Accounting Standards for Private Enterprises (ASPE) Updates

Which entities are impacted?

• Any entities that have issued, or are planning to issue redeemable or mandatorily retractable shares (ROMRS) under a tax planning arrangement.

• Generally preferred shares that are issued in connection with an asset rollover, estate freeze, or other transaction in accordance with a prescribed section of the Income Tax Act.

What is the change?

• Stringent criteria put in place to elect to recognize ROMRS in equity at par value, otherwise they must be recognized as liabilities at the redemption value. Previous to the change, all ROMRS issued in a tax planning arrangement could be recognized in equity at par value.

• Entities must evaluate the criteria in each reporting period when there is a change in circumstances to determine if ROMRS can continue to be presented in equity at par value.

Why is the change important?

• Will result in many ROMRS being retrospectively recognized as liabilities at their redemption value at the date of transition (January 1, 2021) that were presented in equity prior to the effective date of the amendments.

• May impact decisions by third-parties using the financial statements. Most commonly, this may impact financial covenants reported to lenders in connection with banking agreements.

Why the change?

• ASPE 3856 required ROMRS classified as equity to be reclassified as liabilities “when redemption is demanded.” Given the diversity in redemption provisions, resulting in varying practice for reclassification, the Accounting Standards Board (“AcSB”) decided to harmonize classification on initial recognition.

• Equity classification was being applied to transactions it was not intended for, such as employee compensation plans and management buy-outs.

• Only specific Income Tax Act (“ITA”) sections were scoped in for application of equity classification prior to the amendments. The amendment allows equity classification to be applied more broadly to rollover and freeze tax planning arrangements not specifically linked to S85 and S86

Transitional provisions (currently issued ROMRS):

Currently issued ROMRS MUST be re-classified from equity to financial liability under the following scenarios:

Scenario #1 – ROMRS issued prior to January 1, 2018 AND;

• At January 1, 2021, ROMRS shareholder does NOT control the entity, or;

• Redemption schedule in place requiring redemption over fixed or determinable period.

Scenario #2 – ROMRS issued on or after January 1, 2018 AND;

1) One or more criteria for equity classification is NOT met (ASPE 3856.23):

• Control of the enterprise retained by shareholder receiving ROMRS;

• Either no consideration received by enterprise in exchange for ROMRS OR only shares of enterprise exchanged; and

• No written or oral arrangement exists, such as a redemption schedule, that gives the holder of the shares the contractual right to require the enterprise to redeem the shares on a fixed or determinable date or within a fixed or determinable period.

2) Entities can elect to classify as a financial liability as an accounting policy change.

If the ROMRS must be classified as liabilities or the entity makes a policy choice to classify as liabilities, there are two approaches allowed under the standard:

Option #1: Restate at the transition date (the first day of the earliest comparative period on the balance sheet). For an entity with a calendar year, this would likely be January 1, 2020.

• Prior period(s) restated

• Difference between the par value and redemption value of shares debited to retained earnings at the transition date

Option #2: Apply the change at the date the amendment to the standard is adopted (i.e. January 1, 2021 for calendar year).

• No restatement of prior periods

• Difference between the par value and redemption value of shares debited to retained earnings in the year

Recognition and subsequent measurement for newly issued ROMRS:

Important considerations:

• Entity can elect to classify ROMRS as equity at the time of recognition BUT cannot subsequently reclassify ROMRS to equity in future periods even if criteria for equity classification met.

• If policy choice made to classify ROMRS in equity and criteria are met, entity must re-assess classification when changes in circumstances indicate that ROMRS no longer meet equity classification criteria.

Criteria to be met for equity classification (ASPE 3856.23):

• Control of the enterprise retained by shareholder (control prior to and after) receiving ROMRS;

• Either no consideration received by enterprise in exchange for ROMRS OR only shares of enterprise exchanged; and

• No written or oral arrangement exists, such as a redemption schedule, that gives the holder of the shares the contractual right to require the enterprise to redeem the shares on a fixed or determinable date or within a fixed or determinable period.

Recognition and subsequent measurement for newly issued ROMRS:

Whether or not the holder of the ROMRS retains control of the enterprise is NOT a straightforward determination.

• Often more complex than whether or not a shareholder owns more than 50% of the voting common shares

• Control under ASPE 1591 Subsidiaries defined as the party having “continuing power to determine strategic, operating, investing, and financing policies without the cooperation of others”

• In making this determination, the issuing entity needs to consider, but considerations are not limited to, the following areas:

• Ownership of voting shares

• Board representation of the classes of shareholders

• Provisions of shareholder agreements that may limit or otherwise effect voting rights

• Contractual agreements in place with other parties

• Only one party in a related group may have control when making this assessment

• Only ROMRS issued to controlling shareholders are eligible for equity classification

Recognition and subsequent measurement for newly issued ROMRS:

Re-assessment of the classification of equity classified ROMRS:

• When events or transactions occur that may alter the assessment of the criteria in ASPE 3856.23, the entity must re-assess whether equity classification continues to be appropriate.

• If any of the criteria are no longer met, the entity must re-classify the ROMRS to equity at the date the triggering change occurred, recognizing the excess of redemption value over par value as a debit to retained earnings or as a separate component of equity.

Examples in the standard are provided as to the types of events or transactions that may trigger a change in classification:

• the death of the holder of the retractable or mandatorily redeemable shares issued in a tax planning arrangement;

• a change in the ownership of the enterprise;

• a change in the shareholders' agreement that may affect the assessment of control;

• redemption of some or all of the retractable or mandatorily redeemable shares;

• the creation of a written or oral arrangement that gives the holder of the retractable or mandatorily redeemable shares issued in a tax planning arrangement the right to require the enterprise to redeem the shares within a fixed or determinable period; or

• modifications to the retractable or mandatorily redeemable shares.

Disclosure requirements:

Disclosure requirements for equity classified ROMRS:

(i)   on the face of the balance sheet, the total redemption amount for all classes of such shares outstanding;

(ii)  the aggregate redemption amount for each class of such shares; and

(iii) a description of the arrangement that gave rise to the shares

Disclosure requirements for liability classified ROMRS (in addition to disclosure requirements for financial liabilities):

• A description of the arrangement that gave rise to the shares

• When the effect of classifying shares is recorded in retained earnings, amount charged to retained earnings disclosed on the face of the balance sheet for each share class

Classification of retractable or mandatorily redeemable shares

This decision tree will guide you in determining if shares are to be classified as equity or a financial liability.

Which entities are impacted?

• Any entities that engage or have engaged in transactions with related parties that remain recognized on the parties’ financial statements, specifically those that have issued, or assumed a financial instrument resulting from a related party transaction.

What is the change?

• Previous to the amendments, ASPE 3840 Related party transactions applied to recognition of financial and non-financial related party transactions, assumed (but not stated explicitly) that subsequent measurement of financial instruments resulting from related party transactions was covered by ASPE 3856 Financial instruments.

• ASPE 3840 now applies only to identification of related parties, measurement of non-financial elements of related party transactions, and disclosure requirements for related party transactions.

• ASPE 3856 has been amended to apply to all financial instruments, including those arising from related party transactions. Standard now explicitly addresses the recognition and measurement of related party transactions and balances.

• Standards now identify related party transactions as “monetary” and “non-monetary”

• Monetary RPTs: include at least on financial instrument, may include non-financial elements

• Non-monetary RPTs: exchange of non-financial elements

Why is the change important?

• The amendments to the recognition and measurement of financial instruments arising from related party transactions may result in retrospective restatement of related balances and transactions for issuers or holders of such instruments that were entered into prior to the effective date of the amendments (January 1, 2021).

• There are some substantive changes to the guidance for the recognition and measurement of related party financial instruments that entities will have to asses when entering into such arrangements on a go-forward basis.

Why the change?

• Entities found it challenging to determine when to apply section 3840 and when to apply section 3856 to the various elements of related party transactions, as there was no explicit guidance as to when each section applied.

• Section 3840 was found to be challenging to apply to the initial measurement of financial instruments transacted between related parties.

Related party transactions NOT containing financial instrument element

No substantive changes to the standard, except where sections reference section 3856 when financial instrument element is in scope. 

View changes to the standard

Related party transactions containing financial instrument element

Initial measurement of RP financial instruments (four different initial measurement scenarios)

1. Fair value (without adjustment)

• Investments in equity instruments with quoted price in active market

• Debt instruments quoted in active market

• Debt instruments with inputs significant to fair value determination that are directly/indirectly observable (i.e. Forward interest rates on variable rate instrument)

• Derivate contracts (i.e. Forward contract for purchase of foreign currency, interest rate swap)

2. Cost of the financial instrument (undiscounted cash flows excluding interest and dividend payments, less impairment losses recognize prior to transfer)

• NOT required to be measured at fair value (listed above)

• NOT ROMRS

• Instrument has repayment terms or the consideration transferred for the instrument has repayment terms

• i.e. trade receivables/payables, and notes and loans payable/receivable

3. Cost of financial instrument (determined using the cost of consideration transferred; “exchange amount”)

• Financial instrument has no repayments terms, i.e. Common shares, warrants, preferred shares without mandatory redemption feature, options.

• IF consideration is a financial instrument with repayment terms, cost is determined using undiscounted cash flows from consideration.

• IF consideration has no repayment terms AND is either:

• Is in the normal course of operations OR

• Is not in the normal course of operations but meets the following criteria:

i. Monetary or non-monetary transaction with commercial substance

ii. Change in ownership interest in items transferred is substantive

iii. Amount of consideration paid/received is established and agreed to by the parties and supported by independent evidence

*Cost determined using the exchange amount

4. Cost of the financial instrument (using carrying amount of the consideration transferred)

This is used ONLY if none of the three above scenarios apply

• Gains or losses resulting on initial recognition when a RP transaction includes a financial instrument recognized either in:

• Net income – when in the normal course of operations, or not in the normal course of operations BUT criteria i)-iii) apply

• Equity (direct to retained earnings, or contributed surplus) – if above criteria do not apply

• Transaction costs arising from RP financial instrument transaction included in net income in period incurred.

• Contingent portion of related party financial instruments: not recognized on initial recognition (but disclosed), remeasure instrument at fair value when contingency resolved with gain/loss in net income.

Initial measurement of RP financial instruments (four different initial measurement scenarios)

View different measurement scenarios

*Image originally published by CPA Canada in the April 2019 publication: “Financial Reporting Alert: Accounting Standards for Private Enterprises (ASPE),  Appendix II.”

Subsequent measurement of RP financial instruments

The measurement is generally the same as for financial instruments arising in arm’s length transactions with the following exceptions:

• Impairment of financial assets

• Undiscounted cash flows used in determining recoverable value vs. discounted for arm’s length transactions.

• Equity instruments are impaired to value that could be realized through sale at the balance sheet date.

• Forgiveness of related party financial asset/liability

• Recognize in net income UNLESS transaction resulting in instrument not originally contemplated to be in normal course of operations, then recognize in equity.

• Replacement of/modification of related party financial liability

• Record as extinguishment of original liability and recognition of new liability.

• Recognize resulting gain/loss in net income UNLESS transaction resulting in instrument not originally contemplated to be in normal course of operations, then recognize in equity.

• Discontinuance of fair value measurement

• Equity instruments that cease to be quoted in active market are subsequently measured at cost, which is remeasured as the fair value of the instrument immediately prior to it ceasing to be quoted in an active market.

• May elect on initial recognition to subsequently measure debt instruments at fair value when:

• Quoted in an active market, or when inputs to fair value determination are observable.

• Debt instruments cease to be measured at fair value if either of the criteria are no longer met.

• Forgiveness of related party financial asset/liability

• Recognize in net income UNLESS transaction resulting in instrument not originally contemplated to be in normal course of operations, then recognize in equity.

• Replacement of/modification of related party financial liability

• Record as extinguishment of original liability and recognition of new liability.

• Recognize resulting gain/loss in net income UNLESS transaction resulting in instrument not originally contemplated to be in normal course of operations, then recognize in equity.

RP financial instruments containing both liability and equity element

• Two acceptable methods to initially measure liability and equity elements of hybrid financial instrument arising from a related party transaction:

1. Equity component measured as nil, with all proceeds allocated to liability component

2. Liability component measured as the sum of undiscounted cash flows with residual value allocated to the equity component

Transitional provisions

Amendments applied retrospectively with the following transitional relief for financial instruments originating in a related party transaction that occurred prior to the effective date of January 1, 2021:

• Cost of financial instruments with repayment terms determined using undiscounted cash flows at the beginning of the earliest comparative period presented.

• Cost of financial instruments without repayment terms deemed to be the carrying amount of the financial instrument at the beginning of the earliest comparative period.

• Fair value of financial instrument determined at the beginning of the earliest comparative period.

• Financial instruments that did not exist at the effective date of January 1, 2021, and were impaired or modified in the preceding fiscal year do not need to be restated as at the beginning of the earliest comparative period.

*If calendar year end, beginning of earliest comparative period would be January 1, 2020, unless more than two fiscal periods are presented, or not both 12 month periods.

Which entities are impacted?

• Entities that apply the future income taxes method.

What is the change?

• Future income tax assets and liabilities are required to be presented as non-current assets or liabilities respectively on the entity’s balance sheet.

• Previously, such assets/liabilities were presented as current or non-current depending on when the entity is expected to receive the tax benefit or settle the liability.

• Entities are required to disclose the amount of the future income tax asset/liability that relates to each type of temporary difference.

Why the change?

• To harmonize with simplification amendment to US GAAP resulting in the same change.

• Cost of complying with current/non-current presentation seen as outweighing benefit to users.

• IFRS requires disclosure of amount of FIT related to each type of temporary difference.

Which entities are impacted?

• Any entities that report revenue from operations, specifically those with complex revenue transactions. 

What is the change?

Amendments to ASPE 3400 provide guidance on how to identify the “unit of account” in revenue transactions.

Additional guidance is also provided for specific revenue recognition topics:

(a) percentage of completion method;

(b) multiple-element arrangements;

(c) reporting revenue gross or net;

(d) bill and hold arrangements; and

(e) upfront non-refundable fees / payments.

There are no changes to the principles already contained in section 3400, however, additional guidance has been added to existing concepts in the appendices to the section.

Why is the change important?

The amendments significantly narrow the potential diversity in practice by entities reporting under ASPE with complex revenue recognition arrangements. Entities with long-term contracts, contracts with multiple deliverables, etc. will need to review their revenue recognition practices as a result to ensure they are compliant with the amendments.

Why the change?

There was a significant diversity in practice with respect to revenue recognition as the pre-amended standards lacked guidance in a number of areas, and encouraged a principles based “risk and reward” model.

Entities had to refer to other source GAAP (IFRS, US GAAP, Part V) in order to determine how to apply guidance. IFRS and US GAAP have moved from a “risk and reward” model towards a control-based model, therefore these sources of GAAP were seen to be principally inconsistent with the goals of ASPE 3400.

Identifying the “unit of account” is the first step in determining appropriate revenue recognition method for a transaction or group of transactions

• Determine whether to segment or combine revenue contracts and/or

• Determine whether a single contract or group of combined contracts contains one or more deliverables

When should a group of contracts be treated as a single contract for revenue recognition purposes?

a) Are negotiated as a package in the same economic environment with an overall profit margin objective;

b) Constitute in essence an agreement to do a single arrangement with a single customer;

c) Are so closely interrelated that they are, in effect, part of a single arrangement with an overall profit margin; and

d) Are performed concurrently or in a continuous sequence.

When do deliverables in a revenue contract represent separate units of account?

When there is a revenue arrangement with multiple deliverables, deliverables are considered separate units of account when both of the following criteria are met:

a) If the arrangement includes a general right of return relative to the deliverable(s), delivery or performance of the remaining deliverable(s) is considered probable and substantially in the control of the vendor; and

b) The deliverable(s) have value to the customer on a stand-alone basis.

Multiple-element arrangements – two methods of allocating consideration to deliverables in a revenue arrangement

Allocation is ONLY performed at the inception of the arrangement, arrangement cannot be re-assessed subsequently.

1) Consideration to be allocated on a relative stand-alone selling price UNLESS a stand-alone selling price is not directly observable, otherwise;

2) Stand-alone selling price for one or more deliverables in the arrangement can be estimated using one or more methods:

a) Adjusted market assessment approach

b) Expected cost plus margin approach

Other key clarifications from amendments

• Service transactions or long-term contract units of account MUST be accounted for using the percentage of completion method (not an accounting policy choice) UNLESS either:

• Performance consists of a single act; or

• Progress towards completion cannot be reasonably estimated.

*Otherwise, such contracts are accounted for using the completed contract method.

• Explicit discussion of input and output methods for measuring progress to completion for percentage of completion contracts. Direct and indirect methods for measuring revenue recognized.

• Explicit identification of allowable and excluded contract costs when measuring based on a cost to completion method.

• Additional disclosure required for entities applying the percentage of completion method.

• Gross v. net: additional guidance on how to apply principal v. agent considerations.

• Bill and hold arrangements: seven criteria to be met to recognize revenue under such arrangements.

• Upfront non-refundable fees: deferred and recognized over term of services delivered UNLESS fee is in exchange for separate products or services.

Transitional provisions

• Issuers can choose to apply changes resulting from the amendments either:

• At the beginning of the earliest period presented, with the cumulative effect recognized in opening retained earnings (eg. January 1, 2021 for entities with a calendar year-end);

• At the beginning of the fiscal year in which the amendments are first applied (January 1, 2022 for calendar year-ends) applying the cumulative effect in opening retained earnings of the year of application.

• When percentage of completion method applied, entity not required to make retrospective adjustments for contracts that were completed during:

• Fiscal year preceding the date at which amendments first applied; or

• Fiscal year in which amendments first applied.

• When multiple-element arrangements are identified, entity not required to make retrospective adjustments when all deliverables have been delivered by:

• Fiscal year preceding the date at which amendments first applied; or

• Fiscal year in which amendments first applied.

• Refer to standard for required disclosure where retrospective application must be applied

Decision Tree 1: Identifying Units of Account for All Revenue Arrangements and Allocation of Revenue

*Image originally published by CPA Canada in the May 2021 publication: “ASPE Briefing: Additional Guidance Added to Section 3400, Revenue.”

Decision Tree 2: Recognition of Revenue for Each Unit of Account

*Image originally published by CPA Canada in the May 2021 publication: “ASPE Briefing: Additional Guidance Added to Section 3400, Revenue.”

Which entities are impacted?

Agricultural producers: defined in section 3041 as “enterprises that undertake agricultural production, such as those that engage in agriculture, apiculture, aquaculture, floriculture or horticulture”

Agricultural production: is defined as “the development and harvest of biological assets for sale or for use in a productive capacity”

If an entity does NOT fall under the definition of an agricultural producer, it is NOT within the scope of this section, and would apply other sections to the accounting for biological assets (i.e. Section 3031 Inventories), refer to flowchart below.

Examples of types of activities not covered under section 3041 as they are not considered agricultural production: forestry, ocean fisheries, hunting, and trapping etc.

View Scope of Section 3041 Decision Tree

**Image originally published by CPA Canada in the May 2020 publication: “Accounting Standards for Private Enterprises Briefing on Section 3041, Agriculture, Appendix 1”

What types of assets are recognized under section 3041?

Biological assets (living animals or plants)

Agricultural inventories (biological assets, or harvested products of biological assets for sale or use in a productive capacity).

Refer to further criteria in decision tree below.

Examples of types of assets not within the scope of section 3041 because they are end-use products  derived from biological asset or agricultural inventories through a “secondary production” process (such assets accounted for as inventories under 3031):

• Wine produced by a vintner (the vines would be a biological asset, and grapes would be agricultural inventory)

• Caviar produced from sturgeon (the sturgeon would be a biological asset, and roe would be agricultural inventory)

• Ground beef (cattle would be a biological asset, and beef would be agricultural inventory)

View Recognition and Measurement of Agriculture Inventories Decision Tree

**Image originally published by CPA Canada in the May 2020 publication: “Accounting Standards for Private Enterprises Briefing on Section 3041, Agriculture, Appendix 2”

What is the change?

• Provides a comprehensive framework for accounting for agricultural producers that hold productive biological assets and agricultural inventories for sale or for secondary production of end products.

• Previously no authoritative guidance in ASPE for agricultural products. Entities would have to apply sections 3031 Inventories and 3061 Property, plant and equipment, depending on the nature of the assets.

Why is the change important?

• Section provides specific guidance on the recognition, change in use provisions, and requires specific measurement models for productive biological assets and agricultural inventories that may differ materially from how such assets were accounted for under section 3031 Inventories.

• Expected to result in greater consistency in accounting practices with respect to such assets.

Why the change?

• Agricultural production is a significant part of the Canadian economy (~7% in 2016), yet there was no authoritative accounting guidance in ASPE as to how to account for the inputs and outputs to agricultural production.

Recognition and change in use of biological assets and agricultural inventories

• First must meet the general recognition criteria for an asset under section 1000 Financial statement concepts.

• Must meet all of the criteria of a productive biological asset under 3041:

• Held for use in the production or supply of agricultural inventories or other productive biological assets;

• Acquired or developed for use on a continuing basis with other than short productive lives; and

• Not intended for sale in the ordinary course of business.

• Must meet all of the criteria of agricultural inventories under 3041:

• Held for sale in the ordinary course of business;

• In the process of agricultural production to be held for sale or for use in a productive capacity;

• In the form of raw materials or supplies to be consumed in the enterprise's agricultural production process; or

• Held for use in a productive capacity with short productive lives.

• Agricultural inventory becomes a  productive biological asset at the time the producer commences using such inventory in a productive capacity. Carrying amount deemed to be cost at the time of reclassification.

• Productive biological asset CANNOT be reclassified to agricultural inventories.

Measurement of agricultural inventories

• Policy choice to measure using cost or net realizable value (NRV) model. The latter can only be used when three criteria met:

i. The product has a readily determinable and realizable market price (i.e. a commodity product);

ii. The product has reliably measurable and predictable costs of disposal (i.e. variability of cost estimates not significant); and

iii. The product is available for immediate delivery (i.e. can be solid in current condition, or insignificant activities required).

• Can apply different measurement models to different types of agricultural inventory, but must be consistent.

• If applying NRV model and any criterion is no longer met due to change in circumstances, entity must measure at cost with carrying value at the time of the change becoming deemed cost. Entity may revert to applying the NRV model once criteria all met again.

Cost model – measure agricultural inventories at lower of cost and NRV

Policy choice within cost model to determine cost of inventories using either:

a) Full cost (comprise input cost and other costs of agricultural production incurred in bringing to present location/condition); or

b) Only input costs.

• Examples of input costs for plants cultivated for harvest: seeds, fertilizer, pesticides, direct labor incurred in cultivation and harvesting.

• Examples of other costs: allocation of fixed and variable overheads incurred in cultivation and harvest; all other costs directly attributable to cultivation and harvest not included in input costs.

• Can apply cost formulas per section 3031: FIFO, weighted average cost, specific identification. Also, can use standard or retail costing to approximate actual costs.

• Must write-down to NRV if circumstances indicate cost may exceed NRV; write-down may be reversed to extent of write-down.

• Agricultural inventories recognized as an expense in the period they are sold.

• Costs excluded: abnormal waste, storage costs for end product, selling costs.

Net realizable value model

• Changes in NRV recognized in net income in period they arise.

• Reliable sources for determining NRV are third-party, verifiable, publicly available price sources that are published/updated near the end of the reporting period.

• i.e. Commodity exchange prices, fixed sales contracts

Measurement of productive biological assets

• Initially measured at cost; includes costs directly attributable to acquisition, development, or betterment of the asset. May include asset retirement obligation.

• Subsequently measured at cost less accumulated amortization.

• Amortization charged to income greater of:

a) the cost less salvage value over the life of the asset; and

b) the cost less residual value over the useful life of the asset.

• Events that may result in a change in estimate with respect to the amortization rate or useful life of biological assets:

a) a change in the extent that the asset is used;

b) a change in the manner in which the asset is used;

c) removal of the asset from production for an extended period of time;

d) disease or physical injury; or

e) a change in the law, environment, or consumer preferences and tastes affecting the period of time over which the asset can be used.

• If managed on a collective basis to maintain production capacity indefinitely, assets are deemed to have an indefinite useful life and thus not subject to amortization (i.e. Cattle herd, wine grape producing vines etc.).

Measurement of productive biological assets

• If managed on a collective basis to maintain production capacity indefinitely, assets are deemed to have an indefinite useful life and thus not subject to amortization (i.e. Cattle herd, wine grape producing vines etc.).

View Recognition and Measurement of Production Biological Assets Decision Tree

**Image originally published by CPA Canada in the May 2020 publication: “Accounting Standards for Private Enterprises Briefing on Section 3041, Agriculture, Appendix 3.”

Impairment

• Productive biological assets subject to amortization, and those that are not, must be assessed for impairment when conditions indicate carrying amounts may not be recoverable (refer to guidance in ASPE 3063 Impairment of long-lived assets).

• Productive biological assets managed on a collective basis are grouped together for purposes of impairment testing.

Disposal of productive biological assets

• When no longer used in a productive capacity, asset measured at the lower of its carrying value and fair value less cost to sell until it is sold or disposed of.

• Losses on write-downs of such assets are recognized in income in the period the asset is written down to its fair value less costs to sell.

• Once the determination has been made that the asset will be held for sale, it is no longer amortized.

Presentation and disclosure

• Productive biological assets and agricultural inventories must be presented as separate line items on the face of the balance sheet.

• Current/non-current classification would follow concepts in ASPE 1510 Current assets and current liabilities.

• Once the determination has been made that the asset will be held for sale, it is no longer amortized.

• Must present separately on the face of the income statement or notes to the financial statements with respect to agricultural inventories:

• Aggregate gains/losses incurred in the period related to changes in the carrying value of agricultural assets measured using the NRV model.

• Amount of agricultural inventories recognized as an expense during the period (applicable to either model).

• Must present separately on the face of the income statement or notes to the financial statements with respect to productive biological assets:

• the amount charged for amortization of productive biological assets subject to amortization;

• the amount of any impairment loss recognized in the period; and

• the amount of aggregate gains and losses recognized on productive biological assets that have been sold or disposed of other than by sale.

• Refer to standard for disclosure requirements for each type of asset (lots of detailed disclosures required).

Transitional provisions

Required to be applied retrospectively with the following relief provisions:

• Can measure agricultural inventories or productive biological assets at their net realizable value at the beginning of the fiscal year for which 3041 is first applied (i.e. January 1, 2022). Entity uses that net realizable value as the asset’s deemed cost at that date. Any difference between the asset’s deemed cost at that date and the prior year closing balance is recorded directly to retained earnings at that date.

• Entity not required to make retrospective adjustments in respect of assets that were derecognized during:

• the fiscal year in which Section 3041 is first applied; or

• the fiscal year immediately preceding the date at which Section 3041 is first applied.

• Some additional disclosure required if relief provisions are elected.