Conceptual farmhouse in agriculture
Accounting by Ind AS for agricultural produce, inventory, and government grants
The concept of accounting for agricultural produce has been introduced by Ind AS. Since there was no accounting guidance in India (previous GAAP), agricultural produce was not recognised in the financial statements. Ind AS 41 defines agricultural activity as management of biological transformation and harvest of biological assets. Agricultural produce is the harvested product of the entity’s biological assets.
Companies would now be required to recognize and measure agricultural produce at fair value less cost to sell at the point of harvest. Since such value would be the cost of inventory after harvest, measurement of inventory in Ind AS would vary from the previous GAAP.
Further, government grants are accounted differently in Ind AS when compared to the previous GAAP. All these would have an impact on retained earnings, taxes as well as the current earnings. Selection of fair value method, determination of the volume of the produce are expected to be challenges, coupled with a need for extensive disclosures in the financial statements.
Companies would be required to develop appropriate risk control matrices that address agricultural produce, inventory and government grants and maintain robust documentation to support the development and review of estimates. Companies, would therefore, be well advised to start early in their journey of Ind AS adoption.