ACCA supports IASB's proposals to amend accounting for bearer plants

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11 Nov, 2013

The IASB’s proposals to amend the accounting methods used to recognise a plant or tree used to generate produce (a ‘bearer plant’), have been welcomed by ACCA’s (the Association of Chartered Certified Accountants) Global Forum for Corporate Reporting.

The IASB Exposure Draft (ED) proposes amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 41 ‘Agriculture’ to include bearer plants within the scope of IAS 16.  Currently, IAS 41 requires that all biological assets that are related to agricultural activity must be measured at fair value less costs to sell. The amendments would bring bearer plants (e.g. fruit trees and grape vines) which no longer undergo significant biological transformation into the scope of IAS 16 so that they would be accounted for in the same way as property, plant and equipment.   

Bearer plants are defined as plants that are used in the production or supply of agricultural produce, are expected to bear produce for more than one period, and are not intended to be sold as a living plant or harvested as agricultural produce.  Plants that are grown both to bear produce and for sale as living plants or agricultural produce remain in the scope of IAS 41 (for example, trees that are cultivated for their lumber as well as their fruit). Equally, the produce on the bearer plants would continue to be accounted for under IAS 41.  The IASB proposes that before bearer plants are placed into production (i.e. before they reach maturity and bear fruit) they should be measured at accumulated cost.  After they reach maturity, bearer plants would be accounted for either under the cost model or a revaluation model.

ACCA agrees with much of what the IASB proposes, such as applying the principles of IAS 16 to bearer plants, including the option of adopting either a cost or revaluation model once the plants are mature and bearing produce. Whilst bearer plants reach maturity, they will be measured at accumulated cost, like a self-constructed manufacturing plant.

How well plants will bear produce can vary over their life cycle, and ACCA believes that this can be reflected in a limited amount of fair value disclosures in the financial statements, whilst adopting the cost model for recognition of the bearer plant. 

ACCA also agrees with IASB’s proposals that roots, such as sugar cane or rhubarb, should be accounted for in the same way as trees that produce fruit, as they can bear produce in more than one season, compared to annual crops where seeds need to be sown each time.

However, ACCA believes that more guidance is needed on the treatment of certain costs such as the rent of land where the bearer plant is growing, and even the impact of the condition of that land.

Read ACCA’s press release here and their full consultation response here (links to ACCA website).

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