Best Case Solution: OLAM: accounting for biological assets

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OLAM: accounting for biological assets
Case Study Analysis Solutions
Along with this, Olam International has not disclosed the requirement stated by the standard; for example,the status of the professional value and the output of agriculture produce during the year and etc. Olam is consistent in the accounts for those gains which have not yet been realized from biological assets, which indicates that the gains from future agriculture products would be recorded in present as it is not in the form of cash, which is why it has reduced the cash flows from operating activities. This issue will create a liquidity problem for Olam. Olam should categorize its biological assets into bearer assets and consumables assets. On the bearer assets and consumables assets, accounting treatment should be done by IAS 16 and IAS 41 respectively.(Hinke Jana a, 2014)
Explain the implications for Olam with regards to how it would be accounting for its biological assets in the future
Current recording and disclosing policy of Olam has reduced the shareholdersā€™ confidence, which is Olamā€™s share price has decreased continuously. Olam should adopt the cost model or fair value model for recording the biological asset however,the consequences of this might go against Olam as25% of Profit after tax comes from the unrealized gain of biological assets and it might sharply decrease the value of biological assets, which is overvalued by $178 million in 2012. By shifting from the present value of future cash flows to market price, there would be no impact on the cash position of the company as there would beno inflow or outflow of cash, however it would only affect the profitability. On the other hand, Olam will improve its shareholdersā€™ confidence by reporting and disclosing in accordance with the standards, which would result in the increase in share price as well…………….
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