PALM OIL producer Anglo-Eastern Plantations has been forced to restate its 2012 accounts after it was found to have over-stated the fair value of its biological assets.
In a statement, the palm oil and rubber plantation owner said it had restated the accounts following a query from the FRC over the way it measured the notional rent used in the valuation of its biological assets.
It is the second set of accounts to be restated by the company following a review by the FRC’s conduct committee which considered the company’s use of historical rather than current data to estimate the fair value of palm oil trees, recognised in the balance sheet as biological assets.
In its 2010 accounts the company valued its plantation estates using a discounted cash flow technique by estimating future sales proceeds of palm oil, deducting from this the estimated cash costs of production and discounting these estimated net cash flows and also used historical percentages to allocate the plantation estate values between land, palm oil trees and equipment.
According to the FRC’s Financial Reporting Review Panel (FRRP), an allocation on this basis does not achieve fair value for the biological asset, as required by IAS 41 ‘Agriculture’.
In its 2012 accounts, while the FRRP’s enquiries were on-going, the company changed its valuation method to value land and biological assets separately and recorded its first prior year restatement. Land was valued by reference to market prices, with the fair value of palm oil trees valued using a similar discounted cash flow technique to the plantation estate method.
However, the estimated cash costs of production used historical, rather than current data, to estimate the cost of using the land on which the palm oil trees are planted. As a consequence, the fair value of biological assets was over-stated, the FRRP said.
Using current market data to estimate the cost for the use of land in its discounted cash flow, Anglo-Eastern’s restated figures reduced the value of its biological assets at December 2012 by $37m from $245m to $208m. Profit after tax for the year ended 31 December 2012 was reduced by $1.6m. There was no impact on cash.
“Following the above mentioned action taken by the company, the conduct committee regards the enquiries arising from its review of the company’s annual report and accounts for the year ended 31 December 2010, initiated on 14 November 2011, as concluded,” the FRC said.