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L6 - Accounting For Heritage Assets and Biological Assets
L6 - Accounting For Heritage Assets and Biological Assets
L6 - Accounting For Heritage Assets and Biological Assets
ACCOUNTING FOR
HERITAGE ASSETS AND
BIOLOGICAL ASSETS
By Kendhoo
OBJECTIVES [CONTI]
Explain the arguments for and against placing a valuation on heritage assets
Be aware of the alternative approaches to valuing heritage assets
OBJECTIVES [CONTI]
Understand the various issues associated with changes in the market
value of biological assets, and explain when such changes in value should
be recognised in profit and loss
Be able to explain how the nature of biological assets differs from many other
assets
Be able to explain why net market value or fair value has been suggested by
approaches
6/3/2016
AC C O U N T I N G F O R H E R I TAG E A S S E T S
Definition of heritage assets
AC C O U N T I N G F O R H E R I TAG E A S S E T S
( C O N T. )
AC C O U N T I N G F O R H E R I TAG E A S S E T S
( C O N T. )
IAS 16 Property, Plant and Equipment specifically addresses heritage
assets:
Examples of property, plant and equipment held by not-for-profit public sector
entities and for-profit government departments include, but are not limited to,
infrastructure, cultural, community and heritage assets
AC C O U N T I N G F O R H E R I TAG E A S S E T S
( C O N T. )
6/3/2016
AC C O U N T I N G F O R H E R I TAG E A S S E T S
( C O N T. )
AC C O U N T I N G F O R H E R I TAG E A S S E T S
( C O N T. )
Accountability of those charged with managing heritage assets not well assessed in financial
terms
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
Relevant standard applying to agricultural activity is IAS 41 Agriculture
Agricultural activity is defined in IAS 41 as management by an entity of the
biological transformation of biological assets for sale, into agricultural
produce, or into additional biological assets
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
non-human living assets other than animals and plants, such as viruses and
blood cells
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AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
Examples of biological assets, agricultural produce and products resulting from processing
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
Unique nature of biological assets
Natural capacity to grow and/or procreate directly impacts on value
Great deal of increase in value owing to input of free goods (sun, air, water)
Great deal of cost incurred early in the assets life but economic benefits
derived much later
Production cycle might be very long
Not necessarily any direct relationship between expenditure on asset and
ultimate return
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AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
Prior to IAS 37 and IAS 41 there was great variation in valuation methods
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
How should biological assets be measured? (cont.)
Assessing fair value
IAS 41 requires that quoted prices from active markets be used with deductions made for
transaction costs such as costs associated with transportation to point of sale or sale yard
commissions
Where there is no active market for particular biological assets
Where market-determined prices or values are not available for biological assets in their
present condition
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AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
assets be recognised?
IAS 41:
recognition
When the fair value of the biological asset can be measured reliably
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
IAS 41:
Impact due to both physical changes and price changes in the market
When
one year
there
is
production
cycle
of
more
than
Encouraged disclosures in profit or loss owing to physical changes and owing to price
changes
When the production cycle is less than one year (e.g. when raising chickens or growing cereal
crops)
IAS 2 Inventory requires inventory to be valued at the lower of cost and net
realisable value
Measurement of agricultural produce harvested from an entitys biological assets
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AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
Non-financial Disclosure
IAS 41 requires that an entity provide a description of each group
AC C O U N T IN G F O R B IO L O G IC A L A S S E T S
( C O N T. )
Opposition to IAS 37 and IAS 41
of biological assets
IAS 41 states:
Criticisms include:
An entity shall disclose the nature of biological assets and an estimate or relevant
indication of their physical quantity, separately classified between plants and
animals and sub-classified as appropriate to the circumstances of the entity,
showing separately those biological assets subject to a lease arrangement
S U M M A RY
Main topics addressed in the lecture include:
Various arguments as to how these assets should be valued and disclosed were
addressed
too academic
provide nothing positive for local companies
make payout ratio look unfavourable
alienate US investors
S U M M A RY ( C O N T. )
Also considered were the unique accounting attributes of biological assetsliving animals and
plants
Relative merits of Historical Cost Vs Market-based valuations were considered
The lecture noted that accounting regulators have opted to adopt market-based/fair valuations
for the agriculture accounting standard
Arguments for and against the accounting valuation of heritage assets were set
out, with different views being held by some members of the accounting profession
The changes in fair value from one period to the next are treated as part of the entitys profit or
regarding whether and how heritage assets should be recognised for accounting
purposes
6/3/2016
Any Question?