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.