IASB issues Exposure Draft of proposed amendments to IAS 16 and IAS 41

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26 Jun 2013

The International Accounting Standards Board (IASB) has published an Exposure Draft (ED) of proposed 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 issued today would bring bearer plants 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. Comments on ED/2013/8 ‘Agriculture: Bearer Plants’ are requested by 28 October 2013.



Concerns had been repeatedly raised about the relevance and usefulness of information provided to users for certain biological assets accounted for at fair value. Specifically, an ‘Issues Paper’ produced by the Asian-Oceanian Standard Setters Group (AOSSG) and the IASB's Emerging Economies Group (EEG), which included a survey performed by the Malaysian Accounting Standards Board (MASB) in 2010, found that a group of analysts specialising in plantation did not find fair value information for bearer biological assets useful, particularly the presentation of changes in fair value within the profit or loss. Respondents to the IASB's agenda consultation also considered a project on bearer plants to be important.


Motivation for the amendments

When bearer plants reach their full maturity, they no longer undergo significant biological transformation but are used to grow produce until the end of their productive life, after which they are usually disposed of. Hence it is argued that they are more akin to property plant and equipment for which the accounting treatment is prescribed in IAS 16.



The scope of the proposed amendments is restricted to bearer plants which 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.


Application of the IAS 16 requirements to bearer plants

The IASB proposes that before bearer plants are placed into production (ie 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.


Cost model

Unlike property, plant and equipment, life transformation of agriculture assets is a continuous process where older plants are replaced on a continual basis. Therefore, the IASB deliberated the unit of account and the aggregation of these. The IASB at last decided that accounting for an aggregation of plants would be no different from accounting for a large quantity of equipment that is acquired or constructed in batches and therefore the requirements of IAS 16 could be applied without modification.

The IASB also discussed (a) how to assess what is an abnormal amounts of wastage/mortality during the growth phase of the bearer plants; and (b) how to determine when bearer plants are in the condition necessary for them to be capable of operating in the manner intended by management. The IASB concluded that (a) would be akin to a case in which an entity constructs a large number of fragile items of machinery for use within the business and (b) would be similar to a factory requiring an initial run-in period. Consequently, the IASB concluded that the current requirements of IAS 16 are sufficient without further guidance.

For the same reasons the IASB concluded that the disclosure requirements under the cost model in IAS 16 can be applied to bearer plants without modification. 


Revaluation model

Entities would also be permitted to choose the revaluation model for mature bearer plants subject to the requirements in IAS 16. The IASB believes that the revaluation recognition and measurement requirements of IAS 16 can be applied to bearer plants without modification since the revaluation model is a fair value measurement model and akin to the current measurement requirements for biological assets.


Transition requirements and effective date

For cost-benefits reasons, the proposed amendments to IAS 16 permit the use of fair value as deemed cost for items of bearer plants at the start of the earliest comparative period presented in the financial statements. Consistent with the reasoning for accounting for bearer plants in the same way as for property, plant and equipment, the deemed cost exemptions provided for property, plant and equipment in IFRS 1 First-time Adoption of International Financial Reporting Standards would also be available for items of bearer plants.

The IASB will decide on the effective date and full transition details only upon completion of its redeliberations. As the amendment addresses an urgent accounting issue, the IASB proposes that the amendments to IAS 16 and IAS 41 should be available for early adoption.


Alternative views

Two Board members voted against the publication of the ED because they believe that the proposal will eliminate information about the fair value changes in bearer plants and the underlying assumptions used to estimate those changes. They come to the conclusion that the IASB proposals are no improvement to IFRSs and do not adequately address the needs of users of financial statements.


Comment deadline and next steps

Comments on ED/2013/8 Agriculture: Bearer Plants close on 28 October 2013.

The IASB will consider the comments it receives on the proposals and will then decide whether to proceed with amendments to IAS 16 and IAS 41.


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