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Agriculture – ACCA Financial Reporting (FR)

VIVA

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  1. Hey, I may not be Chris, but I can try to answer this question to the best of my abilities.

    TL;DR: In this specific case, we are using the land in order to produce agricultural goods (like wheat, spices, etc.) not specifically for capital appreciation, although the land does appreciate in value overtime. Therefore, since it is being used in the “production or supply of goods and services”, it will be classified as PPE under IAS 16.

    Now you can make the argument that since it is land, it will appreciate over time and so should be classified under IP (IAS 40). But you have to remember that when we decide on how to classify assets, we have to look at it from our specific point of view, i.e. how WE are going to make use of it. What I’m trying to say is, it’s all about objective perspective.

    Land can be purchased for many reasons, yes? Lets look at it from the perspective of someone who owns a business of buying and selling lands, like a realtor. This person may also make the argument to classify land under IAS 40 because it is appreciating over time. But because from his point of view, he is involved in the TRADE of land, and so will have to classify it as under IAS 2 (Inventories), not under IAS 40 or IAS 16.

    So your concern is valid and was something that I myself struggled to understand when I started studying this topic. I hope I’ve been able to help you out.

    • Hey, I may not be Chris, but I can try to answer this question to the best of my abilities.

      TL;DR: In this specific case, we are using the land in order to produce agricultural goods (like wheat, spices, etc.) not specifically for capital appreciation, although the land does appreciate in value overtime. Therefore, since it is being used in the “production or supply of goods and services”, it will be classified as PPE under IAS 16.

      Now you can make the argument that since it is land, it will appreciate over time and so should be classified under IP (IAS 40). But you have to remember that when we decide on how to classify assets, we have to look at it from our specific point of view, i.e. how WE are going to make use of it. What I’m trying to say is, it’s all about objective perspective.

      Land can be purchased for many reasons, yes? Lets look at it from the perspective of someone who owns a business of buying and selling lands, like a realtor. This person may also make the argument to classify land under IAS 40 because it is appreciating over time. But because from his point of view, he is involved in the TRADE of land, and so will have to classify it as under IAS 2 (Inventories), not under IAS 40 or IAS 16.

      So your concern is valid and was something that I myself struggled to understand when I started studying this topic. I hope I’ve been able to help you out.

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