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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Accountants please advice (Gain on changes in fair values of biological assets

Accountants please advice (Gain on changes in fair values of biological assets

2 posters

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sirimevan

sirimevan
Manager - Equity Analytics
Manager - Equity Analytics

Gain on changes in fair values of biological assets[b][/b]

The above comes under the statement of comprehensive income statements under plantation segmentation,

when the reports are studied under the plantations such as NAMU.n has added a value while FLCH.N has not added a value

Question no 1.

How could the above is considered under liquid cash? is it after cutting off some trees and obtaining cash after selling them or how does it works?

Question no 2.
Is it a methodology of imagination in increase of value in the plantation? yet how could it be considered under the income statement? does that value goes separately under Equity as a none cash asset or value

Question 3.
if it is an formula of imagination in increase of value, what would be the YOY increase percentage?

Thanks in advance, tried to search in Google but no clear explanation..

aiyosalli

aiyosalli
Manager - Equity Analytics
Manager - Equity Analytics

@Sirimevan

01. There are two types of biological assets in a plantation company.Those are bearer biological Assets and the consumable biological Assets.

Bearer : Tea, Rubber and Other Crops like Cinnamon, oil palm

Consumable : Timber Blocks like Grandis, Mahogani,
As per the LKAS 41 and the ruling Given by CA Srilanka only consumable Biological Assets may record at fair value while bearer biological assets can be recorded at cost.

So Only the companies which has consumable biological assets show their fair value gain. It is not a liquid cash and only a notional entry.Once the trees are actually sold the over under provision is adjusted through P&L.

02. This fair value gain is obtain through a process called discounting future cash flows. Put it simple way We assume a particular tree will be harvested at 2020. And we determine the timber content of that tree and the price of the tree. Then we discount back that cash flow to today's value.

03. It is not a particular formula. Depending on the girth and height of the trees, harvestable period and the discounting factor the fair value gain change.


I think you may understand a bit about that.
happy trading.

sirimevan

sirimevan
Manager - Equity Analytics
Manager - Equity Analytics

wow great bro , thank you so much

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