RECOGNITION OF THE BIOLOGICAL ASSETS ACCORDING TO THE IAS-41-AGRICULTURE
Elena HLACIUC, Camelia MIHALCIUC, Eugenia IANCU
Stetan cel Mare University of Suceava, Faculty of Economic Science and Public Administration, elenah@seap.usv.ro
Keywords : evaluating, biological asset, IAS 41, recognition, agricultural produce
Abstract: Supporting the measurement based on the fair value invokes a series of reasons that conclude that the fair value, as a method of measurement of the future economic benefits that is expected to be generated by the biological assets, has a greater relevance, reliability, comparability and intelligibility that the historic cost, and it is for this reason that we find more biological assets on active markets with clear market prices. The active markets for such goods supply a reliable measure of the markets expectation as far as the future economic benefits are concerned. The presence of such prices increases significantly the reliability of the market value, as indicator of the fair value. The measurement of the biological assets cost is sometimes less reliable than the measurement of the fair value, because the coupled products and the coupled costs can generate situations where the relations even if the biological assets generate supplementary biological assets , and the latter are used for the agriculture activity characteristic to the entity. The international Accounting Standard IAS 41 – Agriculture prescribes accounting treatment, financial sheet drawing and information related to biological assets and agricultural activities from the harvesting point. This standard does not treat the processing of produce obtained after harvesting, because this process is described by IAS 2 – Stoks.International accounting standard IAS 41- Agriculture does not contain specific information related to how often one should evaluate biological assets, deducing that the evaluation must be conducted on each closing date, because there are no existent regulations to stipulate a less frequent evaluation of biological assets. This standard presents the general idea that the fair value can be realistically estimated by using deductive hierarchy, which this article will debate, for a better understanding of initial evaluation and consecutive evaluation of biological assets. IAS41 is treating the management of biological assets; increasing the agricultural output, logging, plant cultivation; horticulture and aquaculture. The biological alteration is the process of growing, ageing, production and procreation of biological assets; these alteration lead to new agricultural produce, or transformation of other biological assets. In addition, IAS 41 does not contain any specific information referring how often one should estimate the biological assets. We can conclude that that the estimation must be conducted on each closure, because the standard does not state any information on how frequent the estimation must be run. As explanation, IASB stated the availability of fair values on relative expected costs, and the consistent progress of biological transformations. In the case of biological assets or agricultural produce that are similar, IAS41 allows grouping them in order to simplify the fair value estimation. The relevant characteristics for grouping the assets are: nature, naturalness, consumption possibility, and quality and production capacity.
INTRODUCTION
Agriculture is one of the oldest human activities and has an important role in global economy by its generated economic resources. The International Accounting Standard IAS 41
-Agriculture dose not treat problems of agricultural lands and intangible agricultural assets, because these issues are presented in IAS16 standard (or LAS 40), respectively IAS 38. IAS41 does not contain specific information related to how often one should evaluate biological assets, deducing that the evaluation must be conducted on each closing date, because there are on existent regulations to stipulate a less frequent evaluation of biological assets.
The fair value estimation for agricultural produce at the harvesting point is strictly controlled compared to biological assets (according to IAS 41). Therefore, harvested cereal, animal sacrifice, picked fruits will be estimated; the estimation at production costs, due to exceptional circumstances, is not possible, as compared to biological assets. IASB states its premises, which states that there is an active market and a suited price for agricultural produce. Therefore, for agricultural harvested produce held as inventories, the fair value (minus point of sale costs) is actually the initial value correspondent to the acquisition costs or production costs (according to IAS 20).
MATERIALS AND METHODS
IAS 41 deals with the management of biological assets transformation, considering logging, orcharding, plantations, horticulture and aquaculture. This standard will apply for the accounting of the following elements, as they refer only to agricultural activities:
a) Biological assets – plants or living animals. The transformation process creates the processes of growing, anatomic degradation of living cells, production or breeding, which cause quality or quantity alteration of the biological assets. A biological assets or an agricultural produce are accounted only if the economic entity controls the asset due to previous events, and the future economic benefits generated by the asset are obtained by the entity, where the fair value or cost can be realistically estimated. A biological asset is evaluated on the initial accounting and on the year-end accounts, at its fair value, minus sale costs.
b) The agricultural produce at the harvesting point is actually the harvested and the biological asset of the company. The harvest is the detachment of produce from the biological asset, or ceasing the vital processes of a biological asset. The harvested agricultural produce must be evaluated and accounted on basis of the results, at its fair values, minus sale costs during harvest. According to LAS 2 – Inventories, this estimation leads to the input cost for the harvest estimation. In this care, the fair value is estimated in the following order:
- Current price existent on an active market
- Most recent transaction price
- Current market price for similar asset or products, considering possible dissimilarities
- Sector references
There are situations where there is on reference price or value for a biological asset; in this circumstance the fair value will be calculated as updated value of asset’ net expected cash flows. This standard implies that there is always a realistic way of determining fair value; if not, one will consider applying the amortized cost as replacement for the fair value.
C) The governmental grants will be accounted as revenues, when the receivables are received. Although LAS/IFRS includes in IAS 20
“Accounting for Government Grants and Disclosure of Government Assistance “ special stipulations related to government grants, IASB was forced to create separated stipulations for their accounting due to the fact that agricultural government grants are becoming more and more frequents. Offering unconditional grants is not corrected by any restrictive stipulation; they are conditioned when their offering depends on at least 3 requirements: for example, the government stipulates the land to be exploited for 3 years; if this condition is not fulfilled, the grant must be reimbursed. The unconditional government grants are recognized as revenue only when the grant becomes receivable. The conditional grants, such as those given for ceasing as agricultural activity will be registered as revenues when the conditions corrected with the grants are fulfilled, and chargeable revenue is registered for the grant donor. The IAS 41 refers only to the grants that are given for biological assets evaluated at fair value, minus estimated costs at the sale point. The biological assets grants, as they are registered with historical analyzed costs, are treated according with IAS 20.
RESULTS AND DISCUSSIONS
Situations where the fair value cannot be reliably measured
It is assumed that the fair value cannot be reliably measured for a biological asset. This hypothesis can be ignored only at the initial recognition of a biological asset, for which there are not available prices or values determined on the market and for which the alternative estimations of the fair value are not clearly reliable. In these cases, the biological assets will be evaluated at cost less any cumulated depreciation and any loss from cumulated depreciation. Once the fair value for such a biological asset can be measured reliably, an entity will measure it at the fair less the estimated point –of-sale costs. When as asset meets the classification conditions as detained for sale according to IFRS 5, it is assumed that the fair value can be reliably measured. In all cases, an entity measures the agriculture products at the date of harvest at the fair value less the estimated at point-of sale costs. Reflecting in this way the idea that the agriculture products measured at the date of harvest can be always measured reliably. A government unconditional grant is relation to an measured biological asset at the fair value less the estimated point –of-sale costs will be recognized as income when and only when the government grant becomes debt. When a government grant in relation to a biological asset measures at the fair value less the estimated point-of-sale costs is conditional, including also the case when this government grant is conditional by the non-engagement in the specified agriculture activities, an entity will recognize the grant as income when and only when the imposed conditions for the receiving the grant are fulfilled.
Evaluating biological assets
At the annual accounts or at the beginning of the year, the biologi
RECOGNITION OF THE BIOLOGICAL ASSETS ACCORDING TO THE IAS-41-AGRICULTURE
Elena HLACIUC, Camelia MIHALCIUC, Eugenia IANCU
Stetan cel Mare University of Suceava, Faculty of Economic Science and Public Administration, elenah@seap.usv.ro
Keywords : evaluating, biological asset, IAS 41, recognition, agricultural produce
Abstract: Supporting the measurement based on the fair value invokes a series of reasons that conclude that the fair value, as a method of measurement of the future economic benefits that is expected to be generated by the biological assets, has a greater relevance, reliability, comparability and intelligibility that the historic cost, and it is for this reason that we find more biological assets on active markets with clear market prices. The active markets for such goods supply a reliable measure of the markets expectation as far as the future economic benefits are concerned. The presence of such prices increases significantly the reliability of the market value, as indicator of the fair value. The measurement of the biological assets cost is sometimes less reliable than the measurement of the fair value, because the coupled products and the coupled costs can generate situations where the relations even if the biological assets generate supplementary biological assets , and the latter are used for the agriculture activity characteristic to the entity. The international Accounting Standard IAS 41 – Agriculture prescribes accounting treatment, financial sheet drawing and information related to biological assets and agricultural activities from the harvesting point. This standard does not treat the processing of produce obtained after harvesting, because this process is described by IAS 2 – Stoks.International accounting standard IAS 41- Agriculture does not contain specific information related to how often one should evaluate biological assets, deducing that the evaluation must be conducted on each closing date, because there are no existent regulations to stipulate a less frequent evaluation of biological assets. This standard presents the general idea that the fair value can be realistically estimated by using deductive hierarchy, which this article will debate, for a better understanding of initial evaluation and consecutive evaluation of biological assets. IAS41 is treating the management of biological assets; increasing the agricultural output, logging, plant cultivation; horticulture and aquaculture. The biological alteration is the process of growing, ageing, production and procreation of biological assets; these alteration lead to new agricultural produce, or transformation of other biological assets. In addition, IAS 41 does not contain any specific information referring how often one should estimate the biological assets. We can conclude that that the estimation must be conducted on each closure, because the standard does not state any information on how frequent the estimation must be run. As explanation, IASB stated the availability of fair values on relative expected costs, and the consistent progress of biological transformations. In the case of biological assets or agricultural produce that are similar, IAS41 allows grouping them in order to simplify the fair value estimation. The relevant characteristics for grouping the assets are: nature, naturalness, consumption possibility, and quality and production capacity.
INTRODUCTION
Agriculture is one of the oldest human activities and has an important role in global economy by its generated economic resources. The International Accounting Standard IAS 41
-Agriculture dose not treat problems of agricultural lands and intangible agricultural assets, because these issues are presented in IAS16 standard (or LAS 40), respectively IAS 38. IAS41 does not contain specific information related to how often one should evaluate biological assets, deducing that the evaluation must be conducted on each closing date, because there are on existent regulations to stipulate a less frequent evaluation of biological assets.
The fair value estimation for agricultural produce at the harvesting point is strictly controlled compared to biological assets (according to IAS 41). Therefore, harvested cereal, animal sacrifice, picked fruits will be estimated; the estimation at production costs, due to exceptional circumstances, is not possible, as compared to biological assets. IASB states its premises, which states that there is an active market and a suited price for agricultural produce. Therefore, for agricultural harvested produce held as inventories, the fair value (minus point of sale costs) is actually the initial value correspondent to the acquisition costs or production costs (according to IAS 20).
MATERIALS AND METHODS
IAS 41 deals with the management of biological assets transformation, considering logging, orcharding, plantations, horticulture and aquaculture. This standard will apply for the accounting of the following elements, as they refer only to agricultural activities:
a) Biological assets – plants or living animals. The transformation process creates the processes of growing, anatomic degradation of living cells, production or breeding, which cause quality or quantity alteration of the biological assets. A biological assets or an agricultural produce are accounted only if the economic entity controls the asset due to previous events, and the future economic benefits generated by the asset are obtained by the entity, where the fair value or cost can be realistically estimated. A biological asset is evaluated on the initial accounting and on the year-end accounts, at its fair value, minus sale costs.
b) The agricultural produce at the harvesting point is actually the harvested and the biological asset of the company. The harvest is the detachment of produce from the biological asset, or ceasing the vital processes of a biological asset. The harvested agricultural produce must be evaluated and accounted on basis of the results, at its fair values, minus sale costs during harvest. According to LAS 2 – Inventories, this estimation leads to the input cost for the harvest estimation. In this care, the fair value is estimated in the following order:
- Current price existent on an active market
- Most recent transaction price
- Current market price for similar asset or products, considering possible dissimilarities
- Sector references
There are situations where there is on reference price or value for a biological asset; in this circumstance the fair value will be calculated as updated value of asset’ net expected cash flows. This standard implies that there is always a realistic way of determining fair value; if not, one will consider applying the amortized cost as replacement for the fair value.
C) The governmental grants will be accounted as revenues, when the receivables are received. Although LAS/IFRS includes in IAS 20
“Accounting for Government Grants and Disclosure of Government Assistance “ special stipulations related to government grants, IASB was forced to create separated stipulations for their accounting due to the fact that agricultural government grants are becoming more and more frequents. Offering unconditional grants is not corrected by any restrictive stipulation; they are conditioned when their offering depends on at least 3 requirements: for example, the government stipulates the land to be exploited for 3 years; if this condition is not fulfilled, the grant must be reimbursed. The unconditional government grants are recognized as revenue only when the grant becomes receivable. The conditional grants, such as those given for ceasing as agricultural activity will be registered as revenues when the conditions corrected with the grants are fulfilled, and chargeable revenue is registered for the grant donor. The IAS 41 refers only to the grants that are given for biological assets evaluated at fair value, minus estimated costs at the sale point. The biological assets grants, as they are registered with historical analyzed costs, are treated according with IAS 20.
RESULTS AND DISCUSSIONS
Situations where the fair value cannot be reliably measured
It is assumed that the fair value cannot be reliably measured for a biological asset. This hypothesis can be ignored only at the initial recognition of a biological asset, for which there are not available prices or values determined on the market and for which the alternative estimations of the fair value are not clearly reliable. In these cases, the biological assets will be evaluated at cost less any cumulated depreciation and any loss from cumulated depreciation. Once the fair value for such a biological asset can be measured reliably, an entity will measure it at the fair less the estimated point –of-sale costs. When as asset meets the classification conditions as detained for sale according to IFRS 5, it is assumed that the fair value can be reliably measured. In all cases, an entity measures the agriculture products at the date of harvest at the fair value less the estimated at point-of sale costs. Reflecting in this way the idea that the agriculture products measured at the date of harvest can be always measured reliably. A government unconditional grant is relation to an measured biological asset at the fair value less the estimated point –of-sale costs will be recognized as income when and only when the government grant becomes debt. When a government grant in relation to a biological asset measures at the fair value less the estimated point-of-sale costs is conditional, including also the case when this government grant is conditional by the non-engagement in the specified agriculture activities, an entity will recognize the grant as income when and only when the imposed conditions for the receiving the grant are fulfilled.
Evaluating biological assets
At the annual accounts or at the beginning of the year, the biologi
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