Sri Lanka Carsons says valuation rule being changed
ECONOMYNEXT – A fair value method for valuing biological assets like oil palm plantations, which causes fluctuations in earnings, is being changed, Sri Lanka’s Carson Cumberbatch PLC has told shareholders.
The company, which has big oil palm estates in Indonesia, said the business’s profitability in the financial year ending 31 March 2015 was affected by a change in fair value of biological assets which resulted in a loss of 104.7 million rupees in its plantations sector.
“When you consider the change in fair value of biological assets of the group’s oil palm plantations, you may observe that the preceding financial year reported a 3.2 billion rupee gain, contrary to the loss reported this year,” Carson group chairman Tilak de Zoysa said.
“Be it a loss or a gain, it should be noted that this is a non-cash adjustment, the valuation of which is determined by factors which are not within our control, such as global palm oil commodity prices and the demographics of the plantations.”
The International Accounting Standards Body is reviewing the accounting standard with regard to biological assets, de Zoysa told shareholders in the firm’s annual report.
A hybrid version, combining the prevailing fair-value methodology and the cost methodology which existed previously has been proposed.
“We welcome this change as we believe it would mitigate volatilities in earnings, hypothetically arising from book entries based on future realization of value,” de Zoysa said.
Although sales grew in Carsons’ oil palm plantations, the business’s operating profit fell during the year because of the biological asset valuation loss as well as foreign exchange losses arising from the depreciation of the Indonesian rupiah.
Carson said the loss is mainly attributable towards the “cautious Crude Palm Oil price outlook, which weighed down the valuation.” (Colombo/August 3 2015)