22420 Chap.6 Agriculture, Mineral Resources and Fair Value
Agriculture, Mineral Resources and Fair Value
Fair value as a measurement framework
AASB 13 defines fair value as an exit price in an orderly transaction between market participants, valued on the most valuable use market participants would make of a non-financial asset.
It measures fair value only after another standard has chosen it.
Farming and mining compared
AASB 141 measures biological assets and produce at harvest at fair value less costs to sell, with changes in profit or loss, a rebuttable presumption that drew controversy.
AASB 6 instead gives explorers a policy choice to expense exploration and evaluation spending or carry it by area of interest, using the cost or revaluation model consistently.
Why the comparison matters
A farmer’s flock and a miner’s exploration licence are both long-lived, uncertain and hard to value, yet one is measured at fair value and the other mostly at cost.
The lecture uses that contrast to show how far standards can drift from a single framework.
What this chapter covers
- 01
Fair value: exit price, orderly transaction, market participants
- 02
Most valuable use of a non-financial asset
- 03
Control versus management of agricultural activity
- 04
The presumption in favour of fair value less costs to sell
- 05
Produce recognised at harvest
- 06
Splitting value change into price and physical parts
- 07
Exploration and evaluation by area of interest
- 08
Impairment triggers and reclassification under AASB 6
Worked example · free
Splitting a flock’s value change into price and physical parts
- 1Opening flock: 200 × $300 = $60,000.
- 1Price change: 200 × ($320 − $300) = $4,000 for the ewes and 50 × ($95 − $90) = $250 for the lambs, $4,250 in all.
- 1Physical change: 200 × ($345 − $320) = $5,000; lambs born 50 × $90 = $4,500; lamb growth 50 × ($110 − $95) = $750; total $10,250.
- 1Closing: 200 × $345 + 50 × $110 = $74,500, which equals $60,000 + $4,250 + $10,250.
Key terms
- Fair value
- The price an entity would get for an asset, or pay to pass on a liability, in an orderly trade with market participants on the measurement date.
- Highest and best use
- The use market participants would put a non-financial asset to that gives it the greatest value.
- Biological asset
- A living animal or plant held in an agricultural activity.
- Area of interest
- The unit by which exploration and evaluation spending is assessed under AASB 6.
- Orderly transaction
- A transaction with usual marketing exposure before the measurement date, not a forced or distressed sale.
- Agricultural produce
- The harvested product of a biological asset, such as wool or milk.
Agriculture, Mineral Resources and Fair Value FAQ
Why was the agriculture standard controversial?
It requires biological assets at fair value less costs to sell with changes in profit or loss, so unrealised gains enter profit, and fair values can be hard to estimate for assets such as immature trees. Some regulators preferred historical cost data for that reason.
Who recognises the animals when a farm is run by a manager?
Usually the owner. Recognition needs control, and an owner that can direct or replace the manager keeps control, so the owner recognises the biological assets and the produce.
Must exploration spending be expensed?
No. AASB 6 allows a choice: expense it all, or assess by area of interest and carry an asset where cost recovery is expected or not yet determinable.
What are the three elements of the fair value definition?
It is a current exit price, what the entity would receive on selling the asset or pay to be rid of the liability; the transaction is orderly, so not forced or distressed; and it is between market participants who are independent, knowledgeable, able and willing to trade.
When is an exploration and evaluation asset moved out of AASB 6?
Once the entity can show that extracting the resource is both technically feasible and commercially viable, paragraph 17 requires the asset to be reclassified into a category such as mine development, and AASB 6 no longer applies to it.
Exam move
Compare the three standards in a single table: scope, measurement, where changes go and the main argument for each. Practise one agriculture year of entries from harvest to sale, one price and physical split of a herd, and one exploration impairment trigger. Keep the fair value definition’s three elements word-perfect.
Then argue both sides of the fair value debate for biological assets in a short paragraph, as a written exam question might ask.
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