Presentation and Disclosure requirements - Agriculture April 2017 For private circulation only - Deloitte
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Presentation and Disclosure requirements Agriculture April 2017 For private circulation only
Presentation and Disclosure requirements | Agriculture Presentation and Disclosure requirements – Agriculture Presentation and disclosure presentation and disclosure requirements are driven by requirements in the financial Schedule III of the Companies Act, statements. This publication 2013 and the relevant accounting aims to address the additional standards. With the change presentation and disclosure in the accounting framework, requirements for companies that changes were made to Schedule are in the tea, coffee and rubber III. Consequently, there has been space. a fundamental change to the 4
Presentation and Disclosure requirements | Agriculture
Presentation
XYZ Limited
Balance Sheet as at March 31 2017
All amounts are in Rs. Lakhs unless otherwise stated Bearer Plants to be
disclosed as one of the
blocks under Property,
Particulars Note No. As at As at As at April
Plant and Equipment.
March 31, March 31, 01, 2015 (For eg: Tea bushes,
2017 2016 coffee bushes, shade
trees and so on)
A Assets
1 Non-Current Assets To include:
(a) Produce growing on
(a) Property, Plant and Equipment
a plant that is yet to be
(b) Capital work-in-progress harvested which requires
more than 12 months
(c) Investment Property
from reporting date to be
(d) Goodwill ready for harvest.
(e) Other Intangible assets (b) Livestock held for
(f) Intangible assets under development breeding purposes only,
with a remote likelihood
(g) Biological Assets other than that it will ever be sold.
(c) Trees cultivated both
bearer plants
for their lumber and
(h) Financial Assets their fruit (For eg: Rubber
trees are grown for both
(i) Investments
the latex and also their
(ii) Trade receivables wood)
(iii) Loans
(iv) Finance lease receivables To include:
(v) Other financial assets (a) Produce growing
(i) Deferred tax assets (net) on a plant that is yet
(j) Other non-current assets to be harvested which
requires less than 12
Total Non-Current Assets months from reporting
date to be ready for
2 Current assets harvest (for eg: Tea
leaves, coffee seeds).
(a) Biological Assets other than (b) Livestock held for
bearer plants slaughter purposes
(c) Annual crops such as
(b) Inventories rice, maize and wheat
(c) Financial Assets
(i) Other Investments To include inventories
(ii) Trade receivables that are produced from
the agricultural produce
(iii) Cash and cash equivalents
(for eg: Black tea or
(iv) Bank balances other than made tea produced
(iii) above from tea leaves)
(v) Loans
(vi) Finance lease receivables
(vii) Other financial assets
(d) Current Tax Assets (Net)
(e) Other current assets
Assets classified as held for sale
Total Current Assets
Total Assets (1+2)
See accompanying notes to the financial
statements
5
Presentation and Disclosure requirements | Agriculture
Particulars Note No. As at As at As at April
March 31, March 31, 01, 2015
2017 2016
B Equity and Liabilities
1 Equity
(a) Equity Share capital
(b) Convertible non-participating
preference share capital
(c) Other Equity
Total Equity
Liabilities
2 Non-current liabilities
(a) Financial Liabilities
(i) Borrowings
(ii) Trade payables
(iii) Other financial liabilities
Non- current portion of
(b) Provisions
deferred Government
(c) Deferred tax liabilities (Net) Grant in relation to
below to be disclosed
(d) Other non-current liabilities under this:
(a) Bearer Plants
Total Non - Current Liabilities
(b) Biological Asset
(where the biological
3 Current liabilities
asset is measured
(a) Financial Liabilities at its cost less
any accumulated
(i) Borrowings
depreciation and any
(ii) Trade payables impairment loss)
(iii) Other financial liabilities
(b) Provisions
(c) Current Tax Liabilities (Net)
Current portion of
(d) Other current liabilities deferred Government
Grant in relation to
Liabilities directly associated with assets held
below to be disclosed
for sale under this:
(a) Bearer Plants
Total Current Liabilities
(b) Biological Asset
(where the biological
Total Liabilities (2+3)
asset is measured
Total Equity and Liabilities (1+2+3) at its cost less
any accumulated
depreciation and any
impairment loss)
See accompanying notes to the financial
statements
6
Presentation and Disclosure requirements | Agriculture
XYZ Limited
Statement of Profit and Loss for the period ended March 31, 2017
All amounts are in Rs. Lakhs except for earnings per share information
Particulars Note No. For the year For the year
ended March ended March
31, 2017 31, 2016
I Revenue from operations
To include:
II Other Income (a) Government
Grant income related
III Total Revenue (I + II) to bearer plants /
biological assets.
IV Expenses
(b) Change in fair value
(a) Cost of materials consumed of biological assets /
agricultural produce
(b) Purchases of Stock-in-trade (gain / loss)
(c) Changes in stock of finished goods, work-in-
progress and stock-in-trade
(d) Excise duty on sale of goods
(e) Employee benefit expense
(f) Finance costs
Depreciation related
(g) Depreciation and amortisation expense to bearer plants to be
disclosed under this
(h) Impairment loss on financial assets line item
(i) Reversal of impairment on financial assets
(j) Rectification costs
(k) Other expenses
Total Expenses (IV)
V Profit before tax (III-IV)
VI Tax Expense
(1) Current tax
(2) Deferred tax
Total tax expense
VII Profit for the period from continuing operations
(V-VI)
VIII Profit from discontinued operations before tax
IX Tax expense of discontinued operations
X Profit from discontinued operations (after tax)
(VIII-IX)
XI Profit for the period (VII+X)
7
Presentation and Disclosure requirements | Agriculture
Particulars Note No. For the year For the year
ended March ended March
31, 2017 31, 2016
Other comprehensive income
A (i) Items that will not be recycled to profit or loss
(a) Changes in revaluation surplus
(b) R
emeasurements of the defined benefit plans
(c) E
quity instruments through other
comprehensive income
d) F air value changes relating to own credit risk
of financial liabilities designated at fair value
through profit or loss
(e) Others (specify nature)
(ii) Income tax relating to items that will not be
reclassified to profit or loss
B (i) Items that may be reclassified to profit or loss
(a) E xchange differences in translating the
financial statements of foreign operations
(b) Debt instruments through other
comprehensive income
(c) E ffective portion of gains and loss on
designated portion of hedging instruments in
a cash flow hedge
(d) F
air value gain / (loss) on time value of option
and forward elements of forward contracts in
hedging relationship
(e) Others (specify nature)
(ii) Income tax on items that may be reclassified to
profit or loss
XII Total other comprehensive income (A(i-ii)+B(i-ii))
XIII Total comprehensive income for the period (XI+XII)
XIV Earnings per equity share (for continuing
operations):
(1) Basic in Rs.
(2) Diluted in Rs.
XV Earnings per equity share (for discontinued
operations):
(1) Basic in Rs.
(2) Diluted in Rs.
XVI Earnings per equity share (for discontinued and
continuing operations):
(1) Basic in Rs.
(2) Diluted in Rs.
8
Presentation and Disclosure requirements | Agriculture
Our earlier publications dealt with inventory and government grants. The
the recognition and measurement following table is a recap of the elements
requirements of Ind AS for bearer plants, of tea, coffee and rubber and how they are
biological assets, agricultural produce, classified in the financial statements.
Particulars Classification
Tea bushes / Bearer plants
coffee bushes
Unharvested tea leaves on the bushes / coffee seeds Biological assets
on the coffee plants
Rubber trees Biological assets
Made tea / processed coffee seeds / Inventory
processed latex
An illustration of disclosures covering the elements stated in the table are provided
herewith.
9
Presentation and Disclosure requirements | Agriculture
Disclosures
A. Accounting Policies
01. Bearer plants ready for their intended use), these using the straight-line5 method.
Bearer plants comprising of mature costs are classified under bearer The estimated useful lives, residual
tea bushes / coffee bushes and plants. Depreciation of bearer plants values and depreciation method are
shade trees1 are stated at cost less commence when they are ready for reviewed at the end of each reporting
accumulated depreciation and their intended use. period, with the effect of any changes
accumulated impairment losses. in estimate accounted for on a
Costs incurred for infilling including prospective basis.
Immature crops, including the cost block infilling are generally recognized
incurred for procurement of new in the Statement of Profit and Loss Estimated useful lives of the bearer
seeds2 and maintenance of nurseries, unless there is a significant increase plants has been determined to be
are carried at cost less any recognized in the yield of the sections, in which 30 - 406 years.
impairment losses under capital case such costs are capitalized and
work-in-progress. Cost includes the depreciated over the remaining useful On transition to Ind AS, the Company
cost of land preparation, new planting, life of the respective fields. has elected to measure bearer
fertilizing, maintenance of newly plants at fair value7 as of April 1, 2015
planted bushes for a period of four Depreciation on bearer plants is (transition date) and use the fair value
years3 until maturity. On maturity recognised so as to write off its cost as deemed cost.
(i.e; when the bearer plants are less residual values over useful lives4,
1
Generally applies to tea and coffee
2
As applicable
3
Will change depending upon the nature of the crop and other geographical conditions. Determination of point of maturity requires application of judgement. For
example, a tea bush may start to yield produce after three years, but reaches optimum yield generally after four years, which is when the bearer plant is capitalised.
4
Judgement is required to determine the useful life of the bearer plants, which are driven by the location of the estates, environmental conditions, level of upkeep and
maintenance, amongst other factors. Trends in replanting would also assist in determination of useful life.
5
Will change depending on the method determined relevant by the company
6
Will change depending upon the crop - tea, coffee and so on
7
Will change depending on the election made by the company.
10Presentation and Disclosure requirements | Agriculture
02. Biological Assets On transition to Ind AS the Company For transition to Ind AS the Company
The Company recognizes biological has elected to measure biological assets has elected to measure its agricultural
assets when, and only when, the at fair value less cost to sell as at April 1, produce at its fair value less cost to sell
Company controls the assets as a 2015 (transition date). at the point of harvest, as at April 1,
result of past events, it is probable 2015 (transition date).
that future economic benefits 03. Agricultural Produce
associated with such assets will flow The Company recognizes agricultural
to the Company and the fair value or produce when, and only when, the
cost of the assets can be measured Company controls the assets as a result
reliably. Expenditure incurred on of past events, it is probable that future
biological assets are measured on initial economic benefits associated with
recognition and at the end of each such assets will flow to the Company
reporting period at its fair value less and the fair value or cost of the assets
costs to sell in terms of Ind AS 41. The can be measured reliably. Agricultural
gain or loss arising on initial recognition produce harvested from the Company’s
of such biological assets at fair value biological assets are valued at fair
less costs to sell and from a change in value less cost to sell at the point of
fair value less costs to sell of biological harvest. A gain or loss arising on initial
assets are included in Statement recognition of agricultural produce
of Profit and Loss for the period in at fair value less costs to sell shall be
which it arises. included in Statement of Profit and Loss
for the period in which it arises.
11Presentation and Disclosure requirements | Agriculture
04. Inventories 05. Government Grants them from the carrying value of such
Finished and semi-finished8 inventories From the date of transition to Ind AS asset and was recognized as income
produced from agricultural produce (April 1, 2015), grants related to bearer over the life of the depreciable asset by
are valued at lower of cost arrived at by plants (for example replanting subsidy way of a reduced depreciation charge.
adding the cost of conversion to the fair received from the Tea Board) and
value of agricultural produce and the other machinery (for example subsidy Unconditional grants received for
net realizable value. Net realizable value received from Tea Board for purchase Biological Assets measured at fair value
represents the estimated selling price of certain machinery) are recognized less cost to sell are recognized in the
for inventories less all estimated costs as deferred revenue in the Balance Statement of Profit and Loss when,
of completion and costs necessary to Sheet and transferred to the Statement and only when such grants become
make the sale. of Profit and Loss on a systematic and receivable. Conditional grants are
rational basis over the useful lives of recognized in the Statement of Profit
Stock of nursery was valued at cost the related assets. and Loss when the conditions are met.
incurred on raising and maintaining
such stocks until transplantation. Hitherto, before transition to Ind AS, Grants related to income (for example
From the date of transition to Ind AS replanting subsidy received from the subsidy provided by Tea Board towards
(April 1, 2015), the nurseries have been Tea Board was recognized as revenue in manufacture of orthodox tea that
classified as capital work in progress the Statement of Profit and Loss as and arises on production of orthodox tea),
and carried at cost less any recognized when the claim was submitted by the are presented under ‘Other income’
impairment losses (refer to the policy Company. The subsidy received from as part of the Statement of Profit and
on Bearer plants above). Tea Board towards purchase of certain Loss.
machinery was presented by deducting
8
As applicable
12Presentation and Disclosure requirements | Agriculture
B. Key sources of estimation uncertainty 9
Bearer plants by the Chief Financial Officer (CFO) of the
As described in A.1 above, the Company Company, to determine the appropriate
Commentary:
reviews the estimated useful lives of valuation techniques and inputs for fair
The matters disclosed will be
property, plant and equipment at the value measurements.
dictated by the circumstances of
end of each reporting period. During the
individual Company, and by the
current year the Directors determined In estimating the fair value of an asset
significance of judgements and
that the useful life of tea bushes in XYZ or a liability, the Company uses market-
estimates made to the performance
estate (comprising of XX fields) should be observable data to the extent it is available.
and financial position of the
shortened due to the irregular weather When Level 1 inputs are not available, the
Company. Instead of disclosing this
conditions combined by severe pest Company engages third party qualified
information in a separate note, it
attacks in the past couple of years. valuers to perform the valuation. The
may be more appropriate to include
valuation committee works closely with
such disclosures in the relevant
The financial effect of this reassessment, the qualified external valuers to establish
asset and liability notes, or as part
assuming the bearer plants are held until the appropriate valuation techniques and
of the relevant accounting policy
the end of their estimated useful lives, is to inputs to the model. With respect to certain
disclosures.
increase the depreciation expense in the biological assets, where there is no active
current financial year and for the next three market for the unharvested produce, the
financial years, by the following amounts: valuation committee arrives at the fair
value by way of a reverse working from the
Year 1 Amount value of the inventory.
Year 2 Amount
Year 3 Amount The CFO reports the valuation
Year 4 Amount committee’s findings to the Board of
Directors of the Company every quarter
Fair value measurements and to explain the cause of fluctuations in
valuation processes the fair value of the assets and liabilities.
Some of the company’s assets and Information about the various techniques
liabilities are measured at fair value for and inputs used in determining the fair
financial reporting purposes. The board value of various assets and liabilities are
of directors of the company has set up disclosed in Note C.1(c) below.
a valuation committee, which is headed
9
Other areas where there could be estimation uncertainty is determination of point of maturity to determine point of capitalization of a bearer plant, determination of
type of lease (for example: estates taken on lease from the government) etc.
13Presentation and Disclosure requirements | Agriculture
C. Notes to the Financial Statements
01. Biological Assets ii. U nharvested coffee seeds, classified as either current
a. Biological assets of the Company after significant biological biological assets or non-current
consist of : (refer to paragraph 41 of transformation, which is biological assets based on their
Ind AS 41) generally about XX months maturity periods
i. Unharvested tea leaves that are from the time of flowering, are
classified as current biological classified as current biological b. Reconciliation of changes to the
assets. The company has a assets carrying value of biological assets
plucking cycle ranging XX to YY iii. Rubber trees which are used between the beginning and the end
days both for the produce (harvested of the current year are as follows:
latex) and their timber are (refer to paragraph 50 of Ind AS 41)
Particulars Leaves/coffee seeds Rubber trees Total
on the tea bushes /
Mature Immature
Coffee Plants
As at opening date XX XX XX XX
Increase due to purchases / XX XX XX XX
physical changes (transferred from
immature)
Increases resulting from business XX XX XX XX
combinations
Decreases due to harvest / physical XX XX XX XX
changes (transferred to mature)
Decreases due to sales / write off XX XX XX XX
Net change in fair value less XX XX XX XX
estimated costs to sell
Others (please specify) XX XX XX XX
As at closing date XX XX XX XX
14Presentation and Disclosure requirements | Agriculture
c. Fair value measurements: are determined (in particular
The following table gives the the valuation technique(s) and
information about how the fair inputs used):
values of these biological assets
Biological asset Fair value as at Fair value Valuation techniques The valuation technique
hierarchy and key inputs used for unharvested
31/03/17 31/03/16 01/04/15
tea leaves is assumed
Unharvested Level 2 to be based on reverse
tea leaves As there is no active working. However in
market for tea case any company would
leaves before they consider this as a Level 3
are harvested fair valuation and use the
Discounted Cash Flow
Unharvested Level 2 Fair value is being method, then appropriate
coffee seeds As there is no active arrived at based disclosures as prescribed
market for the on the observable by Ind AS for a Level 3
coffee seeds before market prices of valuation needs to be
they are harvested processed coffee provided in the financial
seeds adjusted for statements.
manufacturing costs.
Quantity of the coffee
seeds harvested is
determined using the
plucking averages of
the various fields.
15Presentation and Disclosure requirements | Agriculture
Biological Fair value as at Fair value Valuation Significant Relationship of
asset hierarchy techniques and unobservable unobservable
31/03/17 31/03/16 01/04/15
key inputs inputs inputs to fair
value
Rubber trees Level 3 Discounted Cash Selling price An increase in
The company Flow (DCF) of rubber the selling price
does not intend Present value of wood which would result in
to sell the trees future cash flows is estimated an increase in the
before their from the sale based on the fair value (refer
maturity period of rubber trees Indian market Note 1 below)
which is about 35 discounted at conditions taking
years from the current market into account the
year of planting determined pre- management’s
and there is no tax rate experience and
active market for knowledge of the
timber market conditions
ranging from INR
XX to INR XX
Discount rate of A significant
XX% increase in the
discount rate
would result
in a significant
decrease in the
fair value (refer
Note 2 below)
Maturity period A decrease in the
of 35 years maturity period
would result in
an increase in the
fair value (refer
Note 3 below)
Timber content of An increase in the
XX cu.ft timber content
would result in
an increase in the
fair value (refer
Note 4 below)
The fair valuation has been based on the The rubber tree prices prevailing in the Note 2 – A XX% increase / decrease in
report of the independent professional domestic markets have been based on the the discount rate while holding all other
valuer, M/s. ABC Limited. recent sale prices realised by the Company variables constant would decrease /
as well as the prices realized by other increase the carrying value of the rubber
Note 1 – If the selling price of the rubber neighbouring estates from the popular trees by Rs. XX / Rs. YY respectively.
wood was XX% higher / lower while all other timber dealers in the state where the
variables were held constant, the carrying estates are located
amount of the rubber trees would increase /
decrease by Rs. XX / Rs. YY respectively.
16Presentation and Disclosure requirements | Agriculture
Note 3 – The maturity period of the Note 4 - The timber content has been
rubber trees have historically been around arrived at by independent valuers
35 years and the independent valuer has engaged by the Company which was
also considered the health and condition based on the recent yields from mature
of the trees by physical inspection of the trees as well as physical inspection of
fields, to arrive at the maturity period. the current plantations to determine the
Increase / decrease in the maturity period yields. Increase / decrease in the timber
with all other variables remaining content with all other variables remaining
constant would increase / decrease the constant would increase / decrease the
carrying value of the rubber trees by carrying value of the rubber trees by Rs.
Rs. XX / Rs. YY respectively. XX / Rs. YY respectively.
Additional disclosures for biological assets where fair Standard and this for the time being looks to be a remote
value cannot be measured reliably possibility, as the intention of the standard setters may not be
There could be situations when the fair value of a biological to provide any relief from the fair value measurement.
asset cannot be measured reliably, thereby not permitting a
recognition of the biological asset. Given that there is a Under circumstances where the Company concludes that fair
presumption that fair value can be measured reliably for a value cannot be measured reliably, specific additional
biological asset, however capable of rebuttal only on initial disclosures as prescribed under Ind AS 41.54 to 41.56 need to
recognition, entities would therefore have to be extremely be given in the financial statements.
cautious in applying the exemptions as provided by the
02. Government Grants which has been disclosed under Other
The Company has during the year Income in the Statement of Profit and
completed the planting of rubber trees Loss. There are no unfulfilled conditions
in XX hectares of new area in the YYY and contingencies attached to the said
estate and on completion of such subsidy receivable from the Rubber
planting has applied for the subsidy from Board. (refer to paragraph 57 of
the Rubber Board, Government of India Ind AS 41).
(“Rubber Board”) amounting to Rs. XX
17Presentation and Disclosure requirements | Agriculture
D. Other disclosure requirements
Other disclosures prescribed by Ind AS 41 c. the amount of commitments for
are as follows: the development or acquisition of
a. physical quantities of output of biological assets [Ind AS 41:49(b)]
agricultural produce during the d. financial risk management
period [Ind AS 41:46(b)(ii)] strategies related to agricultural
b. the existence and carrying amounts activity [Ind AS 41:49(c)]
of biological assets whose title
is restricted, and the carrying
amounts of biological assets
pledged as security for liabilities
[Ind AS 41:49(a)]
Our insights
Considering that the financial statements will now be required to contain enhanced
disclosures on bearer plants, biological assets, the assumptions used for
determination of fair values, key sources of estimation uncertainty , companies will
have to start planning early to assess whether they have all the information on
hand to enable them to fulfil the extensive disclosure requirements prescribed by
the Ind AS Standards, including starting early discussions with the independent fair
value experts. Further, Companies will also have to develop appropriate risk control
matrices that address the various risk and controls revolving around these specific
disclosure requirements prescribed by the standards and also maintain adequate
documentation to support the review of these disclosures.
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