Disclosures Where Fair Value Is Not Used
Chapter Seventeen
Syllabus topic 10, "Disclosure requirements"
Pages 39 to 40 of 110
Why these three paragraphs exist
Paragraph 30 allows a biological asset to be carried at cost less accumulated depreciation and impairment, in the narrow case where fair value cannot be measured reliably on initial recognition. A reader of the accounts is then being given a figure that is not what the standard normally reports, so paragraphs 54, 55 and 56 make the entity say so and say why.
All three are bold paragraphs. None of them applies to an entity measuring everything at fair value less costs to sell.
Paragraph 54: while the asset is held at cost
If an entity measures biological assets at their cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 30) at the end of the period, the entity shall disclose for such biological assets:
(a) a description of the biological assets;
(b) an explanation of why fair value cannot be measured reliably;
(c) if possible, the range of estimates within which fair value is highly likely to lie;
(d) the depreciation method used;
(e) the useful lives or the depreciation rates used; and
(f) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period.
Six limbs, and (c) is the one to notice. The entity may not be able to measure fair value reliably, but if it can say that the value is highly likely to lie between two figures, it must.
Paragraph 55: disposals and the reconciliation
If, during the current period, an entity measures biological assets at their cost less any accumulated depreciation and any accumulated impairment losses (see paragraph 30), an entity shall disclose any gain or loss recognised on disposal of such biological assets and the reconciliation required by paragraph 50 shall disclose amounts related to such biological assets separately. In addition, the reconciliation shall include the following amounts included in profit or loss related to those biological assets:
(a) impairment losses;
(b) reversals of impairment losses; and
(c) depreciation.
Two requirements in one paragraph.
First, the paragraph 50 reconciliation must show the cost-measured assets separately from the fair-value-measured ones. They cannot be added together in one column.
Second, three extra lines appear in that reconciliation which never appear for a fair-value-measured asset: impairment losses, reversals of impairment losses, and depreciation. An asset carried at fair value less costs to sell is never depreciated and never impaired, because its remeasurement absorbs both.
Paragraph 56: when fair value becomes measurable
If the fair value of biological assets previously measured at their cost less any accumulated depreciation and any accumulated impairment losses becomes reliably measurable during the current period, an entity shall disclose for those biological assets:
(a) a description of the biological assets;
(b) an explanation of why fair value has become reliably measurable; and
(c) the effect of the change.
Disclosures Where Fair Value Is Not Used
This is the disclosure that accompanies the one-way move described in paragraph 31. The entity must explain what changed, typically that a market has developed or that comparable transactions have begun to occur, and quantify the effect.
Paragraph 57: the government grant disclosures
An entity shall disclose the following related to agricultural activity covered by this Standard:
(a) the nature and extent of government grants recognised in the financial statements;
(b) unfulfilled conditions and other contingencies attaching to government grants; and
(c) significant decreases expected in the level of government grants.
Paragraph 57 is the last paragraph of Ind AS 41. It applies to every entity within the standard, not only to those measuring at cost, and it was set out with the government grant rules in its own chapter.
Worked: the disclosure note
Sunehra Farms carries the experimental timber block from the earlier chapter at cost. Its note at 31 March 2028 would read:
Biological assets measured at cost
The Company holds 4.2 hectares of an experimental timber species planted in April 2026. There is no active market for standing timber of this species and no comparable species provides a reliable substitute price, so the fair value of this block cannot be measured reliably and it is carried at cost less accumulated depreciation and accumulated impairment losses. On the basis of planting cost and expected yield, the Company considers the fair value highly likely to lie between Rs. 5,80,000 and Rs. 9,40,000. Depreciation is provided on the straight line method over an estimated useful life of 20 years.
| Rs. | |
|---|---|
| Gross carrying amount at 1 April 2027 | 6,00,000 |
| Gross carrying amount at 31 March 2028 | 6,00,000 |
| Accumulated depreciation and impairment at 1 April 2027 | 30,000 |
| Depreciation for the year | 30,000 |
| Accumulated depreciation and impairment at 31 March 2028 | 60,000 |
| Carrying amount at 31 March 2028 | 5,40,000 |
Every limb of paragraph 54 is answered there: (a) the description, (b) the explanation, (c) the range, (d) the method, (e) the life, and (f) the gross amount and accumulated depreciation at both dates.
The one-line contrast
A fair value asset discloses a reconciliation and a gain. A cost asset discloses a reason, a range, a method, a life, a gross amount, depreciation and impairment, and it must be shown apart.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.