A company acquired the assets … Continue reading “[Ind AS 16 Case Study] Bearer Plants as PPE in Financial Reporting”
The post [Ind AS 16 Case Study] Bearer Plants as PPE in Financial Reporting appeared first on Taxmann Blog.
A company acquired the assets and liabilities of a unit of another company under a reorganisation scheme against the cash consideration. Acquired assets include orchards in complex which comprises 1658 fruit-bearing trees of different varieties. At the time of the acquisition of the unit, the company follows Accounting Standards for bookkeeping. Later with the adoption of Indian Accounting Standards, the company used the same accounting policies in its opening Ind AS Balance Sheet and all periods presented in its first Ind AS financial statements and each accounting policy complied with each Ind AS effective at the end of its first Ind AS reporting period. The company did not recognise the fruit-bearing plants as a separate PPE under the balance sheet owing to the adoption of similar accounting policies before the transition.
However, the auditor objected to the above presentation on observing the line item ‘sale of Agricultural/Horticulture Products’ under ‘Non-Operating Income-others’. As per the auditor, the company has understated the assets by not measuring and recognising fruit orchards. As per para 7 of Ind AS 16, the company should have recognised the fruit-bearing plants as a separate PPE, which states that the cost of an item of property, plant and equipment shall be recognised as an asset when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. The company has sought the opinion of the Expert Advisory Committee (EAC) on the above issues.
The Expert Advisory Committee (EAC) of ICAI has noted that these trees met the definition of a fixed asset as per the erstwhile Accounting Standard (AS) 10, Fixed Assets, there was no specific accounting guidance available in respect of bearer plants under the accounting standards framework. However, under the Indian Accounting Standards framework, Ind AS 16 contains specific requirements in respect of bearer plants. Further, at the time of the acquisition of the unit, a portion of the cost was incurred towards the acquisition of fruit orchards/ trees. Therefore, on the transition to Ind ASs, the Company should have separated the value of fruits orchard/trees from the value of land or plant or any other asset(s) in which the cost of the trees is included and allocate a part of the cost to the bearer plants on a reasonable basis. Hence, the company should have measured and recognised the fruit-bearing plants as a separate PPE in the balance sheet.
Click Here to Read the Full Article
The post [Ind AS 16 Case Study] Bearer Plants as PPE in Financial Reporting appeared first on Taxmann Blog.
News Archives – Taxmann Blog Read More