Amendments on Bearer Plants: Boon or Bane

For Agricultural Companies

Cunanan, Ralph Jeffrey S.

Dela Pena, Nathaniel
Edra, Ness Sheila Anne
Hernandez, Nympha
Laguit, Hannah A.
Macasil, Hanze
Ocenar, Judith
Pacheco, Cloie Ann O.

4th Year BSBA Internal Auditing

2016

FAR EASTERN UNIVERSITY MANILAS AMENDMENTS ON BEARER PLANTS:

BANE OR BOON FOR AGRICULTURAL COMPANIES
A Research Paper Presented to the Faculty of the
Institute of Business, Accounts, and Finance
In Partial Fulfillment of the Requirements in Accounting Research
in the Major Field
By
Cunanan, Ralph Jeffrey S.
Dela Pena, Nathaniel
Edra, Ness Sheila Anne
Hernandez, Nympha
Laguit, Hannah A.
Macasil, Hanze
Ocenar, Judith
Pacheco, Cloie Ann O.
August, 2016

APPROVAL SHEET
This undergraduate term paper entitled Far Eastern Universitys Research Amendments
on Bearer Plants: Bane or Boon for Agricultural Companies prepared and submitted by
Ralph Jeffrey S. Cunanan et.al., in partial fulfillment of the requirements in Research in
the Major Field, is hereby accepted.

Professor

Panelist

Panelist

Chair of the Panel

Accepted in partial fulfillment of the requirements in Research in the Major Field

College Dean

August 16,2016

CERTIFICATE OF ORIGINALITY
The researchers hereby declare that the research paper titled Amendments on
Bearer Plants: Boon or Bane for Agricultural Companies are their own work and to
the best of their own knowledge. It contains no materials previously published or written
by another person, nor material which to a substantial extent has been accepted for the
award of any degree or diploma at FEU or at any educational institute, except where due
acknowledgement, is made in the thesis. Any contributions made to the researchers by
others, with whom they have worked at FEU or elsewhere, is explicitly acknowledged in
the thesis.
Additionally, the researchers also declare that the intellectual content of the thesis
is the product of their own work, except to the extent that assistance from others in the
projects design and conception or in style, presentation and linguistic is acknowledged.

Authors Representative Name: ___________________

Signature: ___________________

ACKNOWLEDGEMENT
The researchers feel strongly that grateful and sincere gratitude be conveyed to
the following institutions, groups, and individuals which/who extended contributions,
support, assistance, and/or encouragement in accomplishing this study in a short
semesters span, and consequently, in realizing the researchers long-time objective of
earning their undergraduate degree:
Professor ____________________, who provided the researcher the assistance
and encouragement in no small measure, and who has always been an inspiration and a
blessing to the researcher since the day that he met them this semester;
Ms. ______________________, for her expertise in the field and assistance to the
researchers when they were gathering information for their surveys and communicating
the results with them;
Mr. ____________________ for his time and hospitable accommodation in
providing the researchers vital information for their study;
All the respondents in this study, for their time in providing the researchers the
data which were essential in the study;
The researchers family and friends for their undying love and support throughout
the whole tedious and grueling workload brought forth by this thesis;
And above all, To Him, the Greatest Teacher, who, with all His glory, had never
forsaken the researchers throughout the whole process!

LIST OF FIGURES

LIST OF TABLES

ABSTRACT

This dissertation asses and evaluates the probable effects and implications of the
newly-issued amendments of the International Accounting Standards Board (IASB) in
IAS 41 and IAS 16 that pay particular attention to Bearer Plants. The study provides
comparisons of the pre-issuance and post-issuance of the amendments and weighing the
probable advantages and disadvantages of the said changes to different agricultural
companies. Further, the thorough study aims to disclose the reasonableness and benefits
of the changes that would lead to a more accurate, less complex, and advancements in the
accounting practice. The topic was chosen in line with the sudden release of the
amendments just earlier this year. In the past, there had been a lot of confusion vis--vis
bearer plants classification and valuation and what these amendments aim to relieve is to
lessen the complexity and improve the accuracy of reporting in the financial statements..

TABLE OF CONTENTS
Title Page

Approval Sheet

ii

Certificate of Originality

iii

Acknowledgement

iv

List of Figures

List of Tables

vi

Abstract

vii

CHAPTER I THE PROBLEM AND ITS BACKGROUND

Introduction

Background of the Study

Conceptual Framework

Statement of the Problems

Hypothesis

Scope and Limitations of the Study

Significance of the Study

Definition of the Terms

CHAPTER II REVIEW OF RELATED LITERATURE AND STUDIES

Related Literature & Studies
CHAPTER III RESEARCH METHOD AND PROCEDURE
Research Method
Research Locale
Respondents
Population and Sampling Techniques
Developments and Validation of the Research Instrument
Procedures
Statistical Treatment of Data
CHAPTER IV PRESENTATIONS, ANALYSIS,
AND INTERPRETATION OF DATA
On Institutional Research Program
On Human Resources
On Material Resources
On Research Capability Factors Analyses of Variances
On Research Outputs

On Research Dissemination
On Research Utilization
On Research Problems
CHAPTER V SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
Summary
Summary of Findings
Conclusions
Recommendations
BIBLIOGRAPHY
APPENDIX
Survey Questionnaire

CHAPTER I
THE PROBLEM AND ITS BACKGROUND
Agriculture provides the population with livelihood. It promotes commercial activities
and sustainable employment in rural areas, thus improving the living quality and
retaining density of rural population. As defined by the IASPLUS website, Bearer plants
are a class of biological assets that, once mature, are held by an entity solely to grow
produce over their productive life. The definition captures plants that would intuitively be
considered to be bearers, for instance, grape vines, rubber trees, and oil palms. In
addition, some plants that may appear to be consumable, such as the root systems of
perennial plants (e.g., sugar cane or bamboo) are expected to meet the definition of a
bearer plant. For a biological asset to be classified as a bearer plant it must be able to
comply with the three criteria namely: used in the production or supply of agricultural
produce, expected to bear produce for more than one period, and has a remote likelihood
of being sold as agricultural produce, except for incidental scrap sales. Moreover, the
International Accounting Standards (IAS 41) : Biological Asset introduced the fair value
accounting (FVA) to biological assets for reporting periods beginning on or after 1
January 2003. The use of fair value in measuring biological asset is aligned with the
international shift from traditional historical cost accounting, Additionally, the use of the
aforesaid method allows user to gain access to a more timely information for them to use
in their decision making. However, the International Accounting Standards Board (IASB)
issued Agriculture: Bearer Plants (Amendments to IAS 16 and 41) on 30 June 2014,
which changed the accounting requirements for biological assets that meet the definition
of bearer plants. The bearer plants are then reclassified under the IAS 16: Property, Plant,

and Equipment and no longer be under the IAS 41. The issued amendment could affect
agricultural companies valuation and income recognition. Therefore, this study aims to
assess and evaluate how this amendment could affect different agricultural entities.
Background of the Study
Agricultural businesses are one of the leading businesses in our country. Crowned
as one of the many countries that are blessed to have rich and vast fertile lands, a total of
an estimated 13 million hectares is devoted to agricultural crops alone. The said hectare is
then distributed among food grains, food crops and non-food crops such as our countrys
major produce rice, sugar, coconut, corn and rubber. These are also termed in the
accounting world as Biological Assets. Usually biological assets are of primary
importance in the agricultural business. These businesses generate income from its
biological assets therefore these biological assets need to be recognized in balance sheet
and the revenues from them also need to be recognized in income statement. IAS
41 Agriculture sets out the accounting for agricultural activity the transformation of
biological assets (living plants and animals) into agricultural produce (harvested product
of the entity's biological assets). The standard generally requires biological assets to be
measured at fair value less costs to sell.However, the International Accounting Standards
Board (IASB) has now addressed concerns over fair value not being considered an
appropriate measure of performance for certain biological assets, specifically bearer
plants.
Bearer Plants are a class of biological assets that, once mature, are held by an
entity solely to grow produce over their productive life. They were previously required to
be measured at fair value less costs to sell, in accordance with IAS 41. This standard

garnered different views regarding the cost, complexity and practical difficulties of fair
value measurements of bearer plants. As a result an amendment to IAS 41 regarding
bearer plants was issued to address the concerns and to lessen the burden on companies.
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) was issued in
June 2014. The amendments change the financial reporting for bearer plants such as
grape vines, rubber trees and oil palms. The new requirements are effective from
1 January 2016, with earlier application permitted.Bearer plants will now be within the
scope of IAS 16 Property, Plant and Equipment and will be subject to all of the
requirements therein. This includes the ability to choose between the cost model and
revaluation model for subsequent measurement.The agricultural produce growing on the
bearer plants will be a biological asset measured at fair value in accordance with IAS 41.
This is a limited scope project to consider an amendment to IAS 41 Agriculture in
relation to bearer biological assets, as to whether these assets would be better accounted
for under IAS 16 Property, Plant and Equipment rather than using the fair value
measurement approach prescribed by IAS 41.
The researchers have come up with this topic to further assess the effectiveness of
this amendment with the researchers focusing on the agricultural sectors financial
statements and on evaluate as to how it will be of help in improving and leveling up the
accounting standards in line with the changes of time. This amendment might get a big
yes or a no from the different Agribusinesses. Moreover, the researchers of this study
composed of internal auditing students and are determined to device a study that would
help them and fellow people in the same field work to further understand the changes that

have occurred and the possible implications it will bring with a deeper analysis to
complete this study.

Conceptual Framework

Statement of the Problem

This study is to analyze the amendments in accounting for the bearer plants by
applying the requirements set in IAS 16 to bearer plants that was formerly classified as
biological asset in accordance with IAS 16 and assess the possible implications brought
forth by the changes to different agricultural businesses

This study aims to fulfill the following inquiries/queries:

1) Under what fields of businesses are the commonly affected by the changes made?
2) How will these changes affect the following aspect of the businesses?
a) Financial Aspect
b) Operations
c) Valuation
3) Based on the amendments made, how do these companies adjust to the changes?
4) In what way do these changes affect the formerly established criteria?
5) Is there a significant difference on the level of satisfaction observed with the former
classification and to the new amendment?
6) What are the corresponding issues/benefits that can possibly encounter under this
amendment?
7) How reasonable are the changes made?
8) In what way will these bearer plants be depreciated?
9) What are the benefits of these amendments to the users of financial statements,
including investors and analysts?

10) What are the issues and concerns in the current practices relating to the
Amendments made?
Hypothesis
The following hypotheses will be tested for acceptance and approval:
H0: The amendment had caused positive significant effects as to the level of complexity
and accuracy of the financial aspect, operations and valuation of the entitys bearer
plants.
H1: The amendment had caused negative significant effects as to the level of complexity
and accuracy of the financial aspect, operations and valuation of the entitys bearer
plants.

Scope and Limitations

This study aims to assess and evaluate how the amendment on Bearer Plants affect
differet entities. It involves the perceptions of five (5) respondents which is limited only
to agricultural entities who are engaged primarily on bearer plants.However,for the
purpose of accurate and direct response,this study requires queries from Accounting
department specifically the preparers of Financial Statement and exclude other
departments inside the entity. Due to some restrictions and confidentiality constraints,the
tools that were executed by the researchers is in the form of questionairres answerable
only by "Yes or No".The respondents chosen in this study were accessible and convenient
for the researchers to achieve the objectives and purposes of the research within the

period of 5 (five)months. Therefore, it is stated that the respondents were appropriately

chosen because they are in the position to extract the utmost information essential in this
study.
Significance of the Study
The study will provide an assessment and evaluation of the future effects of the
amendments to the overall practice of accounting and focusing specifically on the
agricultural sector of business. Furthermore, this study can be a key to distinguishing
additional loopholes in the new amendment notwithstanding the different occurrences
that can greatly impinge the accountants performance; therefore, it can further enhance
the standards of the accounting profession with proficient and pliable standards.
This study can raise the issues that the affected areas of businesses are currently
facing and provide innovative schemes as to how these sectors could make use of the said
issues into their advantage and benefit from them. Moreover, the study aims to be a
catalyst of the standards aim to enhance the accounting practice.

Definition of the Terms

Agricultural sector-comprise establishments primarily engaged in growing crops,
raising animals, and harvesting fish and other animals from a farm, ranch, or their natural
habitats
Amendment- is a formal or official change made to a law, contract, constitution, or other
legal document.

Boon- it means helpful or beneficial. Bane-refers to anything that is a cause of harm,

ruin, or death.
Bearer Plants- are a class of biological assets that, once mature, are held by an entity
solely to grow produce over their productive life.
Biological asset-under IAS41 which means farm animals that are classified as assets.
Catalyst-an event that quickly causes change or action.
Depreciated/Depreciation-The allocation of the cost of assets to periods in which the
assets are used.
Fair Value - price that two parties are willing to pay for an asset or liability, preferably in
an active market.
IAS41 - sets out the accounting for agricultural activity , the transformation of biological
assets (living plants and animals) into agricultural produce (harvested product of the
entity's biological assets)
IAS16 - Property, Plant and Equipment outlines the accounting treatment for most types
of property, plant and equipment.
Impinge-having an effect or impression.
International Accounting Standard Board(IASB)-is an independent, private-sector
body that develops and approves International Financial Reporting Standards (IFRSs).
Implication-a possible future effect or result. Confidentiality constraint- problems
existing due to unavailabity of information.

Loopholes- an error in the way a law, rule, or contract is written that makes it possible
for some people to legally avoid obeying it.
Pliable-able to adjust on varying conditions.

CHAPTER II
REVIEW OF RELATED LITERATURE AND STUDIES

In the attempt to describe the present status of the subject of this study, a review
of related literature and studies is hereunder presented. The relevant and vital information
synthesized as follows have helped the researchers in developing the research framework
and in clarifying the directions of the present study.
As Pitulice and Gorgan (2013) emphasize, the particularities of agricultural
entities impose the providing of specific information and corporate farm accounting
practices. Furthermore, Athanasios et al. (2010) argue that there is a gap between
accounting practices and the role that accounting information should play in the
agricultural sector due to accounting rules not reflecting the particularities of
farming (as also noted by Argils and Slof (2001), together with being difficult and
expensive to implement), the needs of farm management and rural development
and sustainability. Argils and Slof (2001) also make reference to the gap between
the importance of accounting and the low level of accounting practice in the
agricultural sector, seeing IAS 41 issued by the IASC as providing a strong
conceptual framework. While applauding the IASC for venturing into
unconventional areas (through IAS 41), Elad (2004) brings to attention the
existence of theoretical problems which are likely to generate implementation
bottlenecks. (Damian, et.al, 2014)

An effective and efficient approach on preparing financial statements is one of the

keys for an optimal managerial decisions resulting in success of multinational companies.
An amendment on IAS 41 Biological Assets relating to bearer plants results in the
reduction on the valuation load on companies and pattern on generating income

presentation. While the amendments will reduce the volatility in profit or loss when
accounting for bearer plants, entities will still need to recognize any changes in the fair
value of agricultural produce growing on the bearer plant.
Agricultural companies upon facing the changes may result in first, an entity
carries the bearer plants at fair value less costs to sell under IAS 41 and uses the cost
model of IAS 16, the net assets are likely to decrease. Moreover, the income statements
will no longer be as volatile as fair value changes are eliminated. Another implication is
that assuming the entity uses the revaluation model of IAS 16 instead of the fair value
less costs to sell of IAS 41, then the impact is only the classification, meaning the
movement in fair value less costs to sell under IAS 41 affects income statements while
IAS 16 affects other comprehensive income (SGV & Co., 2014). These changes would
also prevent potential distortions to financial reports from the fluctuations in fair value of
bearer assets and give greater visibility over the cost to replace capital (by allowing
depreciation and amortization) and better reflect the productive lifetime of these types of
assets (Deloitte, 2016).
The International Accounting Standards Board (IASB) issued Agriculture: Bearer
Plants (Amendments to IAS 16 and IAS 41) on 30 June 2014, which changed the
accounting requirements for biological assets that meet the definition of bearer plants
(e.g., fruit trees). Bearer plants will now be within the scope of IAS 16 Property, Plant
and Equipment and will be subject to all of the requirements therein. This includes the
ability to choose between the cost model and revaluation model for subsequent
measurement. Agricultural produce growing on bearer plants (e.g., fruit growing on a
tree) will remain within the scope of IAS 41 Agriculture. Government grants relating to

bearer plants will now be accounted for in accordance with IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance, instead of in accordance
with IAS 41. (Ernst & Young, 2016)
Before it could even consider accounting for bearer biological assets under IAS 16,
the IASB discussed the scope of the amendments by taking into consideration four
possible options (IASB, 2013):
1. Option 1 (no alternative use model) limits the scope to biological assets
that are only used in production or supply of agricultural produce and are
expected to be used for more than one period;
2. Option 2 (predominant-use model) restrict the scope to biological assets
predominantly used in production or supply of agricultural produce and are
expected to be used for more than one period;
3. Option 3 (no-alternative-use modelplants only) is similar to option 1, but
includes only plants;
4. Option 4 (predominant-use modelplants only) is similar to option 2, but
includes only plants.
The IASB considered that a predominant model would be difficult to apply
because it requires additional judgment for establishing the predominant use. Also
livestock was excluded from the scope because there is usually an active market for
livestockand fair value can be determined easier than cost. Therefore, the IASB decided
onoption 3 and issued the exposure draft Agriculture: Bearer plants, proposed
amendments to IAS 14 and IAS 41. (Damian, et.al, 2014)

The amendments are intended to address concerns about the cost, complexity and
reliability of a fair value model in the absence of observable markets. However, there
could be a number of challenges in practice, for example: Initial scoping considerations,
identifying the costs that can be capitalized under IAS 16, tracking bearer plants and
unharvested agricultural produce separately (IFRS, 2014). The academic research and the
intense debate regarding fair value is frequently concerned with financial instruments, but
the IAS 41 requirements of fair valuation bring this discussion to the agricultural context.
In particular, the IAS 41 is a true fair value standard: the fair value of biological assets
is reported on the firms balance sheet and any change in the fair value of the biological
assets over the reporting period is recognized in the periodic income as an unrealized gain
or loss (FEP Working Papers, 2015). However, The amendments to IAS 16 and 41 will
provide relief to preparers of financial statements who have expressed concerns about the
cost, complexity and reliability of the fair value of bearer plants when fair value is not
readily available (e.g. absence of markets for those assets); Or when fair value is
available, fair value changes fluctuate widely which affect profit or loss (PWC, 2016).
Additionally, the main disadvantage of fair value is the
absence of active markets for some biological assets. In this case, and with regard to the
diversity of fair valuation models, it is possible for firms to use accounting for their own
interests (Gabriel, and Stefea, 2013)
In view of significant impact of this study on the cost, complexity and reliability
of a fair value model in the absence of observable markets and changes in financial
statement representations, numerous articles, mostly electronically published ones,

including locally available resources, were reviewed so as to provide the researchers

baseline information in supporting the findings of this study.
Bearer plants and their agricultural produce are considered to be one asset prior
to harvest and presented as either current or noncurrent based on the assets useful life.
Under IAS 41, bearer plants are currently measured at fair value less costs to sell both at
initial recognition and subsequently unless the measurement exception applies because
fair value cannot be reliably measured.(Valix, 2015) Table 1 shows a comparison oh the
Historical Cost Model and Fair Value Cost Model by different criteria:

Table 1 : Comparison of Value Calculation Methods

Note. Source: Journal of Modern Accounting and Auditing by Rozentale et.al, 2013
Before a limited-scope project for bearer biological assets was added to its work
programme, the IASB was monitoring work undertaken by the Asian-Oceanian StandardSetters Group (AOSSG), primarily by the Malaysian Accounting Standards Board
(MASB), on a proposal to remove some bearer biological assets from the scope of IAS 41

and to account for them in accordance with IAS 16. Those proposals were discussed
several times by national standard-setters, the IASBs Emerging Economies Group (EEG)
and the IFRS Advisory Council. Feedback from these meetings indicated strong support
for the AOSSG/MASB proposals and for the IASB to start a limited-scope project for
bearer biological assets. Consequently, in September 2012, the IASB added a limitedscope project for bearer biological assets to its agenda, with the aim of considering
whether to account for some or all of them as property, plant and equipment, thereby
permitting the use of a cost model. (IFRS, 2014)
Property, Plant and Equipment are defined as intangible assets that are held for
use in the production or supply of goods or services, for rental to others, or for
administrative purposes and are expected to be utilized in more than one period. (Empleo,
2015) The IASB decided that bearer plants should be accounted for in the same way as
property, plant and equipment in IAS 16 Property, Plant and Equipment, because their
operation is similar to that of manufacturing. Consequently, the amendments include
them within the scope of IAS 16, instead of IAS 41.It modifies one of the criteria in the
definition of a bearer plant from not intended to be sold as a living plant or harvested as
agricultural produce, except for incidental scrap sales to has a remote likelihood of
being sold as agricultural produce, except for incidental scrap sales. This modification
was intended to ensure that the amendments capture only those plants used solely in the
production or supply of agricultural produce. (IASB, 2014)
The amendments now split the plant and the produce into two assets, with
different measurement models. Bearer plants will be presented as non-current assets.
While the amendments will reduce the volatility in profit or loss when accounting for

bearer plants, entities will still need to recognize any changes in the fair value of
agricultural produce growing on the bearer plant, as discussed below: (IFRS, 2014)

Table 2 : Bearer Plants Measurement Model

Note. Source : Ernts & Young Published article in 2016
In view of the significant negative effects brought forth by the amendments to
different agricultural businesses, the said reason for the amendment according to the
International Accounting Standards Board (IASB) was due to the concerns about the

accuracy and complexity of the former valuation. Although the amendment can somehow
relieve the accuracy and complexity issues of the valuation, we cannot neglect the fact
that the financial aspect of the business can massively be affected.
Lets take for example if the entity carries the bearer plant via the fair value less
cost to sell under IAS 41 and uses the cost model of IAS 16, the net assets are likely to
decrease which can be perceived by the investors as a negative sign. Moreover, cost
model measurement of IAS 16 ignores the biological transformation that provides
reliable measurement of fair value of bearer plants. Those who support fair value
measurement argue that the effects of changes brought about by biological transformation
are best reflected by reference to the fair value changes in biological assets. They believe
that fair value changes in biological assets have a direct relationship to changes in
expectations of future economic benefits to the entity. (Finnegan, et al., 2013).Fair value
measurement provides best information about bearer assets quality and quantitative
changes during their growth period which results to decrease the interest of investors
because they can no longer assess managements stewardship of the resources invested
and the entitys performance. And the entities will also need to determine appropriate fair
value measurement methodologies to measure the fair value of the agricultural produce
separately from the bearer plants on which they are growing, which may increase the
complexity and subjectivity of the measurement. In addition, the income statements will
no longer be as volatile as fair value changes are eliminated. IAS 16 also reject the view
that biological transformation of bearer assets is no longer a key element to
understanding the future net cash flows to an entity once such assets reach maturity.
Moreover, once the IAS 16 has been used to evaluate the bearer plants there will always

be conflicts in comparability of financial statements if not all entities follow the same
model of valuation especially IAS 16 provides the choice of using the cost model and the
revaluation model of valuation Property, Plant, and Equipment. Bearer plants are a class
of biological assets that, once mature, are held by an entity solely to grow produce over
their productive life. Examples include grape vines, rubber trees and oil palms. They
were previously required to be measured at fair value less costs to sell, in accordance
with IAS 41. However, stakeholders particularly from Asia and Australia where many
of the affected industries operate argued during the IASBs 2011 agenda consultation
process that this treatment was inappropriate. This was because these types of assets,
once mature, do not undergo any further biological transformation. Their contention
negates the usefulness of the principle underlying IAS 41, which argues that biological
transformation is best
reflected by fair value measurement. Instead, they pointed to the similarities between
these assets and manufacturing equipment, arguing that measurement using the cost or
revaluation model contained in IAS 16 was more appropriate. Moreover, the IASB
has now concurred with this view and issued the latest amendments. However, the
produce growing on the bearer plants will remain under the fair value model in IAS 41.
(IASB, 2016). While analyzing statements of theoreticians, the authors have identified
the following disadvantages of the Historical Cost Accounting (HCA) model:

(1) It fails to adequately account for the unique reproductive and natural
transformational nature of biological assets (Argils & Slof, 2001; as cited in Fisher et

al., 2010, p. 2); (2) It ignores the realities of rapidly-changing market values of farming
assets (Cowan, 1972; as cited in Fisher et al., 2010, p. 2); and (3)
Financial statement users need a better assessment of the true performance and
management of the firm than allowed through historical cost (Argils et al., 2011). As
regards the advantages of the HCA model compared with FCA, they are the following:
(1) Fair valuation is subjected to more manipulation and is a poorer measure
of worth and performance than historical cost accordingly;
(2) Accounting cannot compete with the market in
valuing a firm (Watts, 2006; as cited in Argils et al., 2011, p. 90); (3) Fair
valuation does not necessarily make investors better off, and that its usefulness
has not been demonstrated (Ball, 2006; as cited in Argils etal., 2011, p. 90);
(4) Fair value accounting is liable to produce absurdities and misleading
information, if it is based on expectations that turn out to be false (Rayman,
2007; as cited in Argils et al., 2011, p. 90); and
(5) Fair value inherits more managerial manipulation and induces less efficient
investment decisions than cost valuations (Liang & Wen, 2007; as cited in
Argils et al., 2011, p. 90).
The chief reason why amendments are formulated is because it improves
previously issued standards into an efficient and effective one. Regarding the changes in
accounting of the bearer plants, it was similar to Property, Plant and equipment in
accordance with the requirements of IAS 16, rather than in accordance with IAS
41.Mature bearer plants which are fully grown are no longer subject to significant
biological transformations and therefore, fair value changes is less important to readers of

Financial statement (PWC, 2016). In so far as the amendment is concern, the application
of Cost model will provide a sound, reliable and comparable financial statement.
Moreover, the Income statement will no longer be as volatile as fair value changes are
eliminated (SGV & Co., 2016). It would be a great help for the investors, analyst and
other user of financial statement because the financial statement reflects directly their
financial information needs such as the operating performance and the cash flows. The
amendment to IAS 16 and IAS 41 will provide relief to preparers of financial statements
who have expressed concerns about the cost, complexity and reliability of the fair value
of the bearer plants and the fair value is not readily available (e.g. absence of markets for
those assets); or when fair value is available, fair value changes fluctuate widely which
affect profit or loss (PWC, 2016). Consequently, cost of hiring an expert in valuation will
no longer need because under cost model, determining the fair value in active market
regarding bearer plants is unnecessary.

SUMMARY
Under IAS 41, biological assets must be measured at fair value less cost to sell. Bearer
plants are class of biological asses that, once mature, are held by an entity solely to grow
produce over their productive life. Stakeholders, particularly companies from Asia and
Austria, argued during the IASBs 2011 Agenda consultation process that this
measurement is not appropriate. This was because these types of assets, once mature, do
not undergo any further biological transformation and no longer significant in producing
economic benefit to the entity. Therefore the fair value measurement ceases once it

matures. The IASB declared that bearer plants should be accounted same as Property,
Plant, and Equipment under IAS 16 because their operation is similar in manufacturing. In
addition, the amendment focused primarily on the measurement of the biological asset that
reflects the actual value and results to an accurate measurement of the bearer plants that
will help for the presentation and preparation of the financial statements. This revision is
for the improvement of the concurrent standards.
Through the amendments IAS 41 and IAS 16, users of the benefited that there is
distinction between plants and its agricultural produce is key to promote understandability
of financial statement. The amendment may result to an additional work for measuring the
agricultural produce and bearer plants separately but it will help the users to measure and
evaluate the financial statements. It eliminates the effects of changes in fair value less cost
to sell of bearer plants in their analysis of financial statements. And relevant information to
the users in their forecasting and analysis are the operating performance and cash flow that
will be affected by this amendment. Concerns on the reliability of, and inherent risk
surrounding fair value measurement of bearer plants are eliminated, increasing the
comparability of financial among industry players. Furthermore, the table below shows the
General Assessment of FVA Model:

Table 3 : General Assessment of the Fair Value Accounting Model

Note. Source: Journal in Modern Accounting and Auditing by Rozentale et.al, 2013
When preparing an annual report, the agricultural companies should reflect an
objective accounting value of a biological asset on the balance and correctly reflect the
value changes in the profit and loss account so that the included information should meet
all the quality criteria: relevance, reliability, comparability, and understandability. Two
primary criteria required by accounting standards are relevance and reliability. The tables
below shows the two types of perspectives vis--vis the relevance and reliability point of
view.

Table 4 : Assessment of the FVA Model from the Point of View of Relevance

Note. Source: Journal in Modern Accounting and Auditing by Rozentale et.al, 2013

Table 5 : Assessment of the FVA Model from the Point of View of Reliability
Note. Source: Journal in Modern Accounting and Auditing by Rozentale et.al, 2013