SPECIALISED ACTIVITIES

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Section 34

Specialised Activities

Scope of this section


  1. 1 This section provides guidance on financial reporting by SMEs involved in three types of specialised activities—agriculture, extractive activities, and service concessions.

Agriculture


  1. 2 An entity using this Standard that is engaged in agricultural activity shall determine its accounting policy for each class of its biological assets as follows:
    1. the entity shall use the fair value model in paragraphs 34.4–34.7 for those biological assets for which fair value is readily determinable without undue cost or effort; and
    2. the entity shall use the cost model in paragraphs 34.8–34.10 for all other biological assets.

Recognition

  1. 3 An entity shall recognise a biological asset or agricultural produce when, and only when:
    1. the entity controls the asset as a result of past events;
    2. it is probable that future economic benefits associated with the asset will flow to the entity; and
    3. the fair value or cost of the asset can be measured reliably without undue cost or effort.

Measurement—fair value model

  1. 4 An entity shall measure a biological asset on initial recognition and at each reporting date at its fair value less costs to sell. Changes in fair value less costs to sell shall be recognised in profit or loss.
  1. 5 Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 Inventories or another applicable section of this Standard.
  1. 6 In determining fair value, an entity shall consider the following:
    1. if an active market exists for a biological asset or agricultural produce in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset. If an entity has access to different active markets, the entity shall use the price existing in the market that it expects to use.
    2. if an active market does not exist, an entity uses one or more of the following, when available, in determining fair value:
      1. the most recent market transaction price, provided that there has not been a significant change in economic circumstances between the date of that transaction and the end of the reporting period;
      2. market prices for similar assets with adjustment to reflect differences; and
      3. sector benchmarks such as the value of an orchard expressed per export tray, bushel or hectare and the value of cattle expressed per kilogram of meat.
    3. in some cases, the information sources listed in (a) or (b) may suggest different conclusions as to the fair value of a biological asset or agricultural produce. An entity considers the reasons for those differences, to arrive at the most reliable estimate of fair value within a relatively narrow range of reasonable estimates.
    4. in some circumstances, fair value may be readily determinable without undue cost or effort even though market determined prices or values are not available for a biological asset in its present condition. An entity shall consider whether the present value of expected net cash flows from the asset discounted at a current market determined rate results in a reliable measure of fair value.

Disclosures—fair value model

  1. 7 An entity shall disclose the following with respect to its biological assets measured at fair value:
    1. a description of each class of its biological assets.
    2. the methods and significant assumptions applied in determining the fair value of each category of agricultural produce at the point of harvest and each category of biological assets.
    3. a reconciliation of changes in the carrying amount of biological assets between the beginning and the end of the current period. The reconciliation shall include:
      1. the gain or loss arising from changes in fair value less costs to sell;
      2. increases resulting from purchases;
      3. decreases resulting from harvest;
      4. increases resulting from business combinations;
      5. net exchange differences arising on the translation of financial statements into a different presentation currency and on the translation of a foreign operation into the presentation currency of the reporting entity; and
      6. other changes.

This reconciliation need not be presented for prior periods.

Measurement—cost model

  1. 8 The entity shall measure at cost less any accumulated depreciation and any accumulated impairment losses those biological assets whose fair value is not readily determinable without undue cost or effort.
  1. 9 The entity shall measure agricultural produce harvested from its biological assets at fair value less estimated costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 or other sections of this Standard.

Disclosures—cost model

  1. 10 An entity shall disclose the following with respect to its biological assets measured using the cost model:
    1. a description of each class of its biological assets;
    2. an explanation of why fair value cannot be measured reliably without undue cost or effort;
    3. the depreciation method used;
    4. the useful lives or the depreciation rates used; and
    5. the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period.

Exploration for and evaluation of mineral resources

  1. 11 An entity using this Standard that is engaged in the exploration for, or evaluation of, mineral resources shall determine an accounting policy that specifies which expenditures are recognised as exploration and evaluation assets in accordance with paragraph 10.4 and apply the policy consistently. An entity is exempt from applying paragraph 10.5 to its accounting policies for the recognition and measurement of exploration and evaluation assets.

34.11A The following are examples of expenditures that might be included in the initial measurement of exploration and evaluation assets (the list is not exhaustive):

  1. acquisition of rights to explore;
  2. topographical, geological, geochemical and geophysical studies;
  3. exploratory drilling;
  4. trenching;
  5. sampling; and
  6. activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.

Expenditures related to the development of mineral resources shall not be recognised as exploration and evaluation assets.

34.11B Exploration and evaluation assets shall be measured on initial recognition at cost. After initial recognition, an entity shall apply Section 17 Property, Plant and

Equipment and Section 18 Intangible Assets other than Goodwill to the exploration and evaluation assets according to the nature of the assets acquired subject to paragraphs 34.11D–34.11F. If an entity has an obligation to dismantle or remove an item, or to restore the site, such obligations and costs are accounted for in accordance with Section 17 and Section 21 Provisions and Contingencies.

34.11C Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. An entity shall measure, present and disclose any resulting impairment loss in accordance with Section 27 Impairment of Assets, except as provided by paragraph 34.11F.

34.11D For the purposes of exploration and evaluation assets only, paragraph 34.11E shall be applied instead of paragraphs 27.7–27.10 when identifying an exploration and evaluation asset that may be impaired. Paragraph 34.11E uses the term ‘assets’ but applies equally to separate exploration and evaluation assets or a cash-generating unit.

34.11E One or more of the following facts and circumstances indicate that an entity should test exploration and evaluation assets for impairment (the list is not exhaustive):

  1. the period for which the entity has the right to explore in the specific area has expired during the period, or will expire in the near future, and is not expected to be renewed;
  2. substantive expenditure on further exploration for, and evaluation of, mineral resources in the specific area is neither budgeted nor planned;
  3. exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; or
  4. sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

The entity shall perform an impairment test, and recognise any impairment loss, in accordance with Section 27.

  1. F An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment.

Service concession arrangements

  1. 12 A service concession arrangement is an arrangement whereby a government or other public sector body (the grantor) contracts with a private operator to develop (or upgrade), operate and maintain the grantor’s infrastructure assets such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals. In those arrangements, the grantor controls or regulates what

services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement.

  1. 13 There are two principal categories of service concession arrangements:
    1. in one, the operator receives a financial asset—an unconditional contractual right to receive a specified or determinable amount of cash or another financial asset from the government in return for constructing or upgrading a public sector asset, and then operating and maintaining the asset for a specified period of time. This category includes guarantees by the government to pay for any shortfall between amounts received from users of the public service and specified or determinable amounts.
    2. in the other, the operator receives an intangible asset—a right to charge for use of a public sector asset that it constructs or upgrades and then operates and maintains for a specified period of time. A right to charge users is not an unconditional right to receive cash because the amounts are contingent on the extent to which the public uses the service.

Sometimes, a single contract may contain both types: to the extent that the government has given an unconditional guarantee of payment for the construction of the public sector asset, the operator has a financial asset; to the extent that the operator has to rely on the public using the service in order to obtain payment, the operator has an intangible asset.

Accounting—financial asset model

  1. 14 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services. The operator shall measure the financial asset at fair value. Thereafter, it shall follow Section 11 Basic Financial Instruments and Section 12 Other Financial Instrument Issues in accounting for the financial asset.

Accounting—intangible asset model

  1. 15 The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. The operator shall initially measure the intangible asset at fair value. Thereafter, it shall follow Section 18 in accounting for the intangible asset.

Operating revenue

  1. 16 The operator of a service concession arrangement shall recognise, measure and disclose revenue in accordance with Section 23 Revenue for the services it performs.

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