The concept of measurement in an accounting sense


AASB 141 covers a narrower scope compared to AASB 1037. From the Accounting Handbook 2008, AASB 141 excludes non human living animals and plants that are not agricultural activities from its scope:

Forest which are invested for carbon sink, later leads to carbon credits trading

Racing animals: horses, greyhounds

Performing animals

Viruses, blood cells

Department of Treasury & Finance Victoria (n.d) also excludes the following item from agricultural activities:

Land in relation to agricultural activity (AASB 116 &AASB 140)

Intangibles related to agricultural activity (AASB 138)

Measurement and Comparability


The following exhibit showed how the Australian companies measured their forestry asset in 1999 before AASB 1037 became operational. Inconsistently, each entity had its own method of measurement.

Source :Deegan 2007

In 2001, AASB 1037 was introduced to standardise how the financial report of agricultural-related business should be presented in order to raise the quality of information reported to stakeholders (Williams and Wilmshurst 2008).

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Williams and Wilmshurst (2007) conducted a survey of measurement method of biological assets of 17 firms holding 20 biological assets combining to a total of 28 measurement methods. The NPV method was dominant 42.86% in total. This survey showed that the comparability between firms is unlikely to be achieved.

Source: Williams and Wilmshurst 2007

As quoted in Williams and Wilmshurst (2008)

'I try and compare myself to the other players. It is difficult though as everyone's doing it differently. Unless you know how people are actually reporting it, you are not comparing apples with apples'. CEO Corporation A

'If you had to come up with a value, . . . if you had four different valuers, you would come up with four different answers(values)' CEO, Corporation BC

The solve this problem, firms which provide financial report have to educate the public by showing how assets are valued including appropriate assumptions under AASB 141, para 47. For example, Tassal Group Limited and Foster's Group Limited showed their method of measurement in their annual reports.

Foster's Group Ltd is an Australian-based, global manufacturer of alcoholic beverages including brewing beer and wine. In their 2008 annual report, their measurement of fair value less estimated point of sale costs vines and grapes was presented as below

Source: Foster's annual report 2008

Vines and grapes are also determined with reference to independent valuations of vineyards and market price of purchased vines. In addition, different varieties of grapes have different values. Following the measurement of AASB 141, a fair value decrement of $24.8 million was recorded.

Tassal Group Limited (TGR) is a firm producing, marketing and distribution of Atlantic Salmon in Australia. Its annual reports have been strictly followed the AASB 141 para 47. In 2007 and 2008, any increment or decrement in the market value of Biological Assets during the year to be recorded as revenue or loss. This concept was the cause of an uplift of $78.664 million in revenue for the half-year to 31 December 2008 [2007: $62.734 million]

Source: Tassal Group Limited (2009:20)

(i) Net market value of non-living produce extracted: this figure was a result of fair value of fish harvested during the half year less point of sale costs at the point of harvest.

(ii): Increment /(decrement) in net market value of biological assets: net of estimated point of sales costs less costs incurred in acquiring smolt (juvenile fish).

The diagram below outlines the guideline of recognition and measurement of agricultural asset according to AASB 141

Source Deloitte Touche Tohmatsu (2004)

Walker and Booth (2003) rebutted that this measurement was volatile and sometimes inaccurate. Gay and Simnett (2007:200) defined inherent risk as the susceptibility of an assertion to material misstatement given the inherent and environmental characteristics regardless to internal controls.

Inherent risk is one of the natures of the wine industry. Vines and grapes are subject to climate change and therefore the value of them could be increase or decrease dramatically, especially in natural disaster or the application of new agricultural technology.

Unrecognised gain

Williams and Wilmshurst (2008) argued that the treatment of AASB 1037 created unrecognised profit would mislead annual report users. For example, profit would be recorded when wine were sold, sometimes it could be taken up to 10 years (fortified wines) to be bottled and sold. This requirement would create an unrealistic expectation of distributable profits. Firms needed to declare dividend even though there was no available fund.

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In relation to livestock industry, Gettler (2000:63) mentioned that accountants would evaluate a calf that had not yet generated value. For industry point of view, the producers needed to record unrealised gains that may not be realised as profit for many years. Unrealised gain is defined as profit which results from holding on an asset. In other words, it means if the cow gives birth but its calf have not yet been able to generate income, this unrecognised gain need to be recorded.Mr Cunningham, Southcorp's executive general manager of corporate affairs claimed that this accounting treatment distorted the 'real picture' in the account because the entity is reporting its 'future profit', further away from the present cashflow.

The valuation of crops is very vol

the holders of crop

SGARAs made this point forcefully using strong language,

long submissions and a large volume of statistics.

They argued that the valuation of crops is very

volatile. The value can be affected by changes in the

world economy, changes in government policies, volatility

in world commodity prices and natural events

such rain, hail, insects, drought, flooding and disease.

The introduction of volatility was considered unnecessary

and misleading for SGARAs such as cotton crops

and wheat crops that have short production cycles.

Herbohn (2006)

Herbohn (2006) stated that 'AASB 1037 SGARAs applied to non-human living assets held for profit irrespective of the length of production cycle and the manner of their creation'. In AASB 1037 (para 5.2), SGARAs would be measured at net market value at each reporting date. In the usual and ordinary business course, the sale of these assets generates revenue and records as net market value. Under AASB 141: para 8, the meaning of fair value is identical to the net market value under AASB 1037 Williams and Wilmshurst (2008)

Problems arise when active markets are not always available. To cope with this issue, Para 5.3.2 (AASB 1037) mentioned that the most appropriate indicator of net market value should be used

For example, the most recent net market value of the same or similar assets or related assets or the NPV of SGARAs discounted at a current market-determined rate.

Revenues or expenses should be recorded in the profit and loss statement of for current the financial year if there were any changes in the net market value ( cited in para 5.4 AASB 1037, Herbohn,2006). This requirement which gave rise to the future unrealised revenues and expenses in the current financial period were criticised, especially in the wine industry (Walker R and Booth B 2003). In AASB 1037, SGARAs were divided into two main categories for plant and animal: Consumable and Bearer

Source: Tottenham 2009

Applying this requirement to the vineyard, two types of assets are:

Bearer: Noncurrent asset (long term): vine

Consumable: Current asse (short term): grapes

The application of AASB 1037 results in false or mis-

leading statements and a reduction in the presenta-

tion of relevant financial information.

It is false to state in a financial report that vines

are measured at their net market value when

there is no exit or entry market value for mature


It is misleading (and not a "faithful representation") to report that the profits derived from a vineyard are earned as soon as the rootstock undergoes major biological change.

It is misleading to make an artificial distinction between land, non-SGARA vineyard infrastructure and bearer-SGARA, when these elements areinterdependent.

It is misleading to report that all vineyard prof itability is derived from the vine with none derived

from the land or non-SGARA infrastructure.

Reporting entities no longer have to report the adverse effects of conditions encountered duringa financial year.

Stakeholders are now provided with financial data which are claimed to be reliable, but which are based on subjective assessments of market prices or net present values, in an industry affected by such factors as climatic conditions, insect pests,fungal diseases, shifts in consumer taste and demand, market supply and foreign currency movements.

Arkey (2005)


AASB 102 'Inventories' does not apply to biological assets related to agricultural activity and produce at the point of harvest (AASB 102:2, cited in Accounting Hand Book 2008). With animal and plants, for example, non-human living animals and plants which are not agricultural activities or non-living human assets (blood cells), inventories will be recognised as lower of cost and net realisable value (Department of treasury and finance Western Australia (DTFWA) (n.d)). The table below summaries the previous and current accounting standard to measure and record transaction of agricultural activity

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Source DTFWA (n.d)