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CA Final · Financial Reporting · Ind AS 41 Agriculture

Sahyadri Plantations Ltd acquired young saplings of a rare species for which no market-determined prices exist, and alternative fair value estimates are clearly unreliable. On initial recognition it measured them at cost less accumulated depreciation and impairment losses. At the next reporting date a active market has developed and fair value can now be measured reliably. Which treatment is correct?

The saplings must be measured at fair value less costs to sell from the date fair value becomes reliably measurable. The cost model is permitted only while fair value cannot be reliably measured, so once an active market develops the company must move to the fair value basis.

  1. AContinue at cost less depreciation and impairment until the saplings are harvested
  2. BMeasure the saplings at fair value less costs to sell from that dateCorrect
  3. CMeasure them at fair value without deducting costs to sell
  4. DMeasure them at cost, but disclose fair value in the notes

Explanation

Cost is allowed only while fair value cannot be measured reliably on initial recognition. Once fair value becomes reliably measurable, the entity must switch to fair value less costs to sell. Continuing at cost, the first option, is not allowed after reliability is achieved. Deducting no costs to sell, the third option, is not the Ind AS 41 measurement basis.

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