The Disclosures
Chapter Sixteen
Syllabus topic 10, "Disclosure requirements"
Pages 36 to 38 of 110
The aggregate gain or loss
Paragraph 40, in bold, and it is the first disclosure:
An entity shall disclose the aggregate gain or loss arising during the current period on initial recognition of biological assets and agricultural produce and from the change in fair value less costs to sell of biological assets.
One figure, covering three things: the gain or loss on initial recognition of biological assets, the gain or loss on initial recognition of agricultural produce, and the change in fair value less costs to sell of the biological assets held.
Describing the groups
Paragraph 41, in bold:
An entity shall provide a description of each group of biological assets.
Paragraph 42 says how much freedom there is:
The disclosure required by paragraph 41 may take the form of a narrative or quantified description.
Paragraph 43 encourages more:
An entity is encouraged to provide a quantified description of each group of biological assets, distinguishing between consumable and bearer biological assets or between mature and immature biological assets, as appropriate. For example, an entity may disclose the carrying amounts of consumable biological assets and bearer biological assets by group. An entity may further divide those carrying amounts between mature and immature assets. These distinctions provide information that may be helpful in assessing the timing of future cash flows. An entity discloses the basis for making any such distinctions.
Encouraged, not required. That word is the difference between paragraph 41 and paragraph 43, and it is examinable.
Paragraphs 44 and 45 define the two splits paragraph 43 uses, and both were set out in the chapter on the biological asset: consumable against bearer, and mature against immature.
Nature of activities and physical quantities
Paragraph 46, in bold, with a condition at the front:
If not disclosed elsewhere in information published with the financial statements, an entity shall describe:
(a) the nature of its activities involving each group of biological assets; and
(b) non-financial measures or estimates of the physical quantities of:
(i) each group of the entity's biological assets at the end of the period; and
(ii) output of agricultural produce during the period.
This is the paragraph that makes physical records indispensable. Number of animals by group at the reporting date, hectares under each crop, litres of milk for the year, quintals harvested for the year. None of it is in rupees, and none of it exists unless the registers of Module II were kept.
The opening words matter too. If it is already in the directors' report or elsewhere in the published information, it need not be repeated in the notes.
Restrictions, commitments and risk
Paragraph 49, in bold:
An entity shall disclose:
(a) the existence and carrying amounts of biological assets whose title is restricted, and the carrying amounts of biological assets pledged as security for liabilities;
(b) the amount of commitments for the development or acquisition of biological assets; and
(c) financial risk management strategies related to agricultural activity.
The Disclosures
Cattle hypothecated to a bank, a contract to buy a herd next year, and the company's hedging policy on commodity prices.
The reconciliation
Paragraph 50, in bold, is the disclosure most likely to be set as a practical problem, so learn the seven lines.
An entity shall present a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period. The reconciliation shall include:
(a) the gain or loss arising from changes in fair value less costs to sell;
(b) increases due to purchases;
(c) decreases attributable to sales and biological assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105;
(d) decreases due to harvest;
(e) increases resulting from business combinations;
(f) net exchange differences arising on the translation of financial statements into a different presentation currency, and on the translation of a foreign operation into the presentation currency of the reporting entity; and
(g) other changes.
No comparative is required by paragraph 50, though Ind AS 1 requires comparatives generally.
In the format a company actually prints:
| Reconciliation of biological assets | Rs. |
|---|---|
| Carrying amount at the beginning of the period | 29,10,000 |
| Gain arising from changes in fair value less costs to sell | 4,24,600 |
| Increases due to purchases | 5,82,000 |
| Decreases attributable to sales | (1,74,600) |
| Decreases due to harvest | 0 |
| Increases resulting from business combinations | 0 |
| Net exchange differences | 0 |
| Other changes | 0 |
| Carrying amount at the end of the period | 37,42,000 |
Line (d), decreases due to harvest, is zero for a dairy herd and large for a timber plantation. Milking does not reduce the cow; felling removes the tree.
Splitting the gain into physical and price change
Paragraph 51 encourages a further split, and explains why:
The fair value less costs to sell of a biological asset can change due to both physical changes and price changes in the market. Separate disclosure of physical and price changes is useful in appraising current period performance and future prospects, particularly when there is a production cycle of more than one year. In such cases, an entity is encouraged to disclose, by group or otherwise, the amount of change in fair value less costs to sell included in profit or loss due to physical changes and due to price changes. This information is generally less useful when the production cycle is less than one year (for example, when raising chickens or growing cereal crops).
The Disclosures
Encouraged, and only where the cycle exceeds a year. A timber plantation should split it; a broiler unit need not.
Paragraph 52 says what a physical change is:
Biological transformation results in a number of types of physical change, growth, degeneration, production, and procreation, each of which is observable and measurable. Each of those physical changes has a direct relationship to future economic benefits. A change in fair value of a biological asset due to harvesting is also a physical change.
The last sentence is easy to miss. Harvesting is a physical change, not a price change.
The split itself is arithmetic. Value the closing herd twice, once at closing prices and once at the prices at which each animal was first recognised. Sunehra Farms closes with 60 cows worth Rs. 60,700 each and 8 calves worth Rs. 12,500 each, all figures being fair value less costs to sell; the cows were each recognised at Rs. 58,200 and the calves at Rs. 11,640.
| Rs. | |
|---|---|
| Closing quantity at closing prices | 37,42,000 |
| Less: closing quantity at the prices on initial recognition | (35,85,120) |
| Price change | 1,56,880 |
| Rs. | |
|---|---|
| Closing quantity at the prices on initial recognition | 35,85,120 |
| Less: opening carrying amount, plus purchases, less the carrying amount of animals sold | (33,17,400) |
| Physical change | 2,67,720 |
Add the two, Rs. 1,56,880 and Rs. 2,67,720, and the result is Rs. 4,24,600, which is the gain paragraph 40 requires to be disclosed.
Material items from natural risks
Paragraph 53:
Agricultural activity is often exposed to climatic, disease and other natural risks. If an event occurs that gives rise to a material item of income or expense, the nature and amount of that item are disclosed in accordance with Ind AS 1 Presentation of Financial Statements. Examples of such an event include an outbreak of a virulent disease, a flood, a severe drought or frost, and a plague of insects.
Five examples, and they are worth quoting: a virulent disease, a flood, a severe drought, a frost, and a plague of insects.
What is required and what is only encouraged
| Paragraph | Requirement |
|---|---|
| 40 | Shall. Aggregate gain or loss |
| 41 | Shall. Description of each group |
| 43 | Encouraged. Quantified description, consumable against bearer, mature against immature |
| 46 | Shall, unless disclosed elsewhere. Nature of activities and physical quantities |
| 49 | Shall. Restricted title, pledges, commitments, risk strategies |
| 50 | Shall. Reconciliation, seven lines |
| 51 | Encouraged. Physical against price change, where the cycle exceeds a year |
| 53 | Shall, through Ind AS 1. Material items from natural risks |
Paragraphs 39, 47 and 48 print only Refer Appendix 1 and impose nothing.
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.