Modul P&P_FAR320 Nov 2014-Yusnaliza vs Norliana

CHAPTER 5MALAYSIAN FINANCIAL REPORTING STANDARDS (MFRS 141): AgricultureLearning Objectives:At the end of this chapter, the students should be able to:

1. Define agriculture-biological assets.2. Determine the recognition criteria of agriculture-biological assets.3. Determine the initial measurement of agriculture-biological assets4. To account for government grant in relation to agriculture-biological assets5. Prepare the relevant accounting entries and disclosure in the statement of profit or loss and statement of financial position

5.0 Introduction

MFRS 141 prescribes the accounting treatment, financial statement presentation, and disclosures related to most agricultural activity, a matter not covered in other Standards.

Agricultural activity is the management by an entity of the biological transformation of living animals or plants (biological assets) for sale, into agricultural produce, or into additional biological asset.

5.1 Scope

MFRS 141 should be applied to the following agricultural activities:(i)biological assets,except for bearer plants;(ii)agricultural produce at the point of harvest; and(iii)certain government grants (covered by paragraphs 34 and 35).

5.1.1 Assets Excluded from the SCOPE of MFRS 141:(a) Land related to agricultural activity (see MFRS 116 Property, Plant and Equipment and MFRS 140 Investment Property).; and(b) Bearer plants related to agricultural activity (see MFRS 116). However, this Standard applies to the produce on those bearer plants. (c) Government grants related to bearer plants (see MFRS 120 Accounting for Government Grants and Disclosure of Government Assistance). (d) Intangible assets related to agricultural activity (see MFRS 138 Intangible Assets).

Biological assets, except for bearer plants, are accounted for under MFRS 141. The standard also excluded livestock from the scope of the amendment.

5.1.2 Not Biological Assets(a) Animals or plants that are used primarily for non-productive purposes such as recreational parks or game farms, or in delivering a service to the public, for example: dogs and horses used for policing and racing animals like pony, elephant and tigers used in circus show and theme parks(b) Does not include management of native forest, private game farms, wild life conservancies and agro-tourism.(c) Natural transformation, such as : trees and animals in a wild forest; fishing in the deep seas; collection of wild rattans(d) Processing of agricultural produce refers to any artificial process after the point of harvest(e) The biological categorized as viruses, bacteria and blood cells.

Effective 1 January 2016Agriculture: Bearer Plants (Amendments to MFRS 116 and MFRS 141), issued in June 2014,stipulates that the Standard does not deal with the processing of agricultural produce after harvest; for example, the processing of grapes into wine by a vintner who has grown the grapes. While such processing may be a logical and natural extension of agricultural activity, and the events taking place may bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity in this Standard.

5.2 Agriculture-Related Definitions

Agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Agricultural produce is the harvested product of the entitys biological assets.

A biological asset is a living animal or plant.

Biological transformation comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative changes in a biological asset.

Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes.

A group of biological assets is an aggregation of similar living animals or plants.

Harvest is the detachment of produce from a biological asset or the cessation of a biological assets life processes.

Bearer Plant is defined as "a living plant that:a. is used in the production or supply of agricultural produce;b. is expected to bear produce for more than one period; andc. has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales."

Note 1 Agriculture: Bearer Plants (Amendments to MFRS 116 and MFRS 141), issued in June 2014, amended the scope of MFRS 116 Property, Plant and Equipment to include bearer plants related to agricultural activity. However, MFRS 141 applies to the produce growing on those bearer plants. Biological assets, except for bearer plants, are accounted for under MFRS 141. The IASB also excluded livestock from the scope of the amendment.

5.3 General Definitions

An active market is a market where all the following conditions exist:

(a) the items traded within the market are homogeneous;(b) willing buyers and sellers can normally be found at any time; and(c) prices are available to the public.

Carrying amount is the amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment losses.

Government grants are as defined in MFRS 120 Accounting for Government Grants and Disclosure of Government Assistance.

Fair value depends on location, and condition, so the same cow in Tapah has a different fair value than in Penang.

5.4Examples of biological assets, agricultural produce, and products that are the result of processing after harvest

Biological assets

(MFRS 141)Agricultural produce

(MFRS 141 at the point of harvest)Products that are the result of processing after harvest(beyond MFRS 41)

a.SheepWoolYarn, carpet

b.Trees in a timber plantationFelled treesLogs, Lumber

c.PlantsHarvested beetSugar

d.Cotton plantsHarvested cottonThread, Clothing

e.Dairy cattleMilkCheese

f.PigsCarcassSausages, cured hams

g.Tea bushesPicked LeavesTea

h.Tobacco plantsPicked LeavesCured tobacco

i.Grape vinesPicked GrapesWine

j.Fruit treesPicked fruitProcessed fruit

k.Oil palmOil palm picked fruitPalm oil

l.Rubber treesHarvested latexRubber products

m.Cacao treesCacao pods and beansChocolate liquor, chocolate

Some plants, for example, tea bushes, grape vines, oil palms and rubber trees, usually meet the definition of a bearer plant and are within the scope of MFRS 116. However, the produce growing on bearer plants, for example, tea leaves, grapes, oil palm fruit and latex, is within the scope of MFRS 141.

After Harvesting

MFRS 141 is applied to agricultural produce at the point of harvest.The harvested product is the output of the undertakings biological assets. After harvesting, MFRS 102 Inventories, or another Standard is applied.

Biological asset- at the point of harvestHarvested product

MFRS 141 Agriculture appliesMFRS 102 Inventory applies

EXAMPLE 1 Products after the harvestJagung Manis Bhd has harvested the corn. The harvested corn is now accounted for as inventory, and Jagung Manis Bhd will now apply MFRS 102- Inventories.

Accordingly, MFRS 141 does not deal with the processing of agricultural produce after harvest.

EXAMPLE 2 - Processing strawberriesStrawberry Delight Bhd has grown the strawberry plant in Cameron Highland, harvested them and is going to process the harvested strawberries into strawberry jams. The strawberry jams are now beyond the agricultural activity of MFRS141, and should be accounted for as a production process, and valued under MFRS 102.

Biological assets (MFRS 141)

Agricultural produce at the point of harvest (MFRS 141)

Products that are the result of processing after harvest (beyond MFRS 141))

Strawberry treesPicked strawberryProcessed fruit

Note:While such processing may be a logical extension of agricultural activity, and the events taking place may bear some similarity to biological transformation, such processing is not included within the agricultural activity in MFRS141.

Agricultural activity includes a diverse range of activities for example (para 6):a. raising livestock,b. forestry, c. annual or perennial cropping, d. cultivating orchards and plantations, e. floriculture and f. aquaculture (including fish farming).

In each case, living animals and plants perform a biological transformation that takes place in a managed environment. Management is the key issue that differentiates agricultural activity from other activities such as sea fishing, or harvesting virgin forest, neither of which are classified as agricultural activities.The extent of change in the biological asset can be measured in a wide variety of ways, ripeness, dimensions, fat content etc.

Biological transformation results in:a. Change in the asset through an increase or decrease in quantity, or quality.

b. Additional assets may result from procreation

Biological asset

SheepAdditional Biological Asset

Calf

Management of the biological transformation of biological asset, living animals into additional biological asset

c. Agricultural produce ( beef, milk, wool)

Biological asset

SheepAgricultural Produce(at the point of harvest)

Wool

Management of the biological transformation of biological asset (sheep), living animals into agricultural produce (wool)

5.4OBJECTIVE OF FINANCIAL REPORTING (STEP 1):(regarding agricultural activity)

Step 1: What is information about entitys biological assets and agricultural produce would primary users ie. existing and potential investors and creditors find useful?

To consider what information about an entitys biological assets and agricultural produce, and any changes in that agricultural activity would be useful to the decision making of existing and potential investors and creditors, the following questions could be asked:

a. What is the economic rationale for acquiring biological assets and agricultural produce?b. Why do customers buy biological assets (eg.sheep) and agricultural produce (eg.wool)?c. Why do consumer product manufacturers buy harvested products (eg. milk) of a biological asset (eg. dairy cattle)?d. Why do many in the theme park operator buy the animals used in the show?e. How do those entities generate net cash inflows from the processing of agricultural produce after harvest?f. When existing and potential investors, lenders and other creditors make decisions about the reporting entity, with regards to buying, selling or holding equity and debt instruments and providing or settling loans and other forms of credit, what information about an entitys agricultural activities do you think would be capable making a difference?g. Can that information be faithfully represented (i.e. the information is complete, neutral and free from error)?

5.5IDENTIFYING ASSET (STEP 2)

This involves exercising judgment on whether there is any element of financial statement that is an asset.

Step 2: Does the reporting entity have an asset?

The following questions could be asked:a. Is the agricultural produce (eg. wool) an asset?b. Are the living plants (eg. rubber trees) assets?c. Do animals (a flock of bird) satisfy the definition of an asset?

5.5.1 Definition of assets

An asset is defined in the Conceptual Framework as:a resource controlled by the entityas a result of a past eventfrom which future economic benefits are expected to flow to the entity However, physical form is not an essential

5.5.2 Judgments and estimates

To determine whether a reporting entity has an asset, this requires:

Identifying whether an entity has control over a resource; Identifying whether there are future economic benefits which are expected to flow to the entity.

EXAMPLE 3 Objective and Identification of Asset: Oil Palm PlantationPuncak Getah Plantation Bhd involves and legally owns an oil palm tree plantation in Tapah in the last ten years. It undertakes agricultural activity by effectively manages the biological transformation of the palms within the plantation and the fresh fruit bunches in the form of harvested palm fruits The growing of oil palm trees that are attached to the plantation land takes several years before the crops come to bearing for harvest. The oil palm fruits are then sold for profit to the customers in their current condition for profit in the local market.

No.QuestionRef

1.Discuss why information about the companys oil palm tree plantation is useful to the potential investors.

Step 1

2.Are the oil palm trees an asset of the entity, Puncak Getah Bhd? Explain.

Step 2

3.

Are the harvested palm fruits outside the area owned by Puncak Getah an asset of the harvesting entity?Step 2

4.Is plantation land related to agricultural activity a biological asset in terms of MFRS 141?Step 2

NoSolutionDefinition of Asset (reference as per Conceptual Framework)

1. A potential investor must decide whether to buy shares in the entity that owns the oil palm tree as an agricultural activity. To inform that decision, the potential investor assesses the potential returns from investing in the entity that grows and manages the biological transformation of the palm tree into harvested palm fruits to be sold to third parties. Those potential returns depend on the Puncak Getahs prospects for future net cash inflows. Consequently, the potential investor assesses the amount, timing and uncertainty of (or the prospects for) future net cash inflows Puncak Getah.

Not applicable

2.Yes. They are physical resource controlled by Puncak Getah Bhd since they are legally owned by the company.a resource controlled by the entity

The oil palm plantation has been in the business for more than ten years (past events).as a result of a past event

It will result in cash inflow to company since the harvested oil palm fruits will be sold to customers (future economic benefits).from which future economic benefits are expected to flow to the entity

3.No the harvested fruit not within the area owned by the entity are not controlled resources of the harvesting entity.

4.No. Land owned by the entity and used for agricultural activity is subject to the recognition and measurement principles of MFRS116 Property, plant and equipment.

Point to note:If the land owned by a third party and rented to the ereporting entity , Puncak Getah Bhd for the purposes of agricultural activity is likely to be the third partys investment property and is accounted for in accordance with MFRS 140 Investment Property.

5.6CLASSIFICATION OF ASSET INTO RELEVANT MFRS (STEP 3)

Step 3: Which MFRS classification of asset?

The classification of asset is relevant to determine which MFRS the entity must apply. After the definition of asset is met, it is important to determine whether or not the asset identified is within the scope of MFRS 141 Agriculture

The following questions could be asked:a. If it is an asset, state the classification according to the relevant MFRS.b. Consider whether an asset identified in step 2 meets the definition of biological asset and agricultural produce as per MFRS 141 Agriculture.

Items which did not satisfy the agriculture-related definitions of are explicitly excluded from the scope of MFRS 141. Consequently MFRS 141 does not apply.

EXAMPLE 4: Identification (Step 1) and Classification (Step 2)

Information is the same as in EXAMPLE 3.

Question 1: Is the palm fruit an asset of the entity? (Step 2)

SolutionThe palm fruit is an asset as it is a resource controlled by the entity as a result of past event and from which future economic benefits are expected to flow to the entity (paragraph 4.4(a) of the Conceptual Framework).

The palm fruit is an asset it is a physical resource (texture) by Puncak Getah in the last ten years (past event). It is a resource owned at the discretion of the company (control) to be sold for profit of which is expected to result in the flow of cash (future economic benefits) from the potential customers.

Question 2:State the classification of Oil palm trees and oil palm fruit at the point of harvest. (Step 3)

SolutionDefinition as per MFRS 141

Oil palm treesThe oil palm trees ( within the plantation land owned by the entity) satisfy the definition of biological assets in the form of living plants in accordance with MFRS 141 Agriculture, because they are related to agricultural activity.

The entity mange the biological transformation and chages of the growth of biological assets (oil palm fruit bearing tree)into agricultural produce (harvested palm fruit) for sale.

A biological asset is a living animal or plant.

Agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Biological transformation comprises the processes of growth, degeneration, production, and procreation that cause qualitative or quantitative changes in a biological asset.

Picked palm fruitsThe picked palm fruits satisfy the definition of agricultural produce, that is the harvested product of biological assets,(oil palm tree), in accordance with MFRS 141 Agriculture, because they are related to agricultural activity.

The scope of the standard for agricultural produce is up to the point of harvest.Harvest is defined as the detachment of produce from a biological asset, or the end of a biological assets life processes.

Agricultural produce is the harvested product of the entitys biological assets.

5.7 RECOGNITION (STEP 4)

5.7.1 Recognition Criteria

An entity shall recognise a biological asset or agricultural produce when, and only when:

(a) the entity controls the asset as a result of past events;(b) it is probable that future economic benefits associated with the asset will flow to the entity; and(c) the fair value or cost of the asset can be measured reliably.

Agricultural produce is accounted for in accordance with MFRS 141 only at the point of harvest, and subsequently in accordance with MFRS 102 Inventories or another applicable MFRS.

Products that are the result of processing agricultural produce after harvest are outside the scope of MFRS 141 both during and after processing. They are accounted for in accordance with MFRS 102 Inventories or another applicable MFRS.

The following questions can be raised:

a. Can the biological asset be initially recognized?b. How to determine whether the agricultural produce can be recognised and included in the financial statements.c. When must the reporting entity recognize its biological asset and agricultural produce?

Future economic benefits of biological assets shall normally be measured by the significant physical attributes of the assets. (refer chap 15, p 1188 of textbook). It may be based on: Size; Weight; Protein or fat content; Bud sampling; Age or circumference of trees, Pregnancy scanning etc. are the potentials to contribute directly or indirectly to the flow of cash and cash equivalent to the reporting entity.

The Presence of Control may be evidenced by: Legal ownership( for example, a freehold land title in a plantation); Lease(for example, a lease of a State land in an aquaculture or horticulture farm); Joint venture in respect of the land on which a crop, plantation or herd is raised Branding of livestock on acquisition, birth or weaning ( for example, broiler, layer, deer or cattle farming); Licence or concession to harvest (for example a timber concession), with associated conditions attaching to the restocking or reforestation

Accounting issues arise as a result of the unique attributes of biological assets.

5.8 MEASUREMENT - INITIAL (STEP 5) - SUBSEQUENT (STEP 6)

5.8.1 Measurement Criteria

a. Biological asset It shall be measured on initial recognition and at the end of each reporting period at its Fair value less Costs to sell (estimated- point -of -sale- cost) except (for the case described in paragraph 30) where the fair value cannot be measured reliably.

Biological assets should be shown at its carrying amount as non-current assets in the statement of financial position if they last for more than one year. Dairy cattle and trees are examples of non-current assets. Rather than being depreciated, they are re-measured at their fair value less estimated point-of-sale costs at each reporting period date. For examples, whilst trees for lumber will appreciate in value, fruit trees or dairy cattle will tend to fall in value in their later years. Other products with a short life, such as milk and wheat, will be classified as inventory as per MFRS 102 and transferred to cost of sales. For convenience, similar assets may be grouped (by age, quality etc) and fair values established for the group.

b. Agricultural ProduceFor agricultural produce that are harvested from the biological assets, the measurement is at Fair value less Cost to sell at the point of harvest. Such value will be the cost at the date of applying MRS102 Inventories or another applicable standard.

5.8.2 Fair value

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. (definition as per MFRS 13: Fair Value Measurement).

MFRS 141 clarifies that the fair value of the biological asset or an agricultural produce is based on its present location and condition that is the fair value price in the relevant market less cost to sell.

A. Ability to Measure the Fair Value Reliably This imply that there is a presumption the fair value is reiably measured and there is an active market

For convenience, similar assets may be grouped (by age, quality etc) and fair values established for the group.

EXAMPLE 5:You are involved in an agricultural business. There may be no market for your wood, but buyers may want to buy for the trees (biological assets), raw land, and land improvements, as a package.

When biological assets are measured in accordance with the fair value model, the change in fair value less costs to sell is recognised in profit or loss during the period in which the change occurs.

If an entity has access to different active markets, the entity shall use the price existing in the market that it expects to use.

B. Inability to Measure the Fair Value ReliablyWhen the fair value cannot be measured reliably initially, the biological assets are measured at cost less any accumulated depreciation and impairment, if any).

EXAMPLE 6: No fair valueYour crop is about to be harvested. The market for your crop has been suspended, the future of which the government is considering. Currently there are no buyers. No reliable market price can be calculated. You are confident of finding foreign buyers, but have not yet agreed terms of sale. Until buyers are found, your crop should be valued at its cost, less any accumulated depreciation and any accumulated impairment losses

5.8.3 Active market

Presence of an active market

An active market is a market where all the following conditions exist:a. the items traded within the market are homogeneous;b. willing buyers and sellers can normally be found at any time; andc. prices are available to the public.

In the absence of an active market

Where no active market exists, the following may be used to estimate fair value:a. The most recent market priceprovided that there has not been a significant change in economic circumstances between the date of that transaction and the end of the reporting period.

b. In reference to similar assets, adjusted to reflect any differences

EXAMPLE 7There may be a market for a mature animal but no market for a young animal. It may be possible to determine the fair value of the young animal reliably by projecting the cash inflows from the sale of a mature animal, less the cash outflows needed to grow the animal to its marketable weight.

c. Sector benchmarks for example, such as:i. the value of an orchard expressed per export tray,ii. bushel, or hectare, and iii. the value of animal, eg. cattle expressed per kilogram of meat.

5.8.4 Carrying amountThis is the amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment losses.

5.8.5 Estimated Cost to sell (Point-of-sale) costs They are the incremental costs associated with the sale transaction of the asset itself. They include: commissions to brokers and dealers, charges by regulatory agencies and commodity exchanges, and transfer taxes and duties.

Estimated Cost to sell (point-of-sale) costs exclude : transport, and other costs, necessary to transport assets to a market (as this is included in its fair value). Transport is the cost of getting the produce to the market prior to sale.

EXAMPLE 8The fair value of a chicken situated at the Ayam Sihat farmland situated in Tronoh Rasi is measured at the market price of the chicken in the relevant market less the transport and other costs of getting the chicken to the market. As costs to transporting the chicken to the market are deducted in measuring fair value they cannot also be counted as costs to sell the asset (ie a double-counting error).

Costs to sell are deducted from fair value when biological assets are first recognised andso they can give rise to an immediate loss.

Transport costs are taken into account in fair values. As costs, they reduce the fair values.

EXAMPLE 9: Initial measurement Facts are the same as per EXAMPLE 3. At the start of the reporting period, the oil palm crops market value of Puncak Getah Bhd is estimated at RM50,000,000. Transportation cost to market will be RM4,000,000. Selling agents commission will be RM1,000,000.

SolutionRM000Explanation/ Reason

Oil palm crops market price50,000

Transport cost ( to market) (4,000)

Fair Value of crops46,000

Less: Cost to sell

Selling agent commision(1,000)

Fair Value less cost to sell 45,000

5.8.6 Gains and losses

Income under MFRS 141 can be classified into: Initial gain or loss on biological assets. Changes in fair value less costs to sell of biological assets. Initial gain or loss on agricultural produce.

A. Biological Asset Initial losses on biological assets typically arise when a biological asset is purchased. The cost of the biological asset is often higher than the fair value less costs to sell, as the latter represents an exit price, and transaction expenses therefore create a loss. Initial gains on biological assets arise when new biological assets are generated for example, when a calf or a piglet is born. All these gains and losses are recognised as income in the statement of profit or loss for the period in which it arises.

EXAMPLE 10On 1 January 2015, a calf is born. The estimated fair value less point-of-sale costs of a day old calf is RM500. As at 31 December 2015, the calf is about a year old and has an estimated fair value less estimated point-of- sale costs of RM1,400Required: Explain how the gain or loss shall be recognized.

Solution:1 January 2015 Dr Biological asset RM500 Cr Gain in SOPL RM500To record gain on initial recognition of biological asset31 December 2015Dr Biological asset RM900 Cr Gain in SOPL RM900To recognize gain from a change in fair value of biological asset

(Refer Example 3, p.1192 of text book)

B. Agricultural Produce Initial gains or losses on agricultural produce represents the difference between the change in carrying value of the biological assets due to harvest and the fair value less costs to sell of the harvested agricultural produce. For example, in oil palm cultivation, a gain will arise on harvesting of the fresh fruit brunches. Similarly, in rubber cultivation, a gain will arise when the trees are tapped and latex is collected. It reflects the last stage of the value creation of the biological process, and the harvested produce is transferred to inventory. There may be further costs involved in preparing the inventory for market.

The different stages in the accounting life of a biological asset are shown in the simple diagram below.

(Refer Example 4, p.1192 of text book)

5.8.7 Subsequent Measurement

MFRS 141 does not prescribe the treatment of subsequent expenditure.

However, such a treatment would still be permissible under MFRS 141. This is done by taking the analogy from MFRS 116 with regards to the policy of capitalising such costs.a. it is probable that future economic benefits associated with the item will flow to the entity; andb. the cost of the item can be measured reliably

Nevertheless, difficulties may be encountered in defining what should be capitalised and what should be expensed; many entities now adopt a policy of treating all such expenditure as a cost of production. This is also permissible.

Cost like feeding costs, fertiliser, pesticide, farm clearing, cleaning, etc. are treated as cost of production.

EXAMPLE 11

5.8.8 Government Grants

An unconditional grant should be recorded as income when the grant becomes receivable.

EXAMPLE 12 - Grant becomes receivableIn January, you negotiate a grant for your dragon fruit crop. The condition of the grant is that your crop will be ready for harvest. Your dragon fruit crop is ready for harvest in August. You receive the grant in November. When does the grant become receivable?

Solution:The grant becomes receivable in August, when you have met the condition of the grant. A conditional grant should be recorded as income when all the conditions are met.

EXAMPLE 13- Grant for set-aside landIn January, you negotiate a grant for your land. The condition of the grant is that your land will not be used for crops. Your last crop is harvested in August. The land is cleared and set aside in September. You receive the grant in November.

SolutionThe grant becomes receivable in September, when you have met the condition of the grant

a. Terms and conditions of grants vary:

EXAMPLE 14- Long-term grantA grant requires you to farm in a particular location for five years, and requires the return of the entire grant, if you farm for less than five years. The total grant is RM50,000, receivable in equal installments.

Required: Show journal entries.

Solutiona.Each year (from Year 1 to Year 5) the entry in the books would be:DR CR

CashRM10,000

Deferred Government grant incomeRM10,00

Initial recognition of Grant

b.The grant is not recorded as income until the five years have passed, when the accounting entries in Year 5 would be:

Deferred Government grant incomeRM50,000

Grant IncomeRM50,000

Recognition of total Grant income in the statement profit or loss (RM10,000 x 5 years)

b. The conditions allowed retention of the grant in proportion the elapsed part of the five years then the grant would be recorded proportionately.

EXAMPLE 15-Long-term grant-proportional basisA RM20m grant requires you to farm in a particular location for ten years, and requires the return of part of the grant, if you farm a shorter period. Each year that you farm, you will record 10% of the grant as income.

Required: Show Initial Journal Entries

SolutionDR CR

a.CashRM20m

Deferred Government grant incomeRM20m

Initial recognition of Grant

b.Deferred Government grant incomeRM2m

Grant IncomeRM2m

Annual recognition in the statement profit or loss of 1/10 of grant.

6.0 Presentation and disclosure (Step 8)

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. Para 40

An entity shall provide a description of each group of biological assets. Para 41

(Refer p.1215 of text book for example of disclosure)

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