Dealing with Accounting Adjustments: Biological Assets & Inventory

This report provides a detailed analysis of accounting adjustments related to International Accounting Standards (IAS), specifically focusing on biological assets, bearer plants, agricultural activity, and agricultural produce. It identifies and explains the relevant IAS standards, including IAS 41 for bio...Read More

ACCOUNT
ADJUSTMENT

Table of Contents
INTRODUCTION ..........................................................................................................................3
Main Body.......................................................................................................................................3
Issue- 1 ............................................................................................................................................3
Issue- 2.............................................................................................................................................5
Issue- 3.............................................................................................................................................5
Issue- 4.............................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The following report looks into the International Accounting Standards for the biological
assets, bearer plants, agricultural activity and agricultural produced with their adjustments.
Moreover, this report highlights the different IAS applied for the different assets mentioned
above. In addition to this it also represents the calculation if inventory.
Main Body
Issue- 1
Definition of the mentioned terms; ‘Biological Assets’, ‘Bearer Plants’, ‘Agricultural Activity’
and ‘Agricultural Produce’ by the identification of the Standard involved and the specific
paragraph.
Biological Assets- The treatment of of such kind of assets in financial statements in done
under International Accounting System (IAS 41). This accounting system states that the
biological asset is any living plant or animal which is owned by the business organization (Arko,
2021) . Livestock is the examples for the same, it includes- goats, pigs, sheep, cows, fish etc.
These assets are measured at the fair value by subtracting the selling costs.
Bearer Plants- These were first treated according to IAS 41 but they no longer fall under
this, now the treatment of such plants is done under IAS 20. These are the living plants that are
used to grow the agricultural produce, it is expected to bear produce for more than one
period(Cheng, 2020.) .
Agricultural activity- IAS 41 carries out the accounting coverage for agricultural activity.
Agricultural activity is the process of transformation of living plants and animals into the
agricultural produce for the purpose of sale.
Agricultural Produced- The examples of such goods are wool, milk, harvested cotton,
carcass, picked fruit etc. and agricultural produced are measured at its fair value but the costs to
sell is not included at the time of harvest. These are the commodities that is marketed for human
consumption or animal feed, buy they do not include water and salt. IAS 41 and IAS 2
establishes standards for the coverage of such commodities.
For sheep-
 Sheep is a living animal, so it is considered as the biological asset and it is covered under
Indian Accounting Standard 41.
 Value of sheep on 31st December 2020 in statement of financial position is evaluated at
£38500
 The amount should be considered in the statement of Profit and loss account is= 4000
 Depreciation is not applicable on livestocks, hence it is not considered.

 International Accounting Standard has been used for the explanation of the four
accounting terms- For Biological assets- IAS 41, any living plant or an animal ; for bearer
plants- IAS 20, it is expected to bear produce for more than a year; in case of agricultural
activity- IAS 41, it is the transformation living plants and animals into the agricultural
produce; in agricultural produce scenario- IAS 41, IAS 2, commodities that are marketed
for human consumption or animal feed (Glover, 2019) .
 Working notes for the value of sheep on balance sheet and income statements=
1- For statement of financial Position =
Initial cost of sheep for the year 1st January 2020 to 31st December 2020
= 200 * 150 + 170 * 50
= 30000 + 8500
= £ 38500
Auctioneer commission rate = 150 * 5 / 100 + 170 * 5 / 100
= 7.5 + 8.5
= £ 16
So, commission on sheep valued at £ 150 each and £ 170 each = £150 * 7.5 + £ 170 * 8.5
= £ 2570
Transportation cost as given in the case = £ 120
Total estimated cost of sales = Commission charges + Transportation charges that are = £ 2570 +
£ 120
= £ 2690
Thus, the value calculated of sheep for Balance sheet = Initial cost of sales – Estimated cost of
sales
= 38500 – 2690 = £ 35810
2. For the statement of Profit and loss account=
Cost at the end of the year – Cost at the beginning of the year
= 42500 – 38500
= 4000

Issue- 2
For Land-
 Any land that is used for the business purpose is considered as the plant asset. IAS 16
will be relevant for the accounting of land. This standard set up the fundamentals for
recognition of property, plant and equipment as assets (Guilmette, 2019.) .
 The value that shall be added to statement of financial position as on 31st December 2020
= £ 250,000
 Profit or the loss with relation to any asset do not appear in income statements.
 No, the depreciation will not be applied on land as it is the only asset that can have
infinite use. This is because land never loses its value even after a long period.
 The paragraph that is relevant from the IAS 16 is recognising property, plant and
equipment as assets, measuring their carry amounts and impairment losses to be
recognised in relation to them.
 Working note for amount to be appear in balance sheet- It is given in the case itself that
the estimated value of land on 31st December 2020 is 250000
Issue- 3
 Grapevines are living plants, and hence fall under the category of biological assets that
will generate crop of grapes in a continuous manner.(Kirisci, 2020.) They come under
the scope of IAS 41. The measurement of biological assets are done on the initial
recognition and at each balance sheet date at their fair value excluding the costs to sell.
 Assets such as wine have the long maturation period, thus the agricultural good produced
out of this living plant. As per the research done by Mr. Andrews that says grapevines has
useful life from anywhere between 25 years to 100 years. The deductions on grapevines
that shall be claimed from the income year in which the grapevine's first commercial
season starts, and not when it is planted. The depreciation should be applied after the 20
years . In this case the company has owned a plant on january1, 2020, but according to
IAS 41 the depreciation count shall start from late summers to late autumn. It can also be
seen that the grapevine were destroyed due to disaster before the end of its effective life
so a deduction will be allowed to Mr. Andrews for 2020.

 The increase in the value of grapevine on 1st July 2020 is a gain , should be recorded in
profit and loss account at the initial value excluding the cost of sale for the financial
period 1st January 2020 to 31st December 2020.
 And decrease in value for September 30,2020 shall be treated as loss in profit and loss
statement for the financial year and the amount should be derived by subtracting the costs
to sales from the change in the fair value.
 Value of grapevine on January 1, 2020; July 1, 2020; September 30; 2020 and December
31st 2020 is £ 24000; £30000, £ 2625000, £2625000 respectively.
 Note- As per IAS 41 the gain and loss amount is evaluated by subtracting the costs to
sells from the fair value of grapevine, but in this case the cost to sales is not mentioned.
Hence, the amount cannot be derived for the profit and loss statement.
 In the given scenario, fair value is 24 and the company owns 1000 grapevines. So it will
be 24000, for July the value is 30, so it is evaluated at 30000. For September, the selling
price is £15 per vine, cash flow is given at £7000 per annum, interest rate is 4%, and
annuity is= 1.96 so it will be 7000 / 4 % *15 = £2625000; and same for December as
selling price is same.
 Detailed Calculation of grapevine's value for different period-
For January- 1000 * 24 = £ 24000
For July- 1000 * 30 = £ 30000
For September= 7000 / 4 % *15 = £ 2625000
For December= 7000 / 4 % *15 = £ 2625000
Issue- 4
 Wool, milk and wine are the agricultural produced commodities. These goods are
harvested out of the business's biological assets. They are treated as inventory under the
International Accounting Standard 2 (Li, 2019.).
 Considering the lower values from comparison of cost and NRV -
Wool= 800*12 (10+ 2) = 7200
Milk = 500*10 (7+3) = 5000
Wine = 900*1250 (1000+250) = 1125000
 Value of closing inventory = £ 1137200

CONCLUSION
From the above case it is clear how the different IAS i.e. 41, 16, 20 and 2 are applicable
for the biological assets, bearer plants, agricultural activities and agricultural production. The
above mentioned report has also stated the clarification on the methods associated with these
different IAS.

REFERENCES
Books and Journals
Arko, A., 2021. A Canadian Border Carbon Adjustment? GATT Compliance and Underexplored
Exceptions. Global Trade and Customs Journal. 16(9).
Cheng, C., 2020. Review and prospects of hydrate cold storage technology. Renewable and
Sustainable Energy Reviews. 117. p.109492.
Glover, B.M., 2019. Impact of body mass index on the outcome of catheter ablation of atrial
fibrillation. Heart. 105(3). pp.244-250.
Guilmette, M., 2019. Past and present participation in extracurricular activities is associated with
adaptive self-regulation of goals, academic success, and emotional wellbeing among
university students. Learning and Individual Differences. 73. pp.8-15.
Kirisci, L., 2020. Derivation and assessment of the opioid use disorder severity scale: prediction
of health, psychological and social adjustment problems. The American Journal of Drug
and Alcohol Abuse. 46(6). pp.699-707.
Li, Q., 2019. Negative Thermal Expansion in Nanosolids. Accounts of Chemical
Research. 52(9). pp.2694-2702.
Wood, D., 2021. Using functional fields to represent accounts of the psychological processes that
produce actions. In The Handbook of Personality Dynamics and Processes (pp. 643-
667). Academic Press.