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Weedman character was created and is the sole property of and owned by Chloë Kyron. All rights reserved. The image including any likeness cannot be used in any manner without the expressed written consent by Chloë Kyron.
Any company referenced is purely for discussion purposes and not intended as a recommendation.
Louis Kyron, CPA, CGA
If someone in Southern Ontario plants seeds and grows Paw Paw trees and sells the delicious Paw Paw fruit uses IA 41 is that not a parallel? If pharmaceutical companies that grow their own plants for harvesting to be used in their drug formulations use IAS 41 is that not more of a parallel?
The debate on the suitability of this standard’s application may have degrees of merit and therefore is worth having but for the purposes of the typical retail investor the debate is not overly relevant – what is relevant is that IAS 41 and its amendments apply to those licensed producers that cultivate and harvest.
Let’s look at a hypothetical non-agricultural company with inventory for resale.
Let’s keep it as simple by looking down at a typical retailer from 10,000 metres up. A retailer buys merchandise and much like the successful investor buys and sells at a higher price. The retailer refers to that merchandise as inventory. On the Balance Sheet, the inventory on hand is listed and has a value and that value is the lower of cost or fair market value.
Intuitively this makes sense because until you sell the product you can record a sale and the only receipts on hand that can attest to the inventory’s value are the purchase orders and receipts for payment. If the market price falls below what is paid for the inventory, then there should be a reconciliation because the inventory is worth less. A basic principle of Accounting is conservatism and recording values at the lower of cost or fair market value is an example of conservative valuation.