ASC 505-905
Agriculture
505 Equity
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This Subtopic governs how entities in the agricultural industry — principally agricultural cooperatives — classify and present equity. Its core rule is that cooperative earnings are split between patronage source earnings (from transactions with or for patrons) and nonpatronage earnings, and that allocated equities such as retained patronage allocations and per-unit retains are presented as equity when they have no fixed maturity date and are subordinated to all debt. Unallocated nonpatronage earnings are classified as retained earnings, and allocated equities become current liabilities only when the board formally acts to revolve them.
Key points (7)
- Cooperative earnings are classified as either patronage source earnings (excess of revenues over costs from transactions for or with patrons) or nonpatronage earnings from investments, nonpatronage rentals, and nonpatronage sales or purchases (505-905-45-1).
- Cooperative equity arises from member and nonmember investments and patronage allocations, and may also include unallocated retained earnings from after-tax nonpatronage earnings (505-905-45-2).
- The two most common forms of allocated patronage equities are retained patronage allocations (e.g., qualified or nonqualified written notices of allocation) and per-unit retains withheld from payments to patrons for raw product deliveries without regard to earnings (505-905-45-3).
- Retained patronage allocations and per-unit retains shall be treated as equity if they have no fixed maturity dates and are subordinated to all debt instruments, with disclosure of face value, dividend rate, negotiability, subordination agreements, and any revolving or retirement plan (505-905-45-4).
- Allocated equities that are revolved over time shall not be classified as current liabilities until the board of directors has formally acted to revolve them (505-905-45-5).
- Nonpatronage earnings that are not allocated shall be classified as retained earnings in the equity section; a cooperative may also elect not to allocate patronage earnings or losses (505-905-45-6).
- Cooperatives may issue common stock (often to establish voting rights) and preferred stock to members and nonmembers or as a form of earnings distribution; preferred dividends are tax deductible in limited amounts by exempt cooperatives but not by nonexempt cooperatives (505-905-45-7).
For students. The exam trap is the equity-versus-liability line: patronage allocations and per-unit retains look like amounts owed to patrons, but they stay in equity unless they have fixed maturities or are not subordinated to all debt — and they become current liabilities only upon formal board action to revolve them.
agricultural cooperativepatronage source earningsnonpatronage earningsallocated equitiesretained patronage allocationsper-unit retainsrevolving of equitiessubordination to debt
Machine-generated study aid for ASC 505-905. Check the source paragraphs below.
505-905-00Status
Source downloaded: .Record version 72f21efd8158. Effective date must be checked in the source.
505-905-00-1
The following table identifies the changes made to this Subtopic.
| Paragraph | Action | Accounting Standards Update | Date |
| Agricultural Cooperative | Added | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| Cooperatives | Superseded | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| Member of an Agricultural Cooperative | Added | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| Nonmember of an Agricultural Cooperative | Added | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| Patrons | Amended | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| Written Notice of Allocation | Added | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| 905-505-05-1 | Amended | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| 905-505-05-2 | Amended | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| 905-505-15-2 | Amended | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| 905-505-45-1 | Amended | Accounting Standards Update No. 2014-06 | 03/14/2014 |
| 905-505-45-3 | Amended | Accounting Standards Update No. 2014-06 | 03/14/2014 |
505-905-05Overview and Background
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505-905-05-1
This Subtopic addresses accounting for equity by entities in the agricultural industry. The guidance for accounting for agricultural cooperatives is presented in the Cooperatives Subsections.
Cooperatives
505-905-05-2
The Cooperatives Subsections address accounting for equity by cooperatives in the agricultural industry.
505-905-15Scope and Scope Exceptions
Source downloaded: .Record version 83a4ff8f8832. Effective date must be checked in the source.
Overall Guidance
505-905-15-1
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
505-905-15-2
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.
505-905-45Other Presentation Matters
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Cooperatives
505-905-45-1
Generally, the earnings of agricultural cooperatives are classified as either patronage or nonpatronage. The excess of revenues over costs resulting from transactions for or with patrons shall be classified as patronage source earnings. Nonpatronage earnings result from transactions other than those with or for patrons. Examples are nonpatronage income from investments in securities, rental income from nonpatronage activities, and income earned on sales or purchases made on a nonpatronage basis.
505-905-45-2
The composition of the equity section of a cooperative's balance sheet distinguishes it from other balance sheets. Generally, its equities arise from investments by members and nonmembers and from patronage allocations. In addition, cooperatives may accumulate unallocated retained earnings arising from after-tax earnings on nonpatronage business.
505-905-45-3
Various forms of allocated equities arising from patronage are used by cooperatives. Two of the most commonly used forms are the following:
- aRetained patronage allocations. Retaining patronage earnings through methods such as the issuance of qualified or nonqualified written notices of allocation is a major form of financing by cooperatives.
- bPer-unit retains. Per-unit retains are used in marketing cooperatives in accordance with debt agreements, bylaws, or board of directors' authorizations. These amounts are determined without regard to earnings and may be based on a rate per ton or on a percentage of the dollar amount of raw product delivered. Amounts are withheld from payments to patrons for deliveries of raw products and are credited to the account of each patron.
505-905-45-4
If the retained patronage allocations and per-unit retains have no fixed maturity dates and are subordinated to all debt instruments, they shall be treated as equity with appropriate disclosure of face value, dividend rate, negotiability, subordination agreements, and any revolving or retirement plan.
505-905-45-5
Allocated equities are usually paid, or revolved, over a number of years. The timing may be specified in the cooperative's bylaws, but it is usually at the discretion of its board of directors. The amounts shall not be classified as current liabilities until the board has formally acted to revolve the equities.
505-905-45-6
Certain transactions of cooperatives may result in unallocated equities. For example, cooperatives may derive earnings from nonpatronage business and account for these earnings as other entities do. Nonpatronage earnings are frequently not allocated and shall be classified as retained earnings in the equity section. In addition, a cooperative may elect at times not to allocate patronage earnings or losses.
505-905-45-7
In addition to allocated equities, cooperatives may issue common and preferred stock. Common stock is often issued to establish members' voting rights, whereas preferred stock may be sold to members and nonmembers on a nonpatronage basis. Cooperatives may also issue preferred stock as a form of earnings distribution. Limited amounts of dividends on preferred stock are tax deductible by exempt cooperatives, but they are not tax deductible by nonexempt cooperatives.