1. Agriculture Accounting
• Pecularities in Accounting of Agricultural activity
• Existing Accounting Guidelines – Indian GAAP
• EAC Opinions
• International Guidelines – IFRS
• Issues
• Expectations
2. Agriculture Accounting
• Query – Treatment of Expenditure on Timber plantation
- whether capital or revenue
Opinion – Disclose as Work-in-progress under Current
Assets since it is similar to production process till it
attains maturity during 10-12 years. To be valued at
lower of cost or NRV. NRV determined based on
estimated selling price less estimated cost to be incurred
in future for bringing the plantation to maturity and selling
cost. Cost to include all expenses for raising timber till
valuation date. (1998)
3. Agriculture Accounting• Query – Period upto which expenditure on plantation of coconut and cashewnut be capitalised
Opinion – No fixed period can be laid down. Will depend on plantation to plantation basis.
However, commercial production can be said to have begun in the year in which the quantity of
produce is commercially exploited i.e sale or manufacture etc. ( 1993)
• Query – Orchid plants
1. Accounting treatment of cost of Orchid Plant ?
2. Accounting treatment of cost of infrastructure facility ?
3. Cut-off stage for capitalisation of expenditure ?
4. Accounting treatment of cost of fertilisers / insectides ?
5. Accounting treatment of cost of personnel ?
6. Accounting treatment of income from sale of flowers upto date of commercial exploitation ?
7. Accounting treatment of matured unplucked flowers ?
8. Depreciation of Orchid Plant
Opinion – (Vol XXI)
1. Treated as Fixed Asset – Identifiable batch
2. AS 10 to apply – Capitalise under respective head till they are ready for intended use
3. When ‘produce’ is commercially exploitable. In said case when plants reach age of 12 months
though exportable quality is produced at age of 3 years
4. Capitalise to ‘Cost of Orchid plant’ till stage of commercial exploitation reached, thereafter
revenue
5. Costs of Personnel engaged in development of project be capitalised
6. Reduce from the indirect expenditure relating to development of Orchid plant
7. Value at NRV – only if sale is assured otherwise at ‘Nil’ value
8. No rate specified in Schedule XIV of Cos Act. To depreciate over estimated useful life from date
when ready for commercial exploitation till the date their produce becomes economically
unviable.
4. Agriculture Accounting
• Query – Treatment of Expenditure incurred jointly for
developing captive plantation
Opinion – Disclose as advance to Rajya Van Vikas
Nigam (Forest for joint plantation pending allocation
under “Loans and Advances” with explanatory note –
Ownership of assets not yet known
• Query – Whether Plantation includes ‘Made Tea’ and
consequent applicability of AS 2 with regard to treatment
of future costs for sending stock till destination included
in value of stock at balance sheet date
Opinion – Plantation includes only ‘plucked green (raw)
tea. ‘Made tea’ involves Manufacturing process hence
AS 2 applies to ‘Made Tea’. Treatment followed by
company is not correct
5. Agriculture Accounting
• Query - Applicability of MAOCARO to Company
engaged in Cultivation of Sugarcane and Paddy
Opinion - Cultivation activity does not amount to
Manufacturing, Processing, Trading and Mining, chit
fund, etc
• Query - Capacity utilisation and Normal production for
the purpose of absorption of overheads - whether rate of
crushing (MT/day) or Sugar Production
Opinion – Based on Input i.e cane crushed / day,
seasonal wages are direct cost and non-seasonal wages
are production overheads thus based on normal level of
production – AS 2
6. Agriculture Accounting
• Query – Treatment of Land Development Expenditure on
Agricultural Farms
Opinion – On Land granted by Government to Company
(will revert only upon liquidation) disclose such Land in
books (principle of substance over form). Revalue the
same and consequently the cost of land development is
added to cost of land provided such cost is not
connected with the construction of any other Project.
On Leasehold land – such cost to be added to cost of
leasehold land and then to be depreciated over life of
lease
Other Land Development expenditure – To be written off
or if material then to be treated as deferred revenue
expenditure
7. Agriculture Accounting - IAS 41
In relation to Agricultural activity
Scope includes
• Biological Assets
• Agricultural produce at point of harvest
• Conditional and Unconditional Government grants
Scope excludes
• Land
• Intangible assets
• Agriculture produce after harvest for eg processing of grapes into
wine by vintner
Pecularities
• Capability to change – Biological transformation through growth,
degeneration, procreation or production of agricultural produce
• Management of change – Facilitating Biological transformation eg
nutrient levels, moisture, etc
• Measurement of change – change in quality and quantity
9. Recognition and Measurement
Recognise Biological asset and Agriculture produce when
• Entity controls the asset
• Future economic benefit will flow
• Fair value or cost of asset can be measured reliably
Measurement of BA / AP
• Fair value less estimated costs to sell
• Cost to sell will include commission to brokers and dealers, levies,
transfer taxes
• Cost to sell exclude transport and other costs necessary to get the
asset to market
• Fair value is determined with reference to present location and
condition.
• Fair value will become cost after harvest if IAS 2 – Inventories is
applied to such produce
• FV is presumed to be measured reliably except Para 30
• Whether AP under WIP to be recognised and measured or not ????
10. Measurement guidance
• FV can be determined for group of similar BA / AP
• FV is not influenced by future contract prices
• FV influenced by prices prevalent in active market where BA/AP expected to be sold
• If no active market, then either most recent transaction price or market prices for similar assets or
sector benchmarks depending upon availability and reasonability
• If no market determined prices available for BA then PV of net cash flows discounted at current
market determined pretax rate
• The expected net cash flows are to be computed considering the present location and condition for
which an appropriate discount rate need to be considered i.e. no cognisance be taken of future
biological transformation or future activity, or harvesting or selling
• FV to take into consideration variations in cash flows
• Cost may approximate FV sometimes for eg little biological transformation at balance sheet date or
impact of biological transformation is not material
• FV of Combined assets can be considered to arrive at FV of BA alongwith raw land or land
improvements if market exists for combined assets
• FV of AP – presumed that it can be reliably measured at point of harvest
Exceptions to FV – Para 30
• Initial recognition of B/A when market prices unavailable
• Alternative estimates are unreliable
• Measured at Cost less depreciation / impairment loss
When to revert back to FV
• When FV can be reliably measured
• When non-current B/A are held for sale as per IFRS 5 where it is presumed that FV can be
measured reliably.
Gain or Loss upon FV accounting
• Recognise the same in profit or loss in the period in which arises
11. Measurement guidance
Government Grants
• Unconditional – Recognised as income
when receivable.
• Conditional – Recognised as income when
conditions met.
• IAS 41 not apply where BA is measured at
cost. IAS 20 instead will apply
12. Disclosure
• Each group of BA
• Group are subdivided into
Consumable and Bearer BA
Mature and Immature BA
• Nature of activities
• Physical quantities – BA and Output of AP
• Methods of determining FV
• Significant assumptions in determining FV
• FV of harvested produce during the period
13. Issues on Agriculture Accounting
• No Accounting Standard in India
• Non-uniformity in accounting practices either treated as Fixed Assets, Inventories, Property
Development or Loans and Advances. For eg Timber plantation as WIP or Fixed Asset, Orchid
plant as Fixed asset
• Classification of Agricultural assets
• Treatment of operational costs on plantation
• Unresolved issues in IAS – 41
• Business models in India involve commercial farming by private enterprises
FV challenge
1. BA including biological transformation upto point of harvest are to be recognised at FV. FV determination is
very subjective at periodic intervals. Where market determined prices are not available then net present
value of expected cash flows discounted at current market-determined pre-tax rate are recommended. For
eg colt grows into stallion who wins races. Stallion get older his utility decreases. Stallion dies of old age
and carcass used as pet food. Also in case of Vineyards, Tea or Coffee plantation determining FV involves
high level of complex and subjective tasks. Further, deducting value of unimproved land and infrastructure
from total value is subjective and open to substantial variability.
2. Notional gain / loss to be recognised in profit and loss statement. This applies even when first harvest may
come after 30 years which is not consistent with historical cost convention
3. Declaring dividends out of such unrealised gain / loss may give misleading picture of FS. Since these
assets are subject to natural disasters, diseases etc
4. Some BA are treated as Fixed assets. Gain / Loss arising out of changes in FV of FA are generally not
recognised to P/L statement. Then why such treatment applies to agricultural non-financial assets
5. Comparing biological transformation with regard to their quality in group is difficult process. Estimating
price for produce of such quality could pose a challenge
6. No convinving argument put forward by IASB in favour of FV model for non-financial assets
7. Not consistent with IAS 38 – Intangible assets where in case of revaluation imposes strict criteria eg, active
market, homogenous product, willing buyers and seller, prices available to public.
