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FRS 102 for Farmers – Not just accountants technical jargon but impacting your accounts


One of the most substantial changes to accounting standards in a generation is now in force with the introduction of the key new standards FRS 102 and FRS 105 for micro entities. 

Whilst this might sound like technical jargon that you will just leave to your accountant, it is important you are aware this will have an impact on the way your accounts are prepared, what they actually look like and potentially the amount of tax you will have to pay.

FRS 102 became mandatory for medium-sized companies with effect from 1 January 2015 and for small companies and LLPs has effectively replaced the well-used FRSSE with effect from 1 January 2016.  This now represents UK Generally Accepted Accounting Principles (UK GAAP) and, as such, will apply to all businesses including, to some extent, those that are not incorporated.

Some of the changes from adopting FRS 102 will have significant impact and may affect many aspects of agricultural accounts which are not mentioned below.  However, the key changes for agricultural accounts are in the areas of stock, income recognition of grants and financial instruments.


”Stock” in farming terms means livestock or crops grown for sale. Under FRS102, there is a specific agricultural stock section, with a choice of carrying stock at either “fair value” or historic cost.

Under FRS102  the definition of cost is similar to that under the current standards and therefore it is unlikely that any changes will be required.

However, the area which is most likely to cause concern is where production livestock is held on the “herd basis”.  In the past there has been little consistency in the way that an elected herd was disclosed on the balance sheet or valued, however many include the herd within fixed assets using the tax value.

Under the new rules herd animals are “biological assets” and must be included within stock at depreciated cost or fair value but not at the tax value of the herd.  This change is likely to lead to prior year adjustments in your accounts to change the presentation and the amount.  You will need to consider what the profit impact of any changes might be..

Recognition of grants

Almost all farming businesses will be in receipt of government grants under the Basic Payment Scheme (BPS) and essentially the main issue here is one of when the grant income should be recognized.  Under FRS102, government grants cannot be recognized until there is reasonable assurance that the farmer will comply with the conditions for the grant and that the grant will be received. Depending on your year end this has an implication on the way that Basic Payments are recognized in your the accounts.

Specifically, the greening conditions cannot be met until 31 December at least and therefore farms will be unable to recognize the income until after this date, despite the occupation date and submissions being triggered in May.  For those businesses with a year-end between May and December this means that BPS income cannot be recognized until much later then under the old rules where HMRC allowed an accrual for income.  Potentially this will cause BPS income to skip a financial year and will impact your profit, although potentially it may also defer tax bills.

Financial Instruments

I suspect that many agricultural businesses may be unaware that they have financial instruments but this captures arrangements to sell crops or livestock under forward contracts will be affected as these will need to be carried at fair value, as will loans containing caps or collars or where you may have been persuaded to take out a swap.  And this might require a specialist valuation.

FRS 105 for micro entities

For businesses which qualify as micro entities they can chose to adopt FRS 105 rather than FRS 102 and this does remove some but not all of the changes outlined above.  To qualify as a micro entity a business must have two out of three of the following, turnover of less than £632,000, total assets of less than £316,000 or less than 10 employees.

As you will see there are some potentially significant changes coming to the way your accounts might look and this impact on the accounts particularly in the transition year will need to be carefully considered and planned for.

This is particularly important with regards tax where profit is impacted, potentially dividend planning where distributable reserves are impacted and there is also a need to consider the position with regards to any bank covenants that you might have in place.

As always please contact us for advice and information on this area of change:

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