The much-debated revisions to the standard on the financial reporting of bearer plants as property, plant and machinery, have now been published by the International Accounting Standards Board (IASB), effectively changing the status of bearer plants, such as grape vines, rubber trees and oil palms, for accounting purposes
The change to the accounting reporting procedure means that from 1 January 2016 bearer plants will have to be accounted for in the same way as property, plant and equipment in IAS 16, Property, Plant and Equipment.
The amended reporting was introduced because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41, Agriculture.
The produce growing on bearer plants will remain within the scope of IAS 41, Agriculture.
However, there will be no change to biological assets outside the definition of bearer plants. Under IAS 41, this means that they will continue to be measured at fair value less costs to sell. This is based on the principle that the biological transformation that these assets undergo during their lifespan is best reflected by fair value measurement.
However, bearer plants do not fall under this definition as they are used solely to grow produce over several periods. At the end of their productive lives they are usually scrapped. Once a bearer plant is mature, apart from bearing produce, its biological transformation is no longer significant in generating future economic benefits. The only significant future economic benefits it generates come from the agricultural produce that it creates.
Entities are required to apply the amendments for annual periods beginning on or after 1 January 2016. Earlier application is permitted.
The limited-scope project was not intended to address fair value disclosure requirements for other assets in IAS 16. Consequently, the IASB decided not to require fair value disclosures for entities with bearer plants.
The major changes implemented as a result of stakeholder response to the exposure draft issued in June 2013 include:
- modifying one of the criteria in the definition of a bearer plant from ‘not intended to be sold as a living plant or harvested as agricultural produce, except for incidental scrap sales’ to ‘has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales’. This modification was intended to ensure that the amendments capture only those plants used solely in the production or supply of agricultural produce;
- clarifying that differences between fair value and the carrying amount determined in accordance with IAS 41 (fair value less costs to sell) are recognised in opening retained earnings when an entity first applies the amendments; and
- in the period when the amendments are first applied, exempting entities from the requirement in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to disclose the amount of any adjustment for the current period for each financial statement line item affected. This is intended to relieve entities from the need to maintain dual accounting systems in the year of initial application. Entities would still be required to provide those disclosures for each prior period presented in the financial statements.
However, the standard setter rejected requests from stakeholders to include bearer livestock and plants in the new reporting structure. It also refused to waive fair value measurement of growing produce. One of the reasons for this stance was that this was a limited scope project so would not make sense to rush through amendments without due exposure and consultation.
A summary of the amendments can be found here: http://www.ifrs.org/Current-Projects/IASB-Projects/Bearer-biological-assets/Documents/FINAL_Agriculture_Bearer%20Plants_JUNE%202014_WEBSITE.pdf