Applying fair value to agricultural activity is assumed on the basis that it can be measured reliably.What do you think could potentially cause an asset's measurement to be unreliable,and why? How detailed should be the disclosure of any inherent unreliability?

Question

Quizplus · Accepted Answer

The Answer is There is an important difference between biological assets and other non-current assets.Biological assets have the capacity to change through biological processes - they grow,degenerate and procreate.Other non-current assets do not.For non-biological,non-current assets,changes in net realisable value are caused solely by price changes.For biological assets,changes in net realisable value are caused by a combination of growth and changes in prices.There has been some reluctance to regard changes in net realisable value due to changes in prices as income because the increases in value may not be realised as cash inﬂows.If prices can rise,they can subsequently fall.This period's income may be lost in the next period as prices fall.It has been suggested that,if an increase in net realisable value is due to growth and price changes,then that part due to price changes should not be recognised as income.This argument is based on an assumption that changes in growth are not reversible,but changes in price are reversible.The probability of realising the increase in value from growth is greater than the probability of realising the increase in value due to price changes.For several reasons,we do not support the argument that changes in value from growth and from price changes should be treated differently.First,there are practical difﬁculties in separating the effects of the two causes of value change.Second,changes in value due to price changes satisfy the Framework 2014 deﬁnition of income.Third,the recognition criteria for income require that realisation must be 'probable'.If it is probable that price increases will be reversed,then,as far as practicable,the value changes due to price increases should be omitted.

Applying Fair Value to Agricultural Activity Is Assumed on the Basis