANTS - Lecture Goverment grants’ are assistance provided by government by transfer of resources (either monetary oF non- ‘morictary) to entities in return for past ot future Compliance with conditions relating to the operating activities of the ‘entity. ‘They exclude that form of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the enterprise ~ Recognition of Government Grants: Government grants are provided in return tor past or future compliance with certain conditions, ‘Thus grants should riot be recognized until there is reasonable assurance that hoth a) The entity will comply with the conditions attaching to the grant: and b) The grant(s) will be received Period of Recognition: Government grants should be recognized as income over the periods necessary to match them with the related costs, wiich they are intended to compensate, on « systematic and rational basis. They should not be credited directly to shareholders! interests. . Additional Principles Laid Down for Recognition of Grants: 4) - Grants in recognition of specific costs are recognized as income over the same period as the relevant expense. b). Grants related to depreciable assets are usually recognized as income over the periods and in the proportions in which depreciation on those assets is charged. ©) Grants related to non-depreciable assets may also require the fulfillment of certain obligations and would then bbe recognized as income aver periods, which bear the cost of meeting the obligations. As an example, a grant of Jand may be conditional upon the erection of a building on the site and it may be appropriate to recognize it as income over the life of the building. 4) Grants are sometimes received as part of « package of financial or fiscal aids to which a number of conditions are attached. In such cases, care is needed in identifying the coriitions giving rise to eosts and expenses, which determine the periods over which the grant will be eared. ft may be appropriate to allocate part of a grant on ‘one basis and part on another, Measurement of Government Grants: : jovernment Grants are measured atthe fair value of grants received or receivable. Presentation of Government Grants: a) For grants related to assets — should be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset b) For grants retated to Income — are sometimes presented as a credit in the income statement, either separately or under a general heading such as “Other income”, alternatively, they are deducted in reporting the related expense Repayment of Government Grants: ‘A government grant that becomes repayable should If ecounted for as a revision to an accounting estimate Repayment ofa grant related to income should be applied first against any unamorized defered credit setup in respect ofthe grant. To the extent that the repayment exceeds any such defered credit, or where no deferred credit exists, the repayment should he recognized tmmedialely as an expense Increasing the carrying amount of the asset or reducing the deferred ingome balance by the amount repayable should record repayment of grant related 1o an asset... The cumulative additional depreciation that would have been recognized to date as, an expense in the absence of the grant should be recognized immediately as an expense. Differences between JERS for SMEs a) TERS for SMI ‘A different model is applied for government grants based on future performance No provision that grants may be deducted trom the ~ | carrying amount of the related asset. [No requirement ws disclose the accounting po Syst WOMEERB LS apd ook ig model depends on whether it relates to | expenses and assets | Granis retated to an asset may be deducted from the sarryinig amount ofthe asset