ASC

ASC 405-905

Agriculture

405 Liabilities

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In brief

IntermediateRecognitionInitial measurementIndustry-specificDebt and equity

ASC 405-905 governs liabilities of agricultural entities, with Cooperatives Subsections addressing how agricultural cooperatives account for product deliveries from patrons. When a pooling marketing cooperative's board assigns amounts to unprocessed products received from patrons, those assigned amounts must approximate estimated net realizable value and are credited to amounts due patrons, creating a short-term liability. Excess of pool revenues over assigned amounts and operating costs is paid or allocated to patrons pro rata, and retained allocated equities may be mandatorily redeemable instruments requiring liability classification under Subtopic 480-10.

Key points (7)
  • Pooling cooperatives (marketing cooperatives operating on a pooling basis with no obligation to pay patrons fixed prices) that assign amounts to unprocessed products received from patrons must credit those assigned amounts to amounts due patrons, and the assigned amounts should approximate estimated net realizable value (405-905-25-1).
  • The cooperative estimates a liability to patrons equal to the assigned amount for delivered product and usually pays it on a short-term basis (405-905-25-2).
  • At the end of a pool period (a week, month, year, or longer), the excess of revenues over assigned amounts and operating costs is paid or allocated to patrons, and assets equal to that excess may be distributed or retained by the cooperative (405-905-25-2).
  • Where patrons' fungible products are commingled in pools, the excess of revenues over costs for each pool is allocated to patrons pro rata based on units delivered, volume delivered, or another equitable method (405-905-30-1).
  • Per-unit retains, deducted from estimated proceeds due producers and based on quantity delivered, are a financing method for the cooperative; patron-side treatment is in the Cooperatives—Patrons Subsection of Section 905-325-30 (405-905-30-2).
  • Retained allocated equities, usually repaid to patrons over a specified number of years, may meet the definition of mandatorily redeemable financial instruments under Subtopic 480-10 and may have to be classified as liabilities (405-905-30-3).
  • Scope follows the General and Cooperatives Subsections of Section 905-10-15 (405-905-15-1 and 15-2).

For students. Tested rarely but a clean illustration of substance-over-form: a cooperative's obligation to its patron-owners is a liability measured at assigned amounts approximating NRV, not equity. The common misunderstanding is assuming all patron equities are equity — retained allocated equities repayable over a set number of years may be mandatorily redeemable and thus liabilities under ASC 480-10.

agricultural cooperativepooling cooperativeamounts due patronsassigned amountsestimated net realizable valueper-unit retainsretained allocated equitiesmandatorily redeemable financial instruments

Machine-generated study aid for ASC 405-905. Check the source paragraphs below.

405-905-00Status

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405-905-05Overview and Background

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405-905-05-1
This Subtopic addresses liabilities for entities in the agricultural industry. The guidance for accounting by agricultural cooperatives is presented in the Cooperatives Subsections.

Cooperatives

405-905-05-2
The Cooperatives Subsections provide guidance for agricultural cooperatives accounting for product deliveries from patrons.

405-905-15Scope and Scope Exceptions

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Overall Guidance

405-905-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see the General Subsection of Section 905-10-15.

Cooperatives

405-905-15-2
The Cooperatives Subsections follow the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see the Cooperatives Subsection of Section 905-10-15.

405-905-25Recognition

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Cooperatives

Pooling Cooperatives

405-905-25-1
If the boards of directors of agricultural marketing cooperatives operating on a pooling basis with no obligation to pay patrons fixed prices (pooling cooperatives) assign amounts that approximate estimated net realizable value to unprocessed products received from patrons, the assigned amounts shall be credited to amounts due patrons. When assigned amounts are used, they should approximate estimated net realizable value of unprocessed products delivered by patrons (an example of inventories at lower of cost and net realizable value is provided in Example 1 (see paragraph 905-330-55-1)).

Marketing Cooperatives

405-905-25-2
The cooperative estimates a liability to patrons equal to the assigned amount for the delivered product, and it usually pays this liability on a short-term basis. The excess of revenues over the assigned amounts and operating costs at the end of a pool period, which may be a week, a month, a year, or longer, is paid or allocated to patrons. Assets equal to that excess may be distributed to the patrons or retained by the cooperative.

405-905-30Initial Measurement

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Cooperatives

405-905-30-1
Many marketing cooperatives commingle patrons' fungible products in pools. The excess of revenues over costs for each pool is allocated to patrons on the basis of their pro rata contributions to the pool, which may be determined by the number of units delivered, the volume of product delivered, or another equitable method.

Retains

405-905-30-2
Marketing cooperatives often deduct per-unit retains from the estimated proceeds due producers. Per-unit retains are based on the quantity of product delivered by the producer and are a method of financing for the cooperative. See the Cooperatives—Patrons Subsection of Section 905-325-30 for treatment of retains by cooperative patrons.
405-905-30-3
When agricultural cooperatives have retained allocated equities, they are usually repaid to cooperative patrons over a specific number of years. These retained allocated equities may meet the definition of mandatorily redeemable financial instruments under Subtopic 480-10 and as such may have to be classified as liabilities.

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