Understanding agricultural accounting for NPAEs

Keywords: Mazars, Thailand, TFRS for NPAEs, Biological Assets, Agricultural Produce

Question: How is the depreciation of biological assets or agricultural produce calculated?  

Answer:  
Paragraph 22.10 of the Thai Financial Reporting Standards for Non-publicly Accountable Entities (“TFRS for NPAEs”) states, “businesses must choose accounting policies for biological assets or agricultural produce using either the cost method or fair value method”, providing an option for businesses to choose the accounting policy that is most suitable.  

Depreciation typically applies when businesses use the cost method to account for biological assets. However, agricultural produce is categorized as inventory, exempting it from depreciation considerations.  

Paragraph 22.11 of the TFRS for NPAEs states, “businesses must measure the value of biological assets upon initial recognition and at the end of the reporting period using cost, presenting items at cost minus accumulated depreciation and any decrease in value”. Depreciation should be calculated following the principles outlined in Chapter 10 of the TFRS for NPAEs regarding land, buildings, and equipment, as indicated in paragraph 22.13: “In determining cost, accumulated depreciation, and any decrease in value, businesses must consider Chapter 8 on inventory and Chapter 10 on land, buildings, and equipment”.  

If businesses choose the cost method, they must disclose details of biological assets measured at cost as indicated in paragraph 22.17, as follows:

• 22.17.1 details of each group of biological assets;  
• 22.17.2 the method used to calculate depreciation;  
• 22.17.3 the useful life or depreciation rate used; and  
• 22.17.4 the account value before accumulated depreciation, accumulated depreciation, and any decrease in value at the beginning and end of the period, and the impact of biological assets on account value between the beginning and end of the period that affect the following:   
          22.17.4.1 an increase in value due to a purchase or business combination (if any); 
          22.17.4.2 a decrease in value due to harvesting or sale; 
          22.17.4.3 depreciation; or 
          22.17.4.4 other changes. 

Question: Would recording agricultural production results that generate a profit or loss due to changes in fair value minus selling costs be considered other comprehensive income?  

Answer:  
Paragraph 22.14 of the TFRS for NPAEs states, “the business must recognize changes in fair value minus selling costs in the profit and loss statement for the period”. Paragraph 22.15 of the TFRS for NPAEs states, “the business must measure the value of agricultural produce harvested from biological assets at fair value minus selling costs at the point of harvest. This fair value is considered the cost of inventory remaining at that date when following Chapter 8 on inventory or other relevant chapters”.  

When agricultural production is considered inventory, changes in fair value should be recognized as profit or loss in the ordinary course of business. 

Question: Are profits or losses from changes in fair value (net of selling costs) and losses from the valuation of agricultural produce deductible for tax purposes?  

Answer:  
Under the guidelines set out in Revenue Department letter GorKor. 0706/10178, the pricing of living assets (biological assets) should be recorded based on the normal purchase price. Any increase in pricing should not be included in the calculation of net profit or loss. Amortization or depreciation should be applied based on the criteria, methods, conditions, and rates used before the assets were priced up, considering the remaining useful lives and cost, as outlined in Section 65 Bis (3) of the Revenue Code.  

If the pricing of such assets decreases, the reduced value of the assets should not be counted as an expense when calculating net profit to determine corporate income tax. This is mandated by Section 65 Ter (17) of the Revenue Code. However, if these assets are subsequently sold at a loss, the loss incurred can be deducted as an expense when calculating net profit. 

Recording the price of remaining inventory on the last day of the accounting period for agricultural produce involves calculating the price based on the cost or the market price, whichever is lower. This price is to be used as the inventory price to be carried over to the new accounting period. Under Section 65 Bis (6) of the Revenue Code, if the market price falls below cost, any loss from the valuation of inventory cannot be deducted as an expense. 

References (in Thai):  

Notification of the Accounting Profession No. 48/2565 Revenue 

Department’s ruling no. KorKhor 0706/10178 dated 6 December 2005