Costs to sell ' under IAS 41 ' Agriculture"

[Yousaf]

Hi,

A sugar industry also managed the corporate farms for cultivation of sugarcane for its own consumption.

75% portion of its own cultivated sugarcane used in manufacturing of sugar. Sugarcane is a biological produce under IAS 41 and should be measured at FV less costs to sell and recognized FV gain/loss at point of harvest.

In our case, while calculating the FV gain/loss at point of harvest, sugar industry also deducting the transportation costs incurred to transfer the sugarcane to the mill. Is it correct ? Is it incremental costs in context of own consumption of sugarcane?

[exIFRS]

My interpretation would be that the incremental costs should be measured as if you were to sell in to the market. This feels like the only consistent interpretation of the sentence as a whole. Also if you look at the definition "Costs to sell are the incremental costs directly attributable to the disposal of an asset" (emphasis added).

[Yousaf]

"Disposal of an asset" in my view, it mean this indicate that disposal does not mean a sale transaction. If a company grow agriculture produce for its own consumption, it has to harvest in each and every condition for its effective use (harvest and then transfer to location for its usage). Any cost attributable for such transaction is incremental cost?

[Marek Muc]

At the point of harvest, sugarcane becomes inventory accounted for under IAS 2 (IAS 41.3 and 13). The transportation costs are actually part of the fair value measurement (and not costs to sell). However, these aren't expected costs to transport the sugarcane to the company's warehouse, but rather to the "principal (or most advantageous) market" https://ifrscommunity.com/knowledge-bas ... port-costs

[Yousaf]

Transaction costs are different from transport costs, which are the costs that would be incurred to transport the asset from its current location to its principal
(or most advantageous) market. Unlike transaction costs, which arise from a transaction and do not change the characteristics of the asset or liability, transport costs arise from an event (transport) that does change a characteristic of an asset (its location).

IFRS 13 states that if location is a characteristic of an asset, the price in the principal (or most advantageous) market should be adjusted for the costs that would be incurred to transport the asset from its current location to that market. That is consistent with the fair value measurement guidance already in IFRSs. For example, IAS 41 required an entity to deduct transport costs when measuring the fair value of a biological asset or agricultural produce.

Its mean, in our case transaction, transport cost should be deducted while calculating the FV gain at point of harvest? Is it correct understanding ?

[Marek Muc]

Yes, but make sure to reflect the proper transportation effort (i.e., from the harvest location to principal (or most advantageous) market)

[Yousaf]

Thanks for good gaudiness.

[Marek Muc]

yeah I tend to be gaudy sometimes

[JRSB]

ha, I'm 50/50 whether Yousaf meant gaudiness or guidance