AGRICULTURE – BEARER PLANTS
SUBMISSION MADE BY
THE CENTRAL ASSOCIATION OF AGRICULTURAL VALUERS (CAAV)
IN RESPONSE TO THE
IASB EXPOSURE DRAFT OF JUNE 2013: AGRICULTURE – BEARER PLANTS
1.
The CAAV
The Central Association of Agricultural Valuers (CAAV) represents, briefs and qualifies
some 2,500 professionals who advise and act on the very varied matters affecting rural and
agricultural businesses and property throughout Great Britain. Instructed by a wide range of
clients, including farmers, landowners, lenders, public authorities, conservation bodies, utility
providers, government agencies and others, this work requires an understanding of practical
issues.
Many CAAV members are instructed to undertake valuations of agricultural stock to assist
clients and their accountants in the preparation of taxation and management accounts. Such
instructions will come from sole traders, partnerships and companies, some subject to IFRS.
2.
Summary of Response
The CAAV welcomes the principle of the proposed change to the treatment of “bearer plants”
as a step towards economic realism in these matters. In terms of the bearer plants that may be
found in the United Kingdom, there is no sensible fair value basis on which they might be
assessed or which would then be of any useful meaning – other than a value of nil for plants
once grubbed up but then not able to produce. They are production assets for which cost
should be accumulated as they are established and then expended as their production life
unfolds.
More generally, IAS 41 poses problems in applying a fair value approach to the great
majority of crops that will in practice be met in the United Kingdom which are better handled
on the more prudential basis of the lower of their cost or net realisable value. Fair value
assessment for crops is in general unreliable and insecure bringing complexity, uncertainty
and cost where it is not needed.
Question 1
The proposed change, treating mature bearer plants on the same basis as plant and machinery,
would much better reflect their economic function.
However, we do not see why this is limited only to mature bearer plants rather than made
available more generally to all those biological assets for which there are no ready markets in
their condition at the valuation date. A broader application of this change should be
considered positively to extend this realism. That should include livestock, especially those
whose only prospective sale value is at a relatively low final cull value compared to their
production value. At the least, the option should be allowed for all biological assets.
Question 2
We agree that immature bearer plants should be recorded on the basis of accumulated cost.
Question 3
Roots that give produce from year to year should be treated as bearer plants in this way.
Question 4
It does appear that IAS 16, Plant and Machinery, is more appropriate for biological
production assets (not just bearer plants) than IAS 41. Of itself, that gives greater cause to
review how realistic IAS 41 actually is.
Question 5
Give the potential role of government grants in some enterprises, it may be necessary to view
how the approach to them of IAS 16 works in this context.
The vagaries of production outdoors in changing seasons may make it helpful to have
guidance as to when it is assumed that maturity has been reached. The first year’s production
from a vineyard may be relatively low – had that year been in the wet conditions of 2012 in
which some English vineyards took no harvest, would that still be the year of first maturity
for vines that should have been ready or is that delayed until there is a harvest?
Question 6
The proposal to expect disclosure of fair values if using IAS 16’s cost basis serves no purpose
in the context of the crops met in the United Kingdom. Fair value is not a sensible basis and,
at some cost, would add no useful information to benefit those using the valuation.
Question 7
We do not agree that disclosure of other information about bearer plants should be required in
the accounts. The enterprises for which this is relevant are specialist and very varied making
any template for disclosure either too vague or too prescriptive to have useful meaning.
Question 8
We certainly agree that companies should be allowed to apply these changes early. There
may be circumstances where using a fair value as a deemed cost would be helpful and so see
reason to prevent this.
Question 9
A transition mechanism allowing an already assessed fair value to be a deemed cost for
transition may help some businesses; others may find it easier to move straight to actual cost.
Question 10
We return to pose the question of whether, given the practicality of this review, further
consideration should be given to applying its logic, at least permissively, to all other
biological assets and, indeed, to a wider review of the realism of IAS 41.
Jeremy Moody
28th October, 2013
Secretary and Adviser
Central Association of Agricultural Valuers
Market Chambers, 35 Market Place, Coleford, Gloucestershire, UK GL16 8AA
[email protected]
01594 832979