IAS 16 Basis For Conclusion

IAS 16
IASB documents published to accompany
IAS 16
Property, Plant and Equipment

The text of the unaccompanied standard, IAS 16, is contained in Part A of this edition. Its
effective date when issued was 1 January 2005. This part presents the following
documents:
BASIS FOR CONCLUSIONS

DISSENTING OPINION
© IFRS Foundation C1803

IAS 16 BC
CONTENTS
from paragraph
BASIS FOR CONCLUSIONS ON

IAS 16 PROPERTY, PLANT AND EQUIPMENT
INTRODUCTION BC1
SCOPE BC4
RECOGNITION BC5
Classification of servicing equipment BC12A
MEASUREMENT AT RECOGNITION BC13
Asset dismantlement, removal and restoration costs BC13
Property, Plant and Equipment—Proceeds before Intended Use (2020
amendments) BC16A
Asset exchange transactions BC17
MEASUREMENT AFTER RECOGNITION BC25
Revaluation model BC25
Revaluation method—proportionate restatement of accumulated
depreciation when an item of property, plant and equipment is revalued BC25A
Depreciation: unit of measure BC26
Depreciation: depreciable amount BC28
Depreciation: depreciation period BC30
Depreciation: depreciation method BC33
DERECOGNITION BC34
Derecognition date BC34
GAIN CLASSIFICATION BC35
ASSETS HELD FOR RENTAL TO OTHERS BC35A
TRANSITIONAL PROVISIONS BC36
Property, Plant and Equipment—Proceeds before Intended Use (2020
amendments) BC36B
SUMMARY OF CHANGES FROM THE EXPOSURE DRAFT BC37
ACCOUNTING FOR BEARER PLANTS (2014 AMENDMENTS) BC38
Overview BC38
Background BC39
CHANGES TO THE PROPOSALS IN THE ED BC46
SCOPE OF THE AMENDMENTS BC48
BASIS FOR ACCOUNTING FOR BEARER PLANTS IN IAS 16 BC63
Support for the use of IAS 16 BC64
Cost-benefit considerations BC68
BIOLOGICAL TRANSFORMATION BC69
Accounting for bearer plants before they mature BC70
continued...
C1804 © IFRS Foundation

IAS 16 BC
...continued
Accounting for produce growing on a bearer plant BC73

APPLICATION OF THE IAS 16 REQUIREMENTS TO BEARER PLANTS BC80
Unit of measure BC80
Point of maturity BC82
Other recognition and measurement requirements of the cost model BC83
Disclosure requirements of the cost model BC86
Revaluation model BC92
Positioning of requirements BC94
TRANSITION REQUIREMENTS BC95
Current IFRS preparers BC95
First-time adoption of IFRS BC98
ANALYSIS OF THE LIKELY EFFECTS OF THE AMENDMENTS BC99
How the amendments are likely to affect how activities are reported BC106
How the amendments affect the comparability of financial statements BC108
How the amendments will improve a user’s ability to assess future cash
flows BC111
How the amendments will affect economic decision-making and the costs
of analysis for users of financial statements BC114
Effect on the compliance costs for preparers BC116
DISSENTING OPINIONS

IAS 16 BC
Basis for Conclusions on

IAS 16 Property, Plant and Equipment
This Basis for Conclusions accompanies, but is not part of, IAS 16.
Introduction
BC1 This Basis for Conclusions summarises the International Accounting
Standards Board’s considerations in reaching its conclusions on revising
IAS 16 Property, Plant and Equipment in 2003. Individual Board members gave
greater weight to some factors than to others.
BC2 In July 2001 the Board announced that, as part of its initial agenda of
technical projects, it would undertake a project to improve a number of
Standards, including IAS 16. The project was undertaken in the light of
queries and criticisms raised in relation to the Standards by securities
regulators, professional accountants and other interested parties. The
objectives of the Improvements project were to reduce or eliminate
alternatives, redundancies and conflicts within Standards, to deal with some
convergence issues and to make other improvements. In May 2002 the Board
published its proposals in an Exposure Draft of Improvements to International
Accounting Standards, with a comment deadline of 16 September 2002. The
Board received over 160 comment letters on the Exposure Draft.
BC2A Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), issued in
June 2014, amended the scope of IAS 16 to include bearer plants. IAS 41
Agriculture applies to the produce growing on those bearer plants. The
amendments define a bearer plant and require bearer plants to be accounted
for as property, plant and equipment in accordance with IAS 16. These
amendments are discussed in paragraphs BC38–BC117.
BC3 Because the Board’s intention was not to reconsider the fundamental
approach to the accounting for property, plant and equipment that was
established by IAS 16, this Basis for Conclusions does not discuss requirements
in IAS 16 that the Board has not reconsidered.
Scope
BC4 The Board clarified that the requirements of IAS 16 apply to items of property,
plant and equipment that an entity uses to develop or maintain (a) biological
assets and (b) mineral rights and mineral reserves such as oil, natural gas and
similar non-regenerative resources. The Board noted that items of property,
plant and equipment that an entity uses for these purposes possess the same
characteristics as other items of property, plant and equipment.

IAS 16 BC
Recognition
BC5 In considering potential improvements to the previous version of IAS 16, the
Board reviewed its subsequent expenditure recognition principle for two
reasons. First, the existing subsequent expenditure recognition principle did
not align with the asset recognition principle in the Framework.1 Second, the
Board noted difficulties in practice in making the distinction it required
between expenditures that maintain, and those that enhance, an item of
property, plant and equipment. Some expenditures seem to do both.
BC6 The Board ultimately decided that the separate recognition principle for
subsequent expenditure was not needed. As a result, an entity will evaluate all
its property, plant and equipment costs under IAS 16’s general recognition
principle. Also, if the cost of a replacement for part of an item of property,
plant and equipment is recognised in the carrying amount of an asset, then an
entity will derecognise the carrying amount of what was replaced to avoid
carrying both the replacement and the replaced portion as assets. This
derecognition occurs whether or not what is replaced is a part of an item that
the entity depreciates separately.
BC7 The Board’s decision on how to handle the recognition principles was not
reached easily. In the Exposure Draft (ED), the Board proposed to include
within IAS 16’s general recognition principle only the recognition of
subsequent expenditures that are replacements of a part of an item of
property, plant and equipment. Also in the ED, the Board proposed to modify
the subsequent expenditure recognition principle to distinguish more clearly
the expenditures to which it would continue to apply.
BC8 Respondents to the ED agreed that it was appropriate for subsequent

expenditures that were replacements of a part of an item of property, plant
and equipment that an entity depreciated separately to be covered by the
general recognition principle. However, the respondents argued, and the
Board agreed, that the modified second principle was not clearer because it
would result in an entity recognising in the carrying amount of an asset and
then depreciating subsequent expenditures that were for the day-to-day
servicing of items of property, plant and equipment, those that might
commonly be regarded as for ‘repairs and maintenance’. That result was not
the Board’s intention.
BC9 In its redeliberation of the ED, the Board concluded it could not retain the
proposed modified subsequent expenditure recognition principle. It also
concluded that it could not revert to the subsequent expenditure principle in
the previous version of IAS 16 because, if it did, nothing was improved; the
Framework conflict was not resolved and the practice issues were not
addressed.
1 References to the Framework in this Basis for Conclusions are to the IASC’s Framework for the
Preparation and Presentation of Financial Statements, adopted by the Board in 2001 and in effect when
the Standard was revised.

IAS 16 BC
BC10 The Board concluded that it was best for all subsequent expenditures to be
covered by IAS 16’s general recognition principle. This solution had the
following advantages:
(a) use of IAS 16’s general recognition principle fits the Framework.
(b) use of a single recognition principle is a straightforward approach.
(c) retaining IAS 16’s general recognition principle and combining it with
the derecognition principle will result in financial statements that
reflect what is occurring, ie both the flow of property, plant and
equipment through an entity and the economics of the acquisition and
disposal process.
(d) use of one recognition principle fosters consistency. With two

principles, consistency is not achieved unless it is clear when each
should apply. Because IAS 16 does not address what constitutes an
‘item’ of property, plant and equipment, this clarity was not assured
because some might characterise a particular cost as the initial cost of
a new item of property, plant and equipment and others might regard
it as a subsequent cost of an existing item of property, plant and
equipment.
BC11 As a consequence of placing all subsequent expenditures under IAS 16’s

general recognition principle, the Board also included those expenditures
under IAS 16’s derecognition principle. In the ED, the Board proposed the
derecognition of the carrying amount of a part of an item that was
depreciated separately and was replaced by a subsequent expenditure that an
entity recognised in the carrying amount of the asset under the general
recognition principle. With this change, replacements of a part of an item that
are not depreciated separately are subject to the same approach.
BC12 The Board noted that some subsequent expenditures on property, plant and
equipment, although arguably incurred in the pursuit of future economic
benefits, are not sufficiently certain to be recognised in the carrying amount
of an asset under the general recognition principle. Thus, the Board decided to
state in the Standard that an entity recognises in profit or loss as incurred the
costs of the day-to-day servicing of property, plant and equipment.
Classification of servicing equipment

BC12A In Annual Improvements 2009–2011 Cycle (issued in May 2012) the Board
responded to a request to address a perceived inconsistency in the
classification requirements for servicing equipment. Paragraph 8 of IAS 16
was unclear on the classification of servicing equipment as inventory or
property, plant and equipment and led some to think that servicing
equipment used during more than one period would be classified as part of
inventory. The Board decided to clarify that items such as spare parts, stand-
by equipment and servicing equipment shall be recognised as property, plant
and equipment when they meet the definition of property, plant and
equipment. If they do not meet this definition they are classified as inventory.
In the light of respondents’ comments to the June 2011 exposure draft, the

IAS 16 BC
Board did not make explicit reference to the classification of particular types
of equipment, because the definition of property, plant and equipment
already provides sufficient guidance. The Board also deleted from paragraph 8
the requirement to account for spare parts and servicing equipment as
property, plant and equipment only if they were used in connection with an
item of property, plant and equipment because this requirement was too
restrictive when compared with the definition of property, plant and
equipment.
Measurement at recognition
Asset dismantlement, removal and restoration costs

BC13 The previous version of IAS 16 provided that in initially measuring an item of
property, plant and equipment at its cost, an entity would include the cost of
dismantling and removing that item and restoring the site on which it is
located to the extent it had recognised an obligation for that cost. As part of
its deliberations, the Board evaluated whether it could improve this guidance
by addressing associated issues that have arisen in practice.
BC14 The Board concluded that the relatively limited scope of the Improvements
project warranted addressing only one matter. That matter was whether the
cost of an item of property, plant and equipment should include the initial
estimate of the cost of dismantlement, removal and restoration that an entity
incurs as a consequence of using the item (instead of as a consequence of
acquiring it). Therefore, the Board did not address how an entity should
account for (a) changes in the amount of the initial estimate of a recognised
obligation, (b) the effects of accretion of, or changes in interest rates on, a
recognised obligation or (c) the cost of obligations an entity did not face when
it acquired the item, such as an obligation triggered by a law change enacted
after the asset was acquired.
BC15 The Board observed that whether the obligation is incurred upon acquisition
of the item or while it is being used, its underlying nature and its association
with the asset are the same. Therefore, the Board decided that the cost of an
item should include the costs of dismantlement, removal or restoration, the
obligation for which an entity has incurred as a consequence of having used
the item during a particular period other than to produce inventories during
that period. An entity applies IAS 2 Inventories to the costs of these obligations
that are incurred as a consequence of having used the item during a particular
period to produce inventories during that period. The Board observed that
accounting for these costs initially in accordance with IAS 2 acknowledges
their nature. Furthermore, doing so achieves the same result as including
these costs as an element of the cost of an item of property, plant and
equipment, depreciating them over the production period just completed and
identifying the depreciation charge as a cost to produce another asset
(inventory), in which case the depreciation charge constitutes part of the cost
of that other asset.

IAS 16 BC
BC16 The Board noted that because IAS 16’s initial measurement provisions are not
affected by an entity’s subsequent decision to carry an item under the cost
model or the revaluation model, the Board’s decision applies to assets that an
entity carries under either treatment.
Property, Plant and Equipment—Proceeds before

Intended Use (2020 amendments)
Background
BC16A Before the 2020 amendments, paragraph 17(e) specified that directly
attributable costs included the costs of testing whether an asset was
functioning properly, after deducting the net proceeds from selling items
produced while bringing the asset to the location and condition necessary for
it to be capable of operating in the manner intended by management. The
Board received a request asking whether:
(a) the proceeds specified in paragraph 17(e) related only to items

produced while testing; and
(b) an entity was required to deduct from the cost of an item of property,
plant and equipment any such proceeds that exceeded the costs of
testing.
BC16B The Board’s research indicated that different entities had applied the
requirements in paragraph 17(e) differently. Some entities deducted only
proceeds from selling items produced while testing; others deducted the
proceeds of all sales until an asset was in the location and condition necessary
for it to be capable of operating in the manner intended by management (ie
available for use). For some entities, the proceeds deducted from the cost of an
item of property, plant and equipment could be significant and could exceed
the costs of testing.
Recognising proceeds and related cost in profit or loss

BC16C After considering the findings in paragraph BC16B, the Board decided to
amend paragraph 17 to prohibit an entity from deducting from the cost of an
item of property, plant and equipment the proceeds from selling items
produced before that asset is available for use (proceeds before intended use).
BC16D In the Board’s view, the amendments will improve financial reporting.
Proceeds before intended use and related cost meet the definition of income
and expenses in the Conceptual Framework for Financial Reporting. Those items of
income and expenses reflect an entity’s performance for the period and they
should, therefore, be included in the statement of profit or loss.
BC16E The previous requirement to offset proceeds against the cost of an item of
property, plant and equipment reduced the usefulness of financial statements
to users of financial statements. This is because the previous requirement
resulted in an entity including amounts that did not faithfully represent:

IAS 16 BC
(a) its performance. Offsetting proceeds against the cost of an asset

understates an entity’s revenue (or income) in the period. Moreover,
doing so could also have a pervasive and long-term effect on an entity’s
performance when the asset has a long useful life. Offsetting proceeds
decreased the depreciable amount of such an asset and, consequently,
reduced the depreciation charge recognised as an expense over the
asset’s useful life.
(b) the cost of an item of property, plant and equipment. Offsetting

proceeds could result in the carrying amount of the asset understating
its cost. This, in turn, could reduce the usefulness of financial metrics,
such as return on assets, that use the asset’s carrying amount.
BC16F The Board considered suggestions that recognising proceeds before intended
use and related cost in profit or loss might not provide useful information to
users of financial statements. Those holding this view suggested that such
sales proceeds—and the related margin—may have little predictive value
because:
(a) the sales proceeds are generally non-recurring and are not necessarily
an output of an entity’s ordinary activities; and
(b) the cost of items produced would not include depreciation of the item
of property, plant and equipment—because depreciation of that asset
begins when it is available for use.
BC16G In the Board’s view, however, the fact that the proceeds may have little
predictive value was not a compelling argument for excluding them from
profit or loss—the statement of profit or loss includes other items of income
or expenses that may have little predictive value but the inclusion of which
nonetheless provides useful information to users of financial statements.
Recognising proceeds before intended use and related cost in profit or loss will
result in entities reporting amounts that more faithfully represent their
performance and financial position. It will also have confirmatory value about
an entity’s performance. The disclosure requirements in paragraph 74A(b) will
highlight such proceeds and cost for users of financial statements (see
paragraphs BC16L–BC16M).
Measuring the cost of items produced

BC16H When it exposed draft amendments for comment, the Board proposed no
requirements on measuring the cost of items produced before an item of
property, plant and equipment is available for use. A number of respondents
to the Board’s draft amendments suggested that the Board develop such
requirements. They said measuring the cost of items produced could require
extensive judgement, which in turn could result in differences in how entities
measure that cost. Respondents’ views differed on how prescriptive any
requirements should be—some suggested the Board develop only high-level
principles while others suggested providing detailed application guidance.
BC16I After considering this feedback, the Board decided to require an entity to
apply IAS 2 Inventories in measuring the cost of items produced. The Board
made this decision because:

IAS 16 BC
(a) IAS 2 sets out a framework for measuring cost without being overly
prescriptive; and
(b) an entity would already be required to apply IAS 2 in measuring cost if

the entity were to determine that the sale of items produced is an
output of its ordinary activities—in this case, the items produced
would meet IAS 2’s definition of inventories. It would be useful to
apply the same requirements to the cost of items produced irrespective
of whether the sale of those items is an output of an entity’s ordinary
activities.
BC16J In addition, the Board concluded that the judgement involved in measuring
the cost of items produced is not substantially different from judgements
already required when applying IAS 2 and other IFRS Standards in measuring
cost, in particular for assets that take a substantial period of time to get ready
for their intended use (for example, measuring the cost of abnormal amounts
of wasted materials and labour, allocating costs to joint products or measuring
the cost of operations incidental to the construction or development of an
item of property, plant and equipment).
BC16K The Board acknowledged the amendments might result in implementation

costs for some entities. However, the Board concluded that a requirement to
measure the cost of items produced applying IAS 2 would not impose costs
that outweigh the usefulness of the information provided.
Presentation and disclosure

BC16L The Board developed the requirements in paragraph 74A(b) to provide users of
financial statements with information about the sale of items that are not an
output of an entity’s ordinary activities. Users of financial statements said
information that enables them to identify proceeds before intended use, and
to understand how those proceeds and related cost affect an entity’s
performance, would be useful.
BC16M The Board decided not to develop similar requirements for sales of items that
are an output of an entity’s ordinary activities because the requirements of
IFRS 15 Revenue from Contracts with Customers and IAS 2 would apply to the
proceeds from such sales and related cost.
BC16N Measuring the cost of items produced could necessitate the use of estimates
and judgement. However, the Board decided not to add disclosure
requirements in this respect because other IFRS Standards such as IAS 1
Presentation of Financial Statements already require the disclosure of information
about estimates and judgements.
BC16O The Board also decided not to develop specific presentation requirements for
proceeds before intended use and related cost because IAS 1 already includes
relevant requirements, for example on:
(a) the offsetting of income and expenses; and
(b) the presentation of income and expenses as separate line items in the
statement of profit or loss.

IAS 16 BC
Available for use and the meaning of ‘testing’

BC16P Paragraph 20 requires an entity to determine when an item of property, plant
and equipment is available for use. The Board was informed of differences in
how entities make that determination, and considered suggestions to clarify
when an asset is available for use. Some of those making this suggestion said
the existence of significant proceeds before intended use might indicate that
an asset is already available for use before it is determined to be so. In their
view, such a clarification would reduce the amount of proceeds being
deducted from the cost of an asset than had previously been the case and,
thus, would address the matter identified in paragraph BC16B without
changing how those proceeds are recognised.
BC16Q The Board decided not to amend IAS 16 to clarify when an asset is available for
use. Such an amendment would not be narrow in scope—it might affect the
measurement of many items of property, plant and equipment, and additional
research would be required to assess potential unintended consequences.
Furthermore, the Board had obtained no evidence that differences in how
entities determine when an asset is available for use could lead to material
differences in the entities’ financial statements.
BC16R Nonetheless, the Board decided to clarify the meaning of ‘testing’ in

paragraph 17, noting that such a clarification might help an entity in
determining when an asset is available for use. The Board concluded that
when testing whether an asset is functioning properly, an entity assesses the
technical and physical performance of the asset. The assessment of
functioning properly is not an assessment of the financial performance of an
asset, such as assessing whether the asset has achieved the level of operating
margin initially anticipated by management.
Asset exchange transactions

BC17 Paragraph 22 of the previous version of IAS 16 indicated that if (a) an item of
property, plant and equipment is acquired in exchange for a similar asset that
has a similar use in the same line of business and has a similar fair value or
(b) an item of property, plant and equipment is sold in exchange for an equity
interest in a similar asset, then no gain or loss is recognised on the
transaction. The cost of the new asset is the carrying amount of the asset
given up (rather than the fair value of the purchase consideration given for
the new asset).
BC18 This requirement in the previous version of IAS 16 was consistent with views
that:
(a) gains should not be recognised on exchanges of assets unless the

exchanges represent the culmination of an earning process;
(b) exchanges of assets of a similar nature and value are not a substantive
event warranting the recognition of gains; and

IAS 16 BC
(c) requiring or permitting the recognition of gains from such exchanges

enables entities to ‘manufacture’ gains by attributing inflated values to
the assets exchanged, if the assets do not have observable market
prices in active markets.
BC19 The approach described above raised issues about how to identify whether
assets exchanged are similar in nature and value. The Board reviewed this
topic, and noted views that:
(a) under the Framework, the recognition of income from an exchange of

assets does not depend on whether the assets exchanged are dissimilar;
(b) income is not necessarily earned only at the culmination of an earning

process, and in some cases it is arbitrary to determine when an earning
process culminates;
(c) generally, under both measurement bases after recognition that are
permitted under IAS 16, gain recognition is not deferred beyond the
date at which assets are exchanged; and
(d) removing ‘existing carrying amount’ measurement of property, plant

and equipment acquired in exchange for similar assets would increase
the consistency of measurement of acquisitions of assets.
BC20 The Board decided to require in IAS 16 that all items of property, plant and
equipment acquired in exchange for non-monetary assets or a combination of
monetary and non-monetary assets should be measured at fair value, except
that, if the exchange transaction lacks commercial substance or the fair value
of neither of the assets exchanged can be determined reliably, then the cost of
the asset acquired in the exchange should be measured at the carrying
amount of the asset given up.
BC21 The Board added the ‘commercial substance’ test in response to a concern
raised in the comments it received on the ED. This concern was that, under
the Board’s proposal, an entity would measure at fair value an asset acquired
in a transaction that did not have commercial substance, ie the transaction
did not have a discernible effect on an entity’s economics. The Board agreed
that requiring an evaluation of commercial substance would help to give users
of the financial statements assurance that the substance of a transaction in
which the acquired asset is measured at fair value (and often, consequentially,
a gain on the disposal of the transferred asset is recognised in income) is the
same as its legal form.
BC22 The Board concluded that in evaluating whether a transaction has commercial
substance, an entity should calculate the present value of the post-tax cash
flows that it can reasonably expect to derive from the portion of its operations
affected by the transaction. The discount rate should reflect the entity’s
current assessment of the time value of money and the risks specific to those
operations rather than those that marketplace participants would make.

IAS 16 BC
BC23 The Board included the ‘reliable measurement’ test for using fair value to
measure these exchanges to minimise the risk that entities could
‘manufacture’ gains by attributing inflated values to the assets exchanged.
Taking into consideration its project for the convergence of IFRSs and
US GAAP, the Board discussed whether to change the manner in which its
‘reliable measurement’ test is described. The Board observed this was
unnecessary because it believes that its guidance and that contained in
US GAAP are intended to have the same meaning.
BC24 The Board decided to retain, in IAS 18 Revenue,2 its prohibition on recognising
revenue from exchanges or swaps of goods or services of a similar nature and
value. The Board has on its agenda a project on revenue recognition and does
not propose to make any significant amendments to IAS 18 until that project
is completed.
Measurement after recognition
Revaluation model
BC25 The Board is taking part in research activities with national standard-setters
on revaluations of property, plant and equipment. This research is intended to
promote international convergence of standards. One of the most important
issues is identifying the preferred measurement attribute for revaluations.
This research could lead to proposals to amend IAS 16.
Revaluation method–proportionate restatement of

accumulated depreciation when an item of property, plant
and equipment is revalued
BC25A The IFRS Interpretations Committee reported to the Board that practice
differed in calculating the accumulated depreciation for an item of property,
plant and equipment that is measured using the revaluation method in cases
in which the residual value, the useful life or the depreciation method has
been re-estimated before a revaluation.
BC25B Paragraph 35(a) required that, in instances in which the gross carrying
amount is revalued, the revalued accumulated depreciation is restated
proportionately with the change in the gross carrying amount.
BC25C The submission noted that applying the same proportionate factor to restate
the accumulated depreciation as for the change in the gross carrying amount
has caused problems in practice if the residual value, the useful life or the
depreciation method has been re-estimated before the revaluation. The
submission used an example in which both the gross carrying amount and the
carrying amount were revalued.
2 IFRS 15 Revenue from Contracts with Customers, issued in May 2014, replaced IAS 18 Revenue. IFRS 15
also excludes from its scope non-monetary exchanges between entities in the same line of
business to facilitate sales to customers, or to potential customers, other than the parties to the
exchange.

IAS 16 BC
BC25D In such cases, divergent views existed as to how to calculate the accumulated
depreciation when the item of property, plant and equipment is revalued:
(a) some think that the restatement of the accumulated depreciation is

not always proportionate to the change in the gross carrying amount
and that paragraph 35(a) should be amended accordingly.
(b) others are of the opinion that the accumulated depreciation and the
gross carrying amount should always be restated proportionately when
applying paragraph 35(a). The difference between the amount required
for a proportionate restatement of the depreciation and the actual
restatement of the depreciation required for the gross carrying amount
to result in a carrying amount equal to the revalued amount being
treated as an accounting error in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.
BC25E The definition of ‘carrying amount’ in paragraph 6 is “the amount at which

an asset is recognised after deducting any accumulated depreciation and
accumulated impairment loss”. The Board noted that, when revaluing an item
of property, plant and equipment, the definition implies that the accumulated
depreciation is calculated as the difference between the gross carrying amount
and the carrying amount, after taking into account accumulated impairment
losses.
BC25F The Board agrees with the proponents of the view presented in
paragraph BC25D(a) that the restatement of the accumulated depreciation is
not always proportionate to the change in the gross carrying amount. The
Board noted that the accumulated depreciation would not be able to be
restated proportionately to the gross carrying amount in situations in which
both the gross carrying amount and the carrying amount are revalued
non-proportionately to each other. It was noted that this was the case
regardless of whether there had been a re-estimation of residual value, the
useful life or the depreciation method in a prior period.
BC25G For example, when the revalued amounts for the gross carrying amount and
the carrying amount both reflect non-proportionate observable data, it is
demonstrated that accumulated depreciation cannot be proportionately
restated to the gross carrying amount in order for the carrying amount to
equal the gross carrying amount less any accumulated depreciation and
accumulated impairment losses. In that respect, the Board thinks that the
requirements in paragraph 35(a) may be perceived as being inconsistent with
the definition of carrying amount.
BC25H In addition, the Board noted that the second sentence in paragraph 35(a)
reinforced that inconsistency because it states that proportionate restatement
is often used when an asset is revalued by means of applying an index to
determine its replacement cost. It reinforced the inconsistency because the
determination of the accumulated depreciation does not depend on the
selection of the valuation technique used for the revaluation under the
revaluation model for property, plant and equipment.

IAS 16 BC
BC25I Consequently, the Board decided to:
(a) amend paragraph 35(a) to state that the gross carrying amount is
adjusted in a manner that is consistent with the revaluation of the
carrying amount;
(b) amend paragraph 35(a) to state that the accumulated depreciation is

calculated as the difference between the gross carrying amount and
the carrying amount after taking into account accumulated
impairment losses; and
(c) delete the references to valuation methods in paragraph 35(a)–(b).
The Board also decided to amend paragraph 35(b) to be consistent with the
wording used in those amendments.
BC25J The Board decided to include wording in paragraph 35(a) to require an entity
to take into account accumulated impairment losses when adjusting the
depreciation on revaluation. This was to ensure that when future revaluation
increases occur, the correct split, in accordance with paragraph 39 of IAS 16
and paragraph 119 of IAS 36 Impairment of Assets, is made between profit or loss
and other comprehensive income when reversing prior accumulated
impairment losses.
Depreciation: unit of measure

BC26 The Board’s discussions about the potential improvements to the depreciation
principle in the previous version of IAS 16 included consideration of the unit
of measure an entity uses to depreciate its items of property, plant and
equipment. Of particular concern to the Board were situations in which the
unit of measure is the ‘item as a whole’ even though that item may be
composed of significant parts with individually varying useful lives or
consumption patterns. The Board did not believe that, in these situations, an
entity’s use of approximation techniques, such as a weighted average useful
life for the item as a whole, resulted in depreciation that faithfully represents
an entity’s varying expectations for the significant parts.
BC27 The Board sought to improve the previous version of IAS 16 by proposing in
the ED revisions to existing guidance on separating an item into its parts and
then further clarifying in the Standard the need for an entity to depreciate
separately any significant parts of an item of property, plant and equipment.
By doing so an entity will also separately depreciate the item’s remainder.
Depreciation: depreciable amount

BC28 During its discussion of depreciation principles, the Board noted the concern
that, under the cost model, the previous version of IAS 16 does not state
clearly why an entity deducts an asset’s residual value from its cost to
determine the asset’s depreciable amount. Some argue that the objective is
one of precision, ie reducing the amount of depreciation so that it reflects the
item’s net cost. Others argue that the objective is one of economics,
ie stopping depreciation if, because of inflation or otherwise, an entity expects

IAS 16 BC
that during its useful life an asset will increase in value by an amount greater
than it will diminish.
BC29 The Board decided to improve the previous version of IAS 16 by making clear
the objective of deducting a residual value in determining an asset’s
depreciable amount. In doing so, the Board did not adopt completely either
the ‘net cost’ or the ‘economics’ objective. Given the concept of depreciation
as a cost allocation technique, the Board concluded that an entity’s
expectation of increases in an asset’s value, because of inflation or otherwise,
does not override the need to depreciate it. Thus, the Board changed the
definition of residual value to the amount an entity could receive for the asset
currently (at the financial reporting date) if the asset were already as old and
worn as it will be when the entity expects to dispose of it. Thus, an increase in
the expected residual value of an asset because of past events will affect the
depreciable amount; expectations of future changes in residual value other
than the effects of expected wear and tear will not.
Depreciation: depreciation period

BC30 The Board decided that the useful life of an asset should encompass the entire
time it is available for use, regardless of whether during that time it is in use
or is idle. Idle periods most commonly occur just after an asset is acquired and
just before it is disposed of, the latter while the asset is held either for sale or
for another form of disposal.
BC31 The Board concluded that, whether idle or not, it is appropriate to depreciate
an asset with a limited useful life so that the financial statements reflect the
consumption of the asset’s service potential that occurs while the asset is
held. The Board also discussed but decided not to address the measurement of
assets held for sale. The Board concluded that whether to apply a different
measurement model to assets held for sale—which may or may not be idle—
was a different question and was beyond the scope of the Improvements
project.
BC32 In July 2003 the Board published ED 4 Disposal of Non-current Assets and
Presentation of Discontinued Operations. ED 4 was published as part of the Board’s
short-term convergence project, the scope of which was broader than that of
the Improvements project. In ED 4, the Board proposed that an entity should
classify some of its assets as ‘assets held for sale’ if specified criteria are met.
Among other things, the Board proposed that an entity should cease
depreciating an asset classified in this manner, irrespective of whether the
asset is idle. The basis for this proposal was that the carrying amount of an
asset held for sale will be recovered principally through sale rather than
future operations, and therefore accounting for the asset should be a process
of valuation rather than allocation. The Board will amend IAS 16 accordingly
when ED 4 is finalised.

IAS 16 BC
Depreciation: depreciation method

BC33 The Board considered how an entity should account for a change in a
depreciation method. The Board concluded that a change in a depreciation
method is a change in the technique used to apply the entity’s accounting
policy to recognise depreciation as an asset’s future economic benefits are
consumed. Therefore, it is a change in an accounting estimate.
BC33A The IASB decided to amend IAS 16 to address the concerns regarding the use
of a revenue-based method for depreciating an asset. The IASB’s decision was
in response to a request to clarify the meaning of the term ‘consumption of
the expected future economic benefits embodied in the asset’ when
determining the appropriate amortisation method for intangible assets of
service concession arrangements (SCA) that are within the scope of IFRIC 12
Service Concession Arrangements. The issue raised is related to the application of
paragraphs 97–98 of IAS 38 Intangible Assets although the IASB decided to
address the issue broadly, rather than limit it only to intangible assets arising
in an SCA.
BC33B The IASB observed that a revenue-based depreciation method is one that
allocates an asset’s depreciable amount based on revenues generated in an
accounting period as a proportion of the total revenues expected to be
generated over the asset’s useful economic life. The total revenue amount is
affected by the interaction between units (ie quantity) and price and takes into
account any expected changes in price.
BC33C The IASB observed that paragraph 60 of IAS 16 states that the depreciation
method used shall reflect the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity. The IASB noted that even
though revenue could sometimes be considered to be a measurement of the
output generated by the asset, revenue does not, as a matter of principle,
reflect the way in which an item of property, plant and equipment is used or
consumed. The IASB observed that the price component of revenue may be
affected by inflation and noted that inflation has no bearing upon the way in
which an asset is consumed.
BC33D On the basis of the guidance in IAS 16, the IASB proposed to clarify in the
Exposure Draft Clarification of Acceptable Methods of Depreciation and Amortisation
(Proposed amendments to IAS 16 and IAS 38) (the ‘ED’) that a method of
depreciation that is based on revenue generated from an activity that includes
the use of an asset is not appropriate, because it reflects a pattern of economic
benefits being generated from operating the business (of which the asset is
part) rather than the economic benefits being consumed through the use of
the asset.
BC33E During its redeliberations of the ED the IASB decided to reaffirm its
conclusion that the use of a revenue-based method is not appropriate, because
the principle in paragraph 60 of IAS 16 is that the “depreciation method shall
reflect the pattern in which the asset’s future economic benefits are expected
to be consumed by the entity”. A method that is based on revenue generated
from an activity that includes the use of an asset would be, in contrast, a
method based on the generation of future economic benefits from the use of

IAS 16 BC
the asset. As a result of the feedback received on the ED, the IASB also decided
not to retain the comments that it had included in the Basis for Conclusions
on the ED on the limited circumstances in which a revenue-based method
gives the same result as a units of production method. Many respondents to
the ED found these comments contradictory to the guidance proposed in the
Standard.
BC33F In the ED the IASB proposed to provide guidance to clarify the role of
obsolescence in the application of the diminishing balance method. In
response to the comments received about the proposed guidance the IASB
decided to change the focus of this guidance. The IASB decided to explain that
expected future reductions in the selling price of an item could indicate the
expectation of technical or commercial obsolescence of the asset, which, in
turn, might reflect a reduction of the future economic benefits embodied in
the asset. The IASB noted that the expectation of technical or commercial
obsolescence is relevant for estimating both the pattern of consumption of
future economic benefits and the useful life of an asset. The IASB noted that
the diminishing balance method is an accepted depreciation methodology in
paragraph 62 of IAS 16, which is capable of reflecting an accelerated
consumption of the future economic benefits embodied in the asset.
BC33G Some respondents to the ED suggested that the IASB should define the notion
of ‘consumption of economic benefits’ and provide guidance in this respect.
During its redeliberations the IASB decided against doing so, noting that
explaining the notion of consumption of economic benefits would require a
broader project.
Exemption for owner-occupied property

BC33H IFRS 17 Insurance Contracts amended the subsequent measurement
requirements in IAS 16 by permitting entities to elect to measure owner-
occupied properties in specified circumstances as if they were investment
properties measured at fair value through profit or loss in accordance with
IAS 40 Investment Property. The Board’s considerations in providing that
exemption are set out in paragraph BC65(c) of the Basis for Conclusions on
IFRS 17.
Derecognition
Derecognition date
BC34 The Board decided that an entity should apply the revenue recognition
principle in IAS 183 for sales of goods to its gains from the sales of items of
property, plant and equipment. The requirements in that principle ensure the
representational faithfulness of an entity’s recognised revenue.
Representational faithfulness is also the appropriate objective for an entity’s
recognised gains. However, in IAS 16, the revenue recognition principle’s
criteria drive derecognition of the asset disposed of rather than recognition of
3 IFRS 15 Revenue from Contracts with Customers, issued in May 2014, replaced IAS 18 Revenue and
amended paragraph 69 of IAS 16 for consistency with the requirements in IFRS 15.

IAS 16 BC
the proceeds received. Applying the principle instead to the recognition of the
proceeds might lead to the conclusion that an entity will recognise a deferred
gain. Deferred gains do not meet the definition of a liability under
the Framework. Thus, the Board decided that an entity does not derecognise an
item of property, plant and equipment until the requirements in IAS 18 to
recognise revenue on the sale of goods are met.
Gain classification
BC35 Although the Board concluded that an entity should apply the recognition
principle for revenue from sales of goods to its recognition of gains on
disposals of items of property, plant and equipment, the Board concluded that
the respective approaches to income statement display should differ. The
Board concluded that users of financial statements would consider these gains
and the proceeds from an entity’s sale of goods in the course of its ordinary
activities differently in their evaluation of an entity’s past results and their
projections of future cash flows. This is because revenue from the sale of
goods is typically more likely to recur in comparable amounts than are gains
from sales of items of property, plant and equipment. Accordingly, the Board
concluded that an entity should not classify as revenue gains on disposals of
items of property, plant and equipment.
Assets held for rental to others4

BC35A The Board identified that, in some industries, entities are in the business of
renting and subsequently selling the same assets.
BC35B The Board noted that the Standard prohibits classification as revenue of gains
arising from derecognition of items of property, plant and equipment. The
Board also noted that paragraph BC35 states the reason for this is ‘users of
financial statements would consider these gains and the proceeds from an
entity’s sale of goods in the course of its ordinary activities differently in their
evaluation of an entity’s past results and their projections of future cash
flows.’
BC35C Consistently with that reason, the Board concluded that entities whose
ordinary activities include renting and subsequently selling the same assets
should recognise revenue from both renting and selling the assets. In the
Board’s view, the presentation of gross selling revenue, rather than a net gain
or loss on the sale of the assets, would better reflect the ordinary activities of
such entities.
BC35D The Board concluded that the disclosure requirements

of IAS 16, IAS 2 and IAS 185 would lead an entity to disclose relevant
information for users.
4 Paragraphs BC35A–BC35F were added as a consequence of amendments to IAS 16 by Improvements

to IFRSs issued in May 2008. At the same time, the Board also amended paragraph 6 by replacing
the term ‘net selling price’ in the definition of ‘recoverable amount’ with ‘fair value less costs to
sell’ for consistency with the wording used in IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations and IAS 36.
5 IFRS 15 Revenue from Contracts with Customers, issued in May 2014, replaced IAS 18 Revenue.

IAS 16 BC
BC35E The Board also concluded that paragraph 14 of IAS 7 Statement of Cash Flows
should be amended to present within operating activities cash payments to
manufacture or acquire such assets and cash receipts from rents and sales of
such assets.
BC35F The Board discussed the comments received in response to its exposure draft
of proposed Improvements to International Financial Reporting Standards published
in 2007 and noted that a few respondents would prefer the issue to be
included in one of the Board’s major projects such as the revenue recognition
project or the financial statement presentation project. However, the Board
noted that the proposed amendment would improve financial statement
presentation before those projects could be completed and decided to add
paragraph 68A as previously exposed. A few respondents raised the concern
that the term ‘held for sale’ in the amendment could be confused with the
notion of held for sale in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations. Consequently, the Board clarified in the
amendment that IFRS 5 should not be applied in those circumstances.
Transitional provisions
BC36 The Board concluded that it would be impracticable for an entity to determine
retrospectively whether a previous transaction involving an exchange of
non-monetary assets had commercial substance. This is because it would not
be possible for management to avoid using hindsight in making the necessary
estimates as of earlier dates. Accordingly, the Board decided that in
accordance with the provisions of IAS 8 an entity should consider commercial
substance only in evaluating the initial measurement of future transactions
involving an exchange of non-monetary assets.
BC36A Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013,

amended paragraph 35. The Board also decided that the amendment should be
required to be applied to all revaluations occurring in annual periods
beginning on or after the date of initial application of the amendments and in
the immediately preceding annual period. The Board was concerned that the
costs of full retrospective application might outweigh the benefits.
Property, Plant and Equipment—Proceeds before

Intended Use (2020 amendments)
BC36B The 2020 amendments are expected mainly to affect only a few industries,
such as mining and petrochemicals. The Board therefore considered the need,
if any, for transition requirements beyond those in IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
BC36C The Board concluded that the expected benefits of retrospectively applying the
amendments in accordance with IAS 8 might be outweighed by the costs of
doing so—in particular, an affected entity might find it difficult and costly to
apply the amendments retrospectively to assets made available for use many
years ago. In the Board’s view, the transition requirements in paragraph 80D
promote consistency in application of the amendments for all periods

IAS 16 BC
presented, but limit the number of assets an entity is required to reassess on

first applying the amendments.
BC36D The Board decided not to provide transition requirements for first-time
adopters of IFRS Standards because:
(a) IFRS 1 First-time Adoption of International Financial Reporting Standards

provides deemed cost exemptions for items of property, plant and
equipment. These exemptions allow a first-time adopter to measure
such assets without reference to IAS 16.
(b) if a first-time adopter does not apply those deemed cost exemptions, it
would apply all the requirements in IAS 16 retrospectively. The Board
concluded that there would be little benefit in providing first-time
adopters with an exception or exemption relating to only one aspect of
the requirements in IAS 16.
Summary of changes from the Exposure Draft

BC37 The main changes from the ED proposals to the revised Standard are as
follows:
(a) The ED contained two recognition principles, one applying to

subsequent expenditures on existing items of property, plant and
equipment. The Standard contains a single recognition principle that
applies to costs incurred initially to acquire an item and costs incurred
subsequently to add to, replace part of or service an item. An entity
applies the recognition principle to the latter costs at the time it incurs
them.
(b) Under the approach proposed in the ED, an entity measured an item of
property, plant and equipment acquired in exchange for a
non-monetary asset at fair value irrespective of whether the exchange
transaction in which it was acquired had commercial substance. Under
the Standard, a lack of commercial substance is cause for an entity to
measure the acquired asset at the carrying amount of the asset given
up.
(c) Compared with the Standard, the ED did not as clearly set out the
principle that an entity separately depreciates at least the parts of an
item of property, plant and equipment that are of significant cost.
(d) Under the approach proposed in the ED, an entity derecognised the
carrying amount of a replaced part of an item of property, plant and
equipment if it recognised in the carrying amount of the asset the cost
of the replacement under the general recognition principle. In the
Standard, an entity also applies this approach to a replacement of a
part of an item that is not depreciated separately.
(e) In finalising the Standard, the Board identified further necessary

consequential amendments to IFRS 1, IAS 14, IAS 34, IAS 36, IAS 37,
IAS 38, IAS 40, SIC-13, SIC-21, SIC-22 and SIC-32.

IAS 16 BC
Accounting for bearer plants (2014 amendments)
Overview
BC38 The Board observed that there is a class of biological assets, bearer plants, that
are held by an entity solely to grow produce over their productive life. The
Board’s principal decision underlying the 2014 amendments is that bearer
plants should be treated as property, plant and equipment, for which the
accounting is prescribed in IAS 16. IAS 16 permits the use of either a cost
model or a revaluation model.
Background
BC39 Prior to the 2014 amendments, IAS 41 required all biological assets related to
agricultural activity to be measured at fair value less costs to sell based on the
principle that their biological transformation is best reflected by fair value
measurement. IAS 41 defines ‘biological transformation’ as follows:
Biological transformation comprises the processes of growth, degeneration,
production, and procreation that cause qualitative or quantitative changes in a
biological asset.
BC40 IAS 41 has a single accounting treatment for all bearer and consumable
biological assets within its scope. IAS 41 only distinguishes between bearer
and consumable biological assets for disclosure purposes (see
paragraphs 43–44 of IAS 41).
BC41 Stakeholders told the Board that they think that fair value measurement is
not appropriate for mature bearer biological assets such as oil palms and
rubber trees because they are no longer undergoing significant biological
transformation. The use of mature bearer biological assets such as these is
seen by many as similar to that of manufacturing. Consequently, they said
that a cost model should be permitted for those bearer biological assets,
because it is permitted for property, plant and equipment. They also said that
they had concerns about the cost, complexity and practical difficulties of fair
value measurements of bearer biological assets in the absence of markets for
those assets, and about the volatility from recognising changes in the fair
value less costs to sell in profit or loss. Furthermore, they asserted that
investors, analysts and other users of financial statements adjust the reported
profit or loss to eliminate the effects of changes in the fair values of these
bearer biological assets.
BC42 Most respondents who cited agriculture in their responses to the Board’s
2011 Agenda Consultation raised concerns in relation to fair value
measurement of plantations, for example oil palm and rubber trees
plantations, and favoured a limited-scope project for these bearer biological
assets to address the concerns in paragraph BC41. Only a small number of
respondents favoured a broader consideration of IAS 41 or a Post-
implementation Review, or said that there is no need to amend IAS 41.

IAS 16 BC
BC43 Before the limited-scope project for bearer biological assets was added to its
work programme, the Board was monitoring the work undertaken by the
Asian-Oceanian Standard-Setters Group (AOSSG), primarily by the Malaysian
Accounting Standards Board (MASB), on a proposal to remove some bearer
biological assets from the scope of IAS 41 and account for them in accordance
with IAS 16. Those proposals were discussed several times by national
standard-setters, the Board’s Emerging Economies Group (EEG) and the IFRS
Advisory Council. Feedback from these meetings indicated strong support for
the AOSSG/MASB proposals and for the Board to start a limited-scope project
for bearer biological assets.
BC44 In September 2012 the Board decided to add to its agenda a limited-scope
project for bearer biological assets, with the aim of considering whether to
account for some or all of them as property, plant and equipment, thereby
permitting use of a cost model. The limited-scope project was supported by
the following reasons:
(a) it addressed the accounting treatment for those biological assets for
which respondents to the 2011 Agenda Consultation had concerns. It
also had significant support among national standard-setters and other
interested parties. Furthermore, on the basis of feedback from the
2011 Agenda Consultation and other outreach, the expected changes
under the project would be likely to reduce compliance costs for
preparers and would not adversely affect users of financial statements.
(b) it had the advantage of timeliness compared to a more comprehensive

project. The Board was able to use the research performed by the MASB
and address the main issues relatively quickly. A more comprehensive
project would have had to wait for space on the Board’s agenda and,
once started, might have taken several years.
BC45 The Board decided that it had received sufficient information to develop an
Exposure Draft (ED) from work performed by the MASB, meetings of national
standard-setters, feedback from preparers on the 2011 Agenda Consultation
and user outreach performed by staff. Furthermore, the project was expected
to result in limited changes that were sought by both users and preparers of
financial statements, as explained in more detail in the analysis of the likely
effects of the amendments in paragraphs BC99–BC117. Consequently, the
Board decided that the project could proceed without a Discussion Paper and
developed an ED that was issued in June 2013.
Changes to the proposals in the ED

BC46 The Board received 72 comment letters on the ED. The vast majority of
respondents supported the proposal in the ED to account for bearer plants in
accordance with IAS 16. Three additional issues raised by respondents were:
(a) extend the scope of the amendments to other biological assets (see
paragraphs BC54–BC58);
(b) do not require fair value measurement of growing produce (see

paragraphs BC75–BC78); and

IAS 16 BC
(c) provide guidance on when a bearer plant is in the ‘location and

condition necessary for it to be capable of operating in the manner
intended by management’ in accordance with paragraph 16(b) of
IAS 16—ie when it reaches maturity (see paragraph BC82).
BC47 As a result of the Board’s redeliberations of the issues raised on the ED, three
changes were made to the proposed amendments in the ED, other than
drafting changes. Those three changes were:
(a) modifying criterion (c) of the definition of a bearer plant (see

paragraph BC62);
(b) clarifying the transition provisions (see paragraph BC96); and
(c) exempting entities from the disclosure requirements in paragraph 28(f)

of IAS 8 for the current period in both the amendments to IAS 16 and
the amendments to IAS 41 (see paragraph BC97).
Paragraphs BC48–BC117 summarise the Board’s considerations in developing

the amendments and its reasons for only making limited changes to the
amendments proposed in the ED.
Scope of the amendments

BC48 The Board decided that, before it could consider whether some or all bearer
biological assets should be accounted for in accordance with IAS 16 instead of
IAS 41, it first needed to define bearer biological assets for the purposes of the
amendments. The Board initially discussed four options when deciding on the
scope:
(a) Option 1: no-alternative-use model. Limit the scope of the amendments

to IAS 41 to biological assets that are solely used in the production or
supply of agricultural produce (ie only used as bearer biological assets)
and that are expected to be used for more than one period.
(b) Option 2: predominant-use model. Limit the scope of the amendments

to IAS 41 to biological assets that are used predominantly in the
production or supply of agricultural produce (ie used primarily as
bearer biological assets) and that are expected to be used for more than
one period.
(c) Option 3: no-alternative-use model—plants only. This is the same as

Option 1 except that it would only include plants, not livestock.
(d) Option 4: predominant-use model—plants only. This is the same as

Option 2 except that it would only include plants, not livestock.
BC49 The Board’s first consideration when setting the scope of the amendments to
IAS 41 was whether to follow a ‘no-alternative-use’ model or a ‘predominant-
use’ model. The Board observed that many types of livestock that are used as
bearer biological assets by an entity also have a common alternative use as a
consumable biological asset. For example, an entity may choose to rear a
sheep for its wool (bearer attribute) and/or for its meat (consumable attribute).
It was also observed that some trees are cultivated both for their lumber, for

IAS 16 BC
example, for furniture production (consumable attribute) and for their fruit
(bearer attribute).
BC50 The Board observed that a predominant-use model would be more difficult to
apply than a no-alternative-use model because it would require additional
judgement to be applied in order to determine the predominant use, and
would need to address the consequences of reclassifications between IAS 16
and IAS 41 if the predominant use changes. In contrast, if the scope is
restricted to biological assets that are solely used as bearer biological assets,
the need to apply judgement and make reclassifications would be expected to
be rare.
BC51 The Board further noted that, if an entity intends to sell a biological asset as
agricultural produce after it has been used as a bearer biological asset for a
period of time, fair value measurement would provide useful information
about the future economic benefits from the future sale of the asset.
Furthermore, if a biological asset is commonly sold as agricultural produce,
there will often be an active market for sale of that biological asset separately
from land, meaning that fair value information is likely to be readily available
and easier to apply than cost measurement. The Board also noted that the
concerns raised by respondents to the 2011 Agenda Consultation generally
relate to plants that do not have an alternative use to the entity and that do
not have a market value separate from the land component. Consequently,
any sales transactions that take place in the market are likely to be of bearer
plants plus land, and possibly whole plantations. For these reasons, the Board
decided to limit the scope to biological assets that are solely used as bearer
biological assets.
BC52 The Board’s second consideration when setting the scope was whether
livestock should be included within the amendments to IAS 41. The Board
observed that including livestock would make the use of a cost model more
complex. Unlike plants, livestock is not attached to land and there is usually
an active market for it, meaning that fair value information is likely to be
readily available and easier to apply than cost measurement. As noted in
paragraph BC51, concerns raised by respondents to the 2011 Agenda
Consultation mainly relate to plants, not livestock. Consequently, the Board
decided to restrict the scope to plants.
BC53 On the basis of the considerations in paragraphs BC49–BC52, the Board

decided on Option 3.
BC54 Many respondents to the ED said that the concerns outlined by interested
parties in paragraph BC41 about fair value measurement and the Board’s
reasoning in the ED for accounting for bearer plants in accordance with
IAS 16 (repeated in paragraphs BC63–BC68) apply equally to other biological
assets, such as bearer livestock and plants predominantly used to produce
agricultural produce. These respondents said that there was no conceptual
basis for singling out bearer plants and that all biological assets used in the
production or supply of agricultural produce should be accounted for in the
same way.

IAS 16 BC
BC55 During redeliberations of the proposals in the ED, the Board noted that the
limited-scope project was added to the Board’s agenda to respond to concerns
raised by respondents to the 2011 Agenda Consultation, which were raised
primarily about plants used solely to bear agricultural produce, for example,
oil palm and rubber tree plantations. When the limited-scope project was
added to the Board’s agenda, the Board had noted that it did not have the
resources at that time to perform a comprehensive review of IAS 41. However,
the Board had observed that a limited-scope project could be addressed
quickly.
BC56 Most respondents to the ED who suggested expanding the scope to livestock
did not acknowledge that a key reason the Board limited the scope to bearer
plants was the complexities of measuring the initial cost of bearer livestock. A
few respondents disagreed with the Board’s observation in paragraph BC52
that a cost model would be complex to implement for bearer livestock and
noted that cost-based models are used for livestock in some jurisdictions.
However, they did not provide any further information on how a cost model
like the one in IAS 16 can be applied to livestock.
BC57 The Board observed that before and during development of the amendments it
had received significant information from interested parties about the
consequences of including bearer plants in IAS 16. However, the Board noted
that it had only received limited information about these issues within the
context of other biological assets. The Board agreed that the scope of the
project should not be expanded without understanding whether IAS 16 is
appropriate and can be applied consistently to those biological assets. The
Board observed that obtaining this understanding would take time and delay
completion of the ED. The Board also noted that such requests for an
expanded scope would increase the complexity of the project and raise
conceptual issues that did not belong in a limited-scope project but instead in
a comprehensive review of IAS 41.
BC58 The Board agreed that the amendments address an immediate need for
plantation businesses and are generally perceived by respondents to result in a
significant improvement in financial reporting. Consequently, the Board
decided not to expand the limited scope of the amendments with the aim of
finalising the amendments quickly.
BC59 The ED defined a bearer plant as a plant that is:
(a) used in the production or supply of agricultural produce;
(b) expected to bear produce for more than one period; and
(c) not intended to be sold as a living plant or harvested as agricultural

produce, except for incidental scrap sales.
BC60 The Board noted that some crops are perennial plants because their roots
remain in the ground to sprout for the next period’s crop. An example would
be sugarcane if its roots are retained for a second harvest. The Board agreed
that if an entity retains the roots to bear produce for more than one period
and the roots are not later sold, the roots would meet the definition of a

IAS 16 BC
bearer plant. The Board decided that this did not need to be clarified in the
amendments and most respondents to the ED agreed.
BC61 Some respondents to the ED asked for guidance on applying the definition of a
bearer plant to a range of plants. Because of the diversity of bearer plants, the
Board decided not to add guidance on specific types of plants.
BC62 The Board decided to amend criterion (c) of the definition to state ‘has a
remote likelihood of being sold as agricultural produce, except for incidental
scrap sales’ to ensure that the amendment captures only those plants used
solely in the production or supply of agricultural produce. The Board also
clarified in the definition that a bearer plant is a living plant. No other
changes were made to the proposed definition.
Basis for accounting for bearer plants in IAS 16

BC63 The Board considered whether the current requirements in IAS 16 for
property, plant and equipment are appropriate for bearer plants and also
considered the concerns raised by interested parties in paragraph BC41. The
Board concluded that applying IAS 16 to bearer plants is appropriate.
Paragraphs BC64–BC68 explain the reasons supporting the Board’s conclusion.
Support for the use of IAS 16

BC64 Prior to the 2014 amendments, IAS 41 required all biological assets related to
agricultural activity to be measured at fair value less costs to sell, based on the
principle that their biological transformation is best reflected by fair value
measurement. However, mature bearer plants are fully grown and so, apart
from bearing produce, biological transformation is no longer significant in
generating future economic benefits. Bearer plants are used solely to grow
produce over several periods. After this time they are usually scrapped.
Consequently, the only significant future economic benefits from bearer
plants arise from selling the agricultural produce that they create.
BC65 The Board noted that while fair value measurement may provide an indication
of the quality and productive capacity of the bearer plants at a point in time,
it is less important to users of financial statements than it is for biological
assets whose value may be realised through sale as agricultural produce.
BC66 Bearer plants meet the definition of property, plant and equipment. The use of
mature bearer plants to produce agricultural produce is similar to the use of
machinery to manufacture goods. The manner in which an entity derives
economic benefits from bearer plants and a production plant is similar and
that manner differs from biological assets that are harvested for sale. The
progressive decline in the future earning potential of a bearer plant over its
life is also similar to other depreciable assets, for example, plant and
machinery.

IAS 16 BC
BC67 There is an assumption inherent in the Conceptual Framework6 that accounting

for similar assets in similar ways enhances the decision-usefulness of the
reported information. The land upon which bearer plants are growing, the
structures used to support their growth and the agricultural machinery are
measured in accordance with IAS 16. Although bearer plants are dissimilar in
form to plant and machinery, similarities in how they are used supports
accounting for them in the same way.
Cost-benefit considerations
BC68 The Board noted that, on the basis of the responses to the 2011 Agenda
Consultation and the outreach performed by the staff, the costs of measuring
bearer plants at fair value are perceived by many preparers to exceed the
benefits to users of financial statements. The Board also observed that nearly
all investors and analysts consulted during the outreach performed by the
staff said that the IAS 41 fair value information about bearer plants has
limited use to them. The main reasons given by the investors and analysts
were:
(a) information about operating performance and cash flows is more

relevant to their forecasting and analysis. Consequently, they eliminate
changes in the fair value less costs to sell of bearer plants from the
figures used for their analysis.
(b) there are concerns about relying on the fair value measurements
because valuations involve significant management judgement, have
the potential for manipulation, and assumptions vary significantly
between companies.
(c) fair value information about bearer plants is not very useful without
fair value information about the related land, land improvements,
agricultural machinery, etc.
Biological transformation
BC69 The IAS 41 fair value model is based on the principle that biological
transformation is best reflected by fair value measurement. Once bearer
plants mature, they are held by an entity solely to grow produce and so, apart
from bearing produce, their biological transformation is no longer significant
in generating future economic benefits. Consequently, the Board decided
bearer plants should be accounted for under IAS 16 instead of IAS 41 (see
paragraphs BC63–BC68). However, the Board noted that the same argument is
not true for bearer plants before they reach maturity and bear produce. Until
they reach maturity, bearer plants are in a growth phase and so undergo
significant biological transformation. Furthermore, the Board noted that the
produce growing on the bearer plants is undergoing biological transformation
until it is harvested (for example, grapes growing on a grape vine).
Paragraphs BC70–BC79 explain the reasons supporting the Board’s
6 References to the Conceptual Framework in this Basis for Conclusions are to the Conceptual
Framework for Financial Reporting, issued in 2010 and in effect when the Standard was amended.

IAS 16 BC
conclusions regarding bearer plants before they reach maturity and the
produce growing on the bearer plants.
Accounting for bearer plants before they mature

BC70 The Board considered whether a fair value approach or a cost accumulation
approach should be applied to bearer plants before they reach maturity.
BC71 The Board noted that, before they mature, bearer plants undergo biological
transformation and this distinguishes them from self-constructed property,
plant and equipment. Such biological transformation would not be reflected
by a cost accumulation approach. The Board further noted that a fair value
approach would be consistent with the principle in IAS 41 that biological
transformation is best reflected by fair value measurement.
BC72 However, the Board noted that IAS 16 does not incorporate internal profit in
the measurement of a self-constructed item of machinery. By analogy,
biological transformation should not be included either. The Board further
noted that most of the investors and analysts consulted during the outreach
performed by the staff said that the IAS 41 fair value information about bearer
plants is of limited use to them and that the measurement of the fair values of
bearer plants is particularly subjective during the early years of the life cycle
of those bearer plants. For these reasons the Board decided that bearer plants
should be measured at accumulated cost before they reach maturity. The
Board also observed that it would be simpler to keep bearer plants in IAS 16
throughout their life. Virtually all respondents to the ED supported
measuring bearer plants using a cost accumulation approach before they
mature.
Accounting for produce growing on a bearer plant

BC73 The Board considered whether produce should be recognised at fair value less
costs to sell only at the point of harvest or from the date that it starts to grow.
BC74 The Board observed that the produce is a consumable biological asset growing
on the bearer plant and the growth of the produce directly increases the
expected revenue from the sale of the produce. Consequently, fair value
measurement of the growing produce provides useful information to users of
financial statements about future cash flows that an entity will actually
realise. In contrast the bearer plants themselves are not sold and the changes
in the fair value of the bearer plants do not directly influence the entity’s
future cash flows. The Board also observed that produce will ultimately be
detached from the bearer plants and is normally sold separately, meaning it
has a market value on its own. This is in contrast to many bearer plants that
are unlikely to have an observable market value on their own because they
can only be sold while attached to the land.
BC75 Many respondents to the ED acknowledged the conceptual reasons for

accounting for produce at fair value less costs to sell, but expressed concern
with the likely practical challenges. Some respondents suggested only
requiring fair value less costs to sell to be measured at the point of harvest, or
providing additional relief from fair value measurement on the basis of cost-

IAS 16 BC
benefit considerations. Other respondents suggested accounting for produce

using a cost model before harvest, similarly to inventories or work in progress.
Several respondents said further guidance should be provided on how to
measure the produce at fair value.
BC76 The Board acknowledged that measuring produce growing on bearer plants at
fair value less costs to sell might sometimes be difficult to apply in practice.
However, it was noted that similar difficulties are encountered when
measuring the fair value less costs to sell of produce growing in the ground.
Consequently, the Board decided that it would be inconsistent to provide
additional relief from fair value measurement for produce growing on a
bearer plant and not also for other biological assets within the scope of IAS 41.
BC77 The Board observed that if preparers encounter significant practical

difficulties on initial measurement of produce, they should consider whether
they meet the requirements of the exemptions in paragraphs 10(c) and 30 of
IAS 41. Paragraph 10(c) of IAS 41 states that an entity shall recognise a
biological asset only when the fair value or cost of the asset can be measured
reliably. Paragraph 30 of IAS 41 requires a biological asset to be measured
using a cost model if fair value measurement is determined to be clearly
unreliable. The Board noted that this limited-scope project was not intended
to address the fair value model in IAS 41. Consequently, the Board agreed not
to further discuss the exemptions in IAS 41 as part of this project.
BC78 On the basis of the considerations above, the Board decided to reaffirm that
produce is a biological asset within the scope of IAS 41 and consequently
should be measured at fair value less costs to sell with changes recognised in
profit and loss as the produce grows. This would maintain the consistency of
accounting for produce growing in the ground and produce growing on a
bearer plant. Consequently, the Board decided to keep the produce within the
scope of IAS 41.
BC79 The Board noted that most of the areas for which respondents to the ED asked
for additional guidance were specific to a particular type of bearer plant or
produce. The Board decided that because of the specialised nature and
diversity of bearer plants and produce it would be too difficult for the Board to
develop additional guidance on measuring the fair value of produce.
Application of the IAS 16 requirements to bearer plants
Unit of measure
BC80 Agricultural activity is often a continuous process, meaning that older plants
are continuously removed from service and replaced. The Board noted that, if
bearer plants are accounted for using a cost model, this continuous process
needs to be made discrete. Consequently, the question arises as to what the
unit of measure is—for example, is it the individual plant or some larger
aggregation, such as a field or a planting cycle?

IAS 16 BC
BC81 The Board noted that IAS 16 does not prescribe the unit of measure, or the
extent to which items can be aggregated and treated as a single item of
property, plant and equipment. Consequently, applying the recognition
criteria in IAS 16 to bearer plants will require judgement. This would give an
entity flexibility, depending on its circumstances, to decide how to aggregate
individual plants for the purpose of determining a measurable unit of bearer
plants. The Board noted that accounting for an aggregation of plants would be
similar to accounting for a large quantity of equipment that is acquired or
constructed in batches. For example a company may construct a large number
of moulds for use within its business. Some aggregation of the moulds would
usually be necessary for determining an item of property, plant and
equipment. Consequently, the Board decided that the requirements for the
unit of measure in IAS 16 would provide sufficient guidance for bearer plants
without modification.
Point of maturity
BC82 Most respondents to the ED requested additional guidance on when a bearer
plant is in the ‘location and condition necessary for it to be capable of
operating in the manner intended by management’ in accordance with
paragraph 16(b) of IAS 16—ie when it is deemed to have reached maturity. For
example, an oil palm may start to grow produce after two years, but only
reach its maximum yield after seven years. Respondents suggested either
defining the date of maturity to be ‘the date of the first harvest of commercial
value’ or ‘the date commercial quantities of produce are produced’. The Board
noted that without further clarification these terms would not assist entities
in applying judgement in this area and would be likely to lead to
interpretation requests in the future. The Board also noted that a similar
scenario arises for a factory or retail outlet that is not yet capable of operating
at full capacity and did not think that this was a major issue in practice.
Consequently, the Board decided not to add guidance in this area.
Other recognition and measurement requirements of the

cost model
BC83 The Board considered whether the other recognition and measurement
requirements of the cost model in IAS 16 were sufficient to address the unique
costs of growing bearer plants both before and after they reach maturity. The
following were the main requests for guidance raised by respondents to the
ED:
(a) how to assess what is an abnormal amount of wastage/mortality

during the growth phase of the bearer plants. The Board noted that
there is a similar issue when an entity constructs a large number of
fragile items of machinery for use within the business.
(b) the nature of costs that can be capitalised before maturity. The Board
noted that although the examples in IAS 16 are about non-living items,
paragraph 17(a)–(b) and (e) of IAS 16 adequately covers the types of
costs incurred to cultivate and grow bearer plants.

IAS 16 BC
(c) allocation of costs after maturity between the growing fruit and the
bearer plant. The Board noted that an entity may recognise all costs as
an expense after maturity unless they meet the criteria for
capitalisation as part of bearer plants in accordance with paragraph 7
of IAS 16. Consequently, such guidance would not be necessary.
(d) transfers between IAS 16 and IAS 41 if the entity changes its intention
for a bearer plant or if scrap sales are no longer considered incidental.
The Board noted that it would be rare for transfers to take place
between IAS 16 and IAS 41 for bearer plants, particularly in the light of
the Board’s decision to change criterion (c) of the definition of a bearer
plant to ‘has a remote likelihood of being sold as agricultural produce,
except for incidental scrap sales’ (see paragraph BC62).
BC84 The Board decided that the current principles in IAS 16 are sufficient to cater
for bearer plants without modification or supplement.
BC85 Some respondents to the ED requested guidance on the application of other

Standards to bearer plants, for example, IAS 17 Leases, IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance, IAS 23 Borrowing
Costs and IAS 36 Impairment of Assets. However, when commenting on those
Standards, respondents did not highlight issues unique to bearer plants. The
Board noted that bearer plants meet the definition of property, plant and
equipment in IAS 16 and are accounted for as property, plant and equipment.
Consequently, bearer plants are items of property, plant and equipment when
applying other Standards.
Disclosure requirements of the cost model

BC86 The Board considered the disclosure requirements in IAS 16 and decided that
they could be applied to bearer plants without modification. The Board also
considered whether any additional disclosures should be required for bearer
plants.
BC87 Some Board members were concerned that if entities move from a fair value
model to a cost model for bearer plants, decision-useful information about the
fair values of bearer plants and the assumptions used to determine those fair
value measurements would be lost. However, the Board noted that most of the
investors and analysts consulted during the user outreach performed by the
staff said that fair value information about bearer plants has limited use to
them without fair value information about the related land, agricultural
machinery, etc. Furthermore, virtually all respondents to the ED said that
disclosure of fair value information about bearer plants and/or information
about the significant inputs used in valuation techniques should not be
required.
BC88 The Board noted that there is no clear basis for requiring fair value disclosures
for bearer plants when such disclosures are not required for the rest of the
property, plant and machinery involved in the process of growing the
produce. It also noted that there is also no clear basis for requiring entities
with bearer plants to provide fair value disclosures for their land when these
disclosures are not required for land used for other purposes. The Board

IAS 16 BC
further acknowledged that the limited-scope project was not intended to

address fair value disclosure requirements for other assets in IAS 16.
Consequently, the Board decided not to require additional fair value
disclosures for entities with bearer plants.
BC89 During user outreach, many investors and analysts told the staff that instead
of using fair value information they use other information, for example, about
yield, acreage and age of bearer plants. This information is usually obtained
via the presentations made to analysts, the front of annual reports (for
example, in the Management Commentary) or is otherwise received directly
from companies. Many respondents to the ED acknowledged that disclosures
about productivity and future cash flows are useful to users of financial
statements, but most said that such disclosures should not be mandatory and
belonged outside the financial statements.
BC90 Some respondents to the ED noted that disclosure of non-financial measures

of physical quantities of biological assets and output of agricultural produce is
currently required for all biological assets in paragraph 46 of IAS 41. They said
that including bearer plants in IAS 16 would mean that this disclosure
requirement would no longer apply to them. The Board observed that this is
likely to have a limited effect in practice because the disclosures in
paragraph 46 of IAS 41 will continue to apply to the produce in IAS 41 as
follows:
(a) paragraph 46(a) and (b)(ii) of IAS 41—the Board noted that the
disclosures made by entities in accordance with paragraphs 46(a)
and (b)(ii) would be the same regardless of whether those paragraphs
refer to the entire plant or only the produce.
(b) paragraph 46(b)(i) of IAS 41—the Board noted that paragraph 46(b)(i)
now applies to physical quantities of produce instead of physical
quantities of entire plants. The Board noted that paragraph 46(b)(i)
does not stipulate the type of non-financial measures or estimates that
an entity needs to provide. The Board also noted that plantation
companies generally provide more information about productivity of
bearer plants outside the financial statements than is required by
paragraph 46 of IAS 41 and would be likely to continue to disclose
their chosen non-financial measures of bearer plants even if this
paragraph only refers to produce.
Consequently, the Board decided not to add the disclosures in paragraph 46 of

IAS 41 to IAS 16.
BC91 The Board observed that agricultural activity is diverse and it would be
difficult to identify specific productivity disclosures that would provide useful
information for users of financial statements and cover all types of bearer
plants. The Board also observed that if additional productivity disclosures
were included in IAS 16 for bearer plants (other than those in paragraph 46 of
IAS 41), it would be difficult to justify requiring them in IAS 16 for bearer
plants and not in IAS 41 for other biological assets. The Board noted that
reconsidering the disclosure requirements of IAS 41 was outside the scope of

IAS 16 BC
this project. Consequently, the Board decided not to add any additional
disclosures in IAS 16 for bearer plants.
Revaluation model
BC92 IAS 16 permits entities to choose either the cost model or the revaluation
model for each class of property, plant and equipment. The Board decided that
the same accounting policy options should be permitted for bearer plants.
Consequently, the Board decided that the revaluation model in IAS 16 should
be permitted for bearer plants.
BC93 Most respondents to the ED supported allowing entities an option to use the
revaluation model. However, some respondents asked for guidance on
applying the revaluation model to bearer plants. The Board decided that the
requirements of the revaluation model are clear without additional guidance
and it noted its expectation that the vast majority of entities with bearer
plants will use the cost model for the reasons set out in paragraph BC103.
Consequently, the Board confirmed that the revaluation model would be
permitted for bearer plants and decided not to add additional guidance.
Positioning of requirements
BC94 The Board observed that there was some benefit to keeping all of the
requirements for agricultural activity together. However, the Board noted that
the requirements in IAS 16 would be applied to bearer plants with virtually no
modification. Furthermore, bearer plants meet the definition of property,
plant and equipment and are used like property, plant and equipment within
the business. Virtually all respondents to the ED supported including bearer
plants within the scope of IAS 16. The Board thus confirmed that it would
include bearer plants within the scope of IAS 16.
Transition requirements
Current IFRS preparers

BC95 The Board noted that if an entity currently measures its bearer plants at fair
value less costs to sell and has not previously collected cost information,
collecting this information to measure the cost of those bearer plants may be
costly. If bearer plants have long life cycles, entities could be required to look
back several decades in order to obtain the necessary information.
Consequently, for cost-benefit reasons, the Board decided that the
amendments to IAS 16 should permit the use of fair value as deemed cost for
items of bearer plants at the beginning of the earliest comparative period
presented in the financial statements. The Board also noted that the
amendments address an immediate need for entities with bearer plants.
Consequently, the Board decided that the amendments should be available for
early application.

IAS 16 BC
BC96 Virtually all respondents to the ED supported the transition requirements

without change. However, some respondents said that the Board should
clarify how to account for differences between fair value and the carrying
value determined in accordance with IAS 41 (fair value less costs to sell) at the
transition date. The Board agreed.
BC97 The Board noted that on the initial application of the amendments,
paragraph 28(f) of IAS 8 would require an entity to disclose, for the current
period and for each prior period presented, the amount of any adjustment for
each financial statement line item affected. The Board observed that requiring
this disclosure requirement for the current year would be burdensome
because it would require an entity to maintain dual systems in the year of
initial application. The Board noted that not requiring this disclosure for the
current year would be consistent with its other decisions during the project.
Consequently for both the amendments to IAS 16 and the amendments to
IAS 41, the Board decided to exempt entities from providing the disclosure
required by paragraph 28(f) for the current period. Entities would still be
required to provide those disclosures for each prior period presented in the
financial statements.
First-time adoption of IFRS

BC98 Consistent with the reasoning for accounting for bearer plants as property,
plant and equipment (see paragraphs BC63–BC68), the Board decided that the
same deemed cost exemptions provided for property, plant and equipment in
IFRS 1 First-time Adoption of International Financial Reporting Standards should be
available for bearer plants. Virtually all respondents to the ED supported this
requirement for first-time adopters of IFRSs. The Board thus confirmed the
proposals for first-time adopters. The Board noted that no consequential
amendments to IFRS 1 were required because bearer plants are accounted for
as items of property, plant and equipment. Consequently, exemptions already
provided in IFRS 1 would address first-time application issues related to bearer
plants.
Analysis of the likely effects of the amendments

BC99 The following paragraphs describe the Board’s analysis of the likely effects
that will result from the amendments to the requirements for the accounting
for bearer plants.
BC100 The Board is committed to assessing and sharing knowledge about the likely
costs of implementing new requirements, and the likely ongoing application
costs and benefits of each new or revised Standard—the costs and benefits are
collectively referred to as ‘effects’.
BC101 The Board gains insight on the likely effects of the proposals for new or
revised Standards through its formal exposure of proposals and through its
fieldwork, analysis and consultations with relevant parties through outreach
activities. The likely effects are assessed:

IAS 16 BC
(a) in the light of the Board’s objective of financial reporting

transparency; and
(b) in comparison to the existing financial reporting requirements.
BC102 In evaluating the likely effects of the amendments, the Board has considered
the following issues (see paragraphs BC106–BC117):
(a) how the changes are likely to affect how bearer plants are reported in
the financial statements of those applying IFRS;
(b) whether those changes improve the comparability of financial

statements between different reporting periods for an individual entity
and between different entities in a particular reporting period;
(c) whether the changes will improve the ability of users of financial
statements to assess the future cash flows of an entity;
(d) whether the improvements to financial reporting will result in better

economic decision-making;
(e) the likely effect on compliance costs for preparers, both on initial
application and on an ongoing basis; and
(f) whether the likely costs of analysis for users of financial statements,
including the costs of extracting data, identifying how it has been
measured and adjusting it for the purposes of including that data in,
for example, a valuation model, are affected.
BC103 The amendments will permit entities to apply either the cost model or the
revaluation model, in accordance with IAS 16, for bearer plants. The Board
expects that most entities will choose the cost model instead of the
revaluation model, because:
(a) the revaluation model would not eliminate the main concerns raised
by preparers, in particular the cost and complexity of regularly
measuring the fair value of bearer plants.
(b) most entities apply a cost model to agricultural land and machinery
and the Board expects that those entities would favour using a
consistent approach for all assets used in the production of income,
including bearer plants.
(c) IAS 16 only permits the revaluation model to be used if the fair value
of bearer plants can be measured reliably. Many entities with bearer
plants told the Board that fair value estimations are often complex and
subjective. If fair value cannot be measured reliably, use of the
revaluation model would be precluded.
BC104 Consequently, the analysis of the likely effects in paragraphs BC106–BC117

only considers the likely effects of applying the IAS 16 cost model in
comparison to the IAS 41 fair value model.

IAS 16 BC
BC105 If entities choose to account for bearer plants using the revaluation model in
IAS 16, the most significant effect would be to require changes in the revalued
amount, which approximates fair value, to be recognised in other
comprehensive income. Currently, changes in fair value less costs to sell are
recognised in profit or loss under IAS 41.
How the amendments are likely to affect how activities

are reported
BC106 The amendments will only affect specific types of agricultural activity, namely
those entities with bearer plants.
BC107 Assuming that current IFRS adopters choose to apply the cost model in IAS 16
to bearer plants the main changes will be as follows:
Effect Fair value model in IAS 41 Cost model in IAS 16 Effect
Financial Measured at fair value less Measured at cost less Net asset amounts are likely
position costs to sell (together with any accumulated to be lower for the cost
the produce). depreciation and any model than the fair value
accumulated impair- model during the earlier part
ment losses. (Produce of the productive life of a
measured separately at bearer plant. This is because
fair value less costs to the future cash flows that
sell.) can be generated by the
bearer plant, and reflected in
a fair value measurement,
will likely be higher than the
cost on initial recognition.
Over time, the carrying
amounts measured in
accordance with the two
models are expected to
converge as the asset
approaches the end of its
productive life.
Profit or loss Changes in fair value less The depreciation Over the life of the bearer
costs to sell are recognised charge for each period, plants the net amount
in profit or loss. and any impairment recognised in profit or loss
loss, will be recognised will likely be the same
Costs may be recognised as in profit or loss. whether applying the fair
an expense immediately or value model or the cost
capitalised. If they are model. However, if an entity
capitalised there is an equal applies the fair value model
reduction in the change in the effect on profit or loss
the fair value less costs to will be variable (changes in
sell. fair value). If an entity
applies the cost model the
effect on profit or loss is
likely to be more systematic
(depreciation, with possible
impairment).

IAS 16 BC
How the amendments affect the comparability of financial

statements
Comparability between entities
BC108 The Board does not expect the amendments to significantly reduce the
comparability between entities because:
(a) IAS 41 requires biological assets to be accounted for using the fair
value model. The Board does not expect the choice of accounting policy
in IAS 16 to reduce comparability between entities with bearer plants
because most entities are expected to choose the cost model for the
reasons explained in paragraph BC103.
(b) The primary benefits of using fair value for biological assets are that
fair value captures biological development (ie the growth of the
produce) and is closely aligned with how the entity expects to convert
the asset to cash (ie through sale). The Board has retained fair value for
the produce of a bearer plant (for which these primary benefits are
applicable) while aligning the accounting for the bearer plant with the
accounting for property, plant and equipment. The Board considers
that this change will improve comparability by distinguishing between
types of biological asset.
(c) The Board observed that some entities may elect to measure bearer
plants at fair value on initial application of the amendments and use
that fair value as its deemed cost at that date, while others may elect to
apply the amendments retrospectively (eg if they currently use a cost
model in accordance with IAS 16 for management purposes). However,
the Board noted that if there is any lack of comparability between
entities on initial application, it is just as likely to arise from the
aggregation of costs incurred at different dates as from the use of fair
value as deemed cost by some but not all entities. Furthermore, the use
of fair value as the deemed cost for bearer plants means that an entity
will report the same cost data as if it had acquired bearer plants with
the same remaining service potential at the date of transition to IFRS,
eg if it had purchased an area of plantation on that date.
Comparability between reporting periods for an individual entity

BC109 The Board does not expect the amendments to significantly reduce the
comparability between reporting periods for an individual entity choosing the
cost model. This is because under IAS 41 the change in the fair value less costs
to sell of bearer plants can fluctuate significantly between reporting periods as
a result of small changes in assumptions. Furthermore, most investors and
analysts consulted during the user outreach performed by staff said that they
eliminate the change in the fair value less costs to sell of bearer plants when
comparing an entity’s operating performance between reporting periods.

IAS 16 BC
BC110 Currently, bearer plants are accounted for in a different way from the land,
land improvements and agricultural machinery used in the production
process. In most cases entities account for these assets at cost under IAS 16.
Consequently, accounting for the bearer plants under IAS 16 will improve
comparability between the producing assets of the entity by accounting for
similar assets in similar ways.
How the amendments will improve a user’s ability to

assess future cash flows
BC111 IAS 41 currently requires bearer plants to be measured at fair value less costs
to sell. Consequently, the requirement to measure fair value applies to both
the bearer plant and the produce growing on the bearer plant. As a result of
the amendments, only the produce growing on bearer plants will be measured
at fair value less costs to sell.
BC112 The produce of bearer plants is usually grown for sale. Consequently, fair
value changes in the produce have a direct relationship to the expectations of
future cash flows that the entity will receive on sale. In contrast, bearer plants
are normally held by an entity for the whole of their useful life and then
scrapped, so changes in fair value are not directly recognised as cash flows on
sale of the bearer plants. Consequently, the Board thinks that providing
separate fair value information for the produce is likely to improve the ability
of users of the financial statements to assess future cash flows.
BC113 During the project the staff sought the views of investors and analysts that use
the financial statements of companies with bearer plants. Many of these
investors and analysts told the staff that they focus on cash flows that an
entity is expected to realise. These investors and analysts said that the fair
value of bearer plants is not considered in their analysis because the bearer
plants themselves are not sold and the changes in the fair value of the bearer
plants do not directly influence the entity’s future cash flows. Furthermore,
some of these investors and analysts said that they would prefer a cost model
for bearer plants because it provides a better basis to forecast future capital
expenditure than a fair value model.
How the amendments will affect economic decision-

making and the costs of analysis for users of financial
statements
BC114 There is an assumption inherent in the Conceptual Framework that accounting
for similar assets in similar ways enhances the usefulness of the reported
information. Although bearer plants are dissimilar in form to plant and
machinery, similarities in how they are used provides support for accounting
for them in the same way.
BC115 As a result of the amendments, users of financial statements will generally

receive cost information about bearer plants instead of fair value information.
This is not expected to result in less relevant information for users of financial
statements because nearly all investors and analysts consulted during the user
outreach performed by staff said that the IAS 41 fair value information about

IAS 16 BC
bearer plants is of limited use to them for the reasons set out in
paragraph BC68.
Effect on the compliance costs for preparers

BC116 Preparers of financial statements have expressed concern that, in the absence
of active markets for bearer plants, fair value measurements are complex,
time-consuming and costly, especially for entities that hold large plantations
with varying maturities, yield profiles and locations. The amendments
respond to this concern and are expected to significantly reduce costs for
preparers of financial statements by permitting a cost model for bearer plants.
However, entities will still be required to perform the following fair value
measurements:
(a) the produce growing on the bearer plants will still be measured at fair
value less costs to sell. The Board’s reasoning for requiring the produce
to be measured at fair value less costs to sell is set out in
paragraphs BC73–BC79.
(b) as is the case for all items of property, plant and equipment, bearer
plants will be subject to an impairment test under IAS 36.
Consequently, if there is an indication that bearer plants are impaired
at the reporting date, the entity would be required to estimate the
recoverable amount of the asset (or its cash-generating unit). The
recoverable amount of an asset or a cash-generating unit is the higher
of its fair value less costs of disposal and its value in use.
BC117 Nevertheless, the amendments will reduce compliance costs for the majority
of entities because:
(a) the Board thinks that measuring the produce at fair value less costs to
sell would be less complex than measuring the bearer plants and
produce together at fair value less costs to sell. This is because the
produce is growing on the bearer plants only for a short period and so
the valuation of produce will not involve forecasting over long time
periods. Furthermore, there is usually an active market for the
harvested produce, whereas there is rarely an active market for bearer
plants and observable market prices generally exist only for many
bearer plants together with the land.
(b) IAS 41 currently requires entities to determine the fair value less costs
to sell of bearer plants at each reporting date. As a result of the
amendments, an entity applying the cost model in accordance with
IAS 16 would be required to estimate the recoverable amount of an
item of bearer plants (or the relevant cash-generating unit) only if
there are indicators of impairment at the reporting date. In general,
bearer plants do not generate cash flows independently of the land.
Consequently, the impairment test would take place at the cash-
generating unit level. If the fair value of the land is greater than the
carrying amount of the cash-generating unit containing the land and
bearer plants, the cash-generating unit would not be impaired.

IAS 16 BC
Consequently, as a result of the amendments, fair value measurements

are expected to be less frequent.

IAS 16 BC
Dissenting opinions
Dissent of Mary Tokar from Clarification of Acceptable

Methods of Depreciation and Amortisation (Amendments
to IAS 16 and IAS 38) as issued in May 2014
DO1 Ms Tokar is dissenting from the publication of this amendment. She does not
object to the IASB’s objective of clarifying acceptable methods of depreciation
and amortisation, nor to its conclusions to preclude revenue-based
depreciation and nor to the introduction of a rebuttable presumption that
revenue cannot be used as a basis for amortisation of intangibles. She also
agrees that expectations of obsolescence should be considered when
determining the useful life of an asset and selecting an amortisation or
depreciation method that reflects the pattern of consumption of the asset.
However, she is concerned that the amendments will not fully resolve the
practice issue that was originally raised with the IFRS Interpretations
Committee. She believes that the amendments are not sufficiently clear
regarding what evidence is required to overcome the presumption and instead
support the use of revenue as the basis for amortisation of an intangible asset.
She believes that further guidance should be included to explain when the
pattern of consumption of economic benefits is the same as the pattern in
which revenue is generated.

IAS 16 BC
Dissent of Patrick Finnegan and Patricia McConnell

from Agriculture: Bearer Plants (Amendments to IAS 16
and IAS 41) June 2014
DO1 Mr Finnegan and Ms McConnell voted against the publication of Agriculture:
Bearer Plants (Amendments to IAS 16 and IAS 41) issued in June 2014 (the
‘June 2014 Amendment’) because they believe that including bearer plants
within the scope of IAS 16 Property, Plant and Equipment instead of IAS 41
Agriculture will eliminate information about the fair value changes in bearer
plants and the underlying assumptions used to estimate those changes.
Information about the fair values of all biological assets including bearer
plants is critical both to managing agricultural activities and to investing in
entities that engage in those activities. Without such information, investors
are unable to assess changes in expectations of future net cash inflows for an
entity engaged in agricultural activity. The fact that published price
quotations have developed throughout the world for orchards and plantations
that include bearer plants demonstrates the importance of fair value
information to those who invest in agricultural activities.
DO2 IAS 41 prescribes the accounting for agricultural activity, that is, the
management by an entity of the biological transformation of living animals or
plants (biological assets) for sale, into agricultural produce or into additional
biological assets. The underlying principle of IAS 41 is that fair value
measurement best reflects the biological transformation of biological assets. It
requires measurement at fair value less costs to sell (referred to hereafter as
fair value) from initial recognition of biological assets up to and including the
point of harvest, other than when fair value cannot be measured reliably on
initial recognition.
DO3 The June 2014 Amendment changes the measurement for one subset of
biological assets, bearer plants, from fair value to a cost-based measure. Bearer
plants are plants that are used only in the production or supply of agricultural
produce and are expected to bear produce for more than one period. The
June 2014 Amendment includes bearer plants within the scope of IAS 16.
Consequently, entities would be permitted to choose either the cost model or
the revaluation model for bearer plants. All other biological assets related to
agricultural activity will remain under the fair value model in IAS 41,
including bearer animals.
The importance of fair value information for biological assets

DO4 Fundamentally, IAS 41 is a Standard on accounting for biological
transformation. Biological transformation of bearer assets occurs both prior to
maturity and after maturity. A cost model ignores biological transformation
when it occurs. That is why IAS 41 requires fair value measurement. The Basis
for Conclusions of IAS 41 states:
“Those who support fair value measurement argue that the effects of changes
brought about by biological transformation are best reflected by reference to the
fair value changes in biological assets. They believe that fair value changes in
biological assets have a direct relationship to changes in expectations of future
economic benefits to the entity.”

IAS 16 BC
Mr Finnegan and Ms McConnell see no reason to abandon that principle with

respect to bearer plants. Consequently, they do not agree that prior to
maturity, bearer plants should be measured at accumulated cost. They do not
believe that accounting for bearer plants in the same way as for self-
constructed items of property, plant and equipment will provide users of
financial statements with information that is useful to an understanding of
the agricultural entity’s performance for the period or of its productive
capacity at a point in time.
DO5 While maturing, bearer plants are undergoing biological transformation.

Mr Finnegan and Ms McConnell continue to believe that fair value
measurement for the biological transformation process provides the best
information about bearer assets’ quality and quantitative changes during their
growth period. They also believe that the fair value of bearer plants at
maturity provides the best measure of an entity’s resources being placed into
the production of produce at maturity. Investors need that information to
assess management’s stewardship of the resources invested in the production
process and the performance of the entity using those resources.
Consequently, they believe that bearer plants must be measured at fair value
while maturing because fair value provides users of financial statements with
the best information about an important aspect of an agricultural entity’s
performance and management stewardship.
DO6 They also reject the view that biological transformation of bearer assets is no
longer a key element for understanding the future net cash flows to an entity
once such assets reach maturity. By definition, biological transformation is
not limited to merely the growth process to maturity, but also includes the
cycles of production and degeneration, which are critical phases in the life
cycle of bearer assets. Fair value measurements of bearer assets throughout
their lives provide information about the effectiveness and efficiency of the
production process, and about the capability of such assets to generate net
cash inflows into the future. In contrast, depreciation of the cost of a mature
bearer asset only approximates the biological transformation of a bearer asset
throughout its productive life and has only an indirect relationship, at best, to
changes in future net cash inflows.
Effects of the use of fair value measurement

DO7 Mr Finnegan and Ms McConnell acknowledge that measuring bearer plants at
fair value may sometimes be difficult. In particular, the Board has been told
that the fair value of bearer plants is particularly subjective during the early
years of their life cycle. However, Mr Finnegan and Ms McConnell note that
IAS 41 contains an exception from fair value for biological assets for which
quoted market prices are not available and for which alternative fair value
measurements are determined to be clearly unreliable on initial recognition.
They believe that this exception is sufficient to deal with the concerns about
the reliability of fair value measures of bearer plants during the early years of
their life cycle. They also note that entities throughout the world have been
applying IAS 41 in a wide variety of agricultural activities since 2003. In fact,
some national accounting standards required or recommended measurement
of bearer assets at fair values even before IAS 41 was issued. They do not

IAS 16 BC
believe that measuring fair value of bearer plants, in general, is any more
difficult than measuring fair value for other biological assets such as bearer
animals. Furthermore, they believe that applying a cost measure to bearer
plants may be equally as difficult in some situations. Fair value measurements
are required in assessing bearer plants for impairment, and surely those who
are urging a reversion to a cost model for bearer assets would not suggest that
impairment should be ignored because fair value measurement may
sometimes be difficult. Moreover, the June 2014 Amendment would permit
fair value measurements as a pure accounting policy choice. Mr Finnegan and
Ms McConnell believe that accounting should reflect underlying economic
circumstances and should not merely be left to choice. The existing fair value
exception in IAS 41 is based on circumstances (measurement reliability), and
is not an accounting policy choice.
DO8 In addition to concerns about the reliability of fair value measures, entities
with bearer assets expressed concern about the volatility that arises from
recognising changes in the fair value of the bearer plants in profit or loss and
said that users of financial statements adjust reported profit or loss to
eliminate the effects of changes in fair values of bearer biological assets.
Mr Finnegan and Ms McConnell accept the view that the use of fair value for
bearer assets makes the analysis of profit or loss and financial position more
difficult. At the same time, they note that price volatility is an indicator of
risk, and risk assessment is part of an analyst’s job. Mr Finnegan and
Ms McConnell note that sound financial statement analysis will always adjust
reported profit or loss and financial position for the effects of unusual or non-
recurring changes in reported information. However, if critical information
about changes in the economic benefits arising in an agricultural operation is
not reported, such analysis is impaired or not possible at all.
DO9 Mr Finnegan and Ms McConnell believe that instead of ignoring the fair value
volatility, which a cost model does, volatility should be addressed as a matter
of financial statement presentation—such as by putting the fair value changes
in other comprehensive income. They note that under the June 2014
Amendment, the bearer assets will be within the scope of IAS 16 and
revaluation will be permitted. If an entity were to choose revaluation, the
change in the revaluation amount (which approximates fair value) would be
reported in other comprehensive income. Consequently, they believe that
requiring fair value measurement during the entirety of the bearer plant’s life
cycle with the fair value changes reported in other comprehensive income
would be consistent with permitting revaluation of the bearer asset.
Furthermore, Mr Finnegan and Ms McConnell believe that such a change
would preserve relevant information for investors through prominent display
in the primary financial statements, while addressing the concerns of those
who believe that fair value changes distort profit or loss.
Current proposals are not improvements to IFRS

DO10 Mr Finnegan and Ms McConnell believe that if bearer assets are measured at
accumulated cost, then at a minimum, the fair value of the bearer plants
should be a required disclosure, including information about the valuation
techniques and key inputs/assumptions used. However, the 2014 Amendment

IAS 16 BC
is not requiring disclosure of fair value. Consequently, critical information is

being eliminated from the financial statements of entities engaged in
agricultural activities using bearer assets. Mr Finnegan and Ms McConnell do
not believe that this is an improvement to financial reporting. In
January 2013, the Trustees of the IFRS Foundation approved a new Due Process
Handbook that specifies, among other things, the criteria for new Standards or
major improvements. The main criteria (in addition to pervasiveness of the
issue) are (a) whether there is a deficiency in the way particular types of
transactions or activities are reported in financial reports, and (b) the
importance of the matter to those who use financial reports. Mr Finnegan and
Ms McConnell believe that, from a user perspective, there is no deficiency in
the accounting for, and disclosures about, bearer assets in IAS 41 and that fair
value information is important (indeed essential) to those who use the
financial reports of entities engaged in agricultural activity.
DO11 In the user outreach performed by the staff, most investors and analysts said
that fair value information about bearer plants is of either limited or no use to
them without fair value information about the related land, agricultural
machinery, etc. Instead of meeting the needs of users by providing this
additional fair value information to make the fair value of bearer plants more
useful, the Board has chosen to withdraw the requirement to provide the fair
value of bearer plants. In the view of Mr Finnegan and Ms McConnell this
solution does not adequately address the needs of users of financial
statements.
DO12 A better solution would have been for the Board to require the fair value of
bearer plants in combination with the fair value of the land to which such
plants are attached. One of the weaknesses in IAS 41 is that it does not require
the use of fair value to measure land to which bearer plants are attached. This
is a weakness because the value of bearer plants is inextricably tied to the
value of the land. By understanding the value of the bearer plants and the
land, investors know the true potential of an entity’s future net cash inflows.
A historical cost model for either or both is incapable of providing such
information.
DO13 As just discussed, Mr Finnegan and Ms McConnell do not believe the June 2014
Amendment represents an improvement to IFRS and, in fact, represents a step
towards lowering the quality of the information available in the financial
statements of entities engaged in agricultural activities. The June 2014
Amendment therefore fails to meet the Board’s own criteria for a new or
amended Standard.

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IAS 16

IASB documents published to accompany

Property, Plant and Equipment

BASIS FOR CONCLUSIONS

© IFRS Foundation C1803

BASIS FOR CONCLUSIONS ON

C1804 © IFRS Foundation

Accounting for produce growing on a bearer plant BC73

© IFRS Foundation C1805

Basis for Conclusions on

C1806 © IFRS Foundation

BC8 Respondents to the ED agreed that it was appropriate for subsequent

© IFRS Foundation C1807

(b) use of a single recognition principle is a straightforward approach.

(d) use of one recognition principle fosters consistency. With two

BC11 As a consequence of placing all subsequent expenditures under IAS 16’s

Classification of servicing equipment

C1808 © IFRS Foundation

Asset dismantlement, removal and restoration costs

© IFRS Foundation C1809

Property, Plant and Equipment—Proceeds before

(a) the proceeds specified in paragraph 17(e) related only to items

Recognising proceeds and related cost in profit or loss

C1810 © IFRS Foundation

(a) its performance. Offsetting proceeds against the cost of an asset

(b) the cost of an item of property, plant and equipment. Offsetting

Measuring the cost of items produced

© IFRS Foundation C1811

(b) an entity would already be required to apply IAS 2 in measuring cost if

BC16K The Board acknowledged the amendments might result in implementation

Presentation and disclosure

(a) the offsetting of income and expenses; and

C1812 © IFRS Foundation

Available for use and the meaning of ‘testing’

BC16R Nonetheless, the Board decided to clarify the meaning of ‘testing’ in

Asset exchange transactions

(a) gains should not be recognised on exchanges of assets unless the

© IFRS Foundation C1813

(c) requiring or permitting the recognition of gains from such exchanges

(a) under the Framework, the recognition of income from an exchange of

(b) income is not necessarily earned only at the culmination of an earning

(d) removing ‘existing carrying amount’ measurement of property, plant

C1814 © IFRS Foundation

Measurement after recognition

Revaluation method–proportionate restatement of

© IFRS Foundation C1815

(a) some think that the restatement of the accumulated depreciation is

BC25E The definition of ‘carrying amount’ in paragraph 6 is “the amount at which

C1816 © IFRS Foundation

BC25I Consequently, the Board decided to:

(b) amend paragraph 35(a) to state that the accumulated depreciation is

(c) delete the references to valuation methods in paragraph 35(a)–(b).

Depreciation: unit of measure

Depreciation: depreciable amount

© IFRS Foundation C1817

Depreciation: depreciation period

C1818 © IFRS Foundation