ASC

ASC 605-905

Agriculture

605 Revenue Recognition

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In brief

IntermediateRevenueIndustry-specificRecognitionPresentation

ASC 605-905 provides industry-specific revenue recognition guidance for agricultural entities, with separate General and Cooperatives Subsections. It requires government income replacement and subsidy payments (deficiency, disaster, and other program payments) to be recorded as additional income when the amount of and right to receive the payment can be reasonably determined (605-905-25-1). For agricultural cooperatives it describes accepted methods of allocating overall, departmental, and functional losses among patrons, equities, and unallocated retained earnings, and distinguishes patronage from nonpatronage earnings (605-905-45-1). Most of the customer-revenue paragraphs were superseded by ASU 2014-09.

Key points (7)
  • Deficiency payments, disaster payments, and other government production/indemnity/land-withholding programs all constitute additional income and are recorded when the amount of and right to receive the payment can be reasonably determined (605-905-25-1).
  • An overall cooperative loss may be disposed of by allocating it to patrons on current patronage, allocating it to all equities, charging it to unallocated retained earnings (equitable when the loss relates to nonpatronage business), or offsetting it against future amounts available for patronage allocation (605-905-25-2).
  • Cooperatives account for revenues and costs by function (supply or marketing) or by department, and expenses common to more than one function or department shall be allocated on a reasonable and consistent basis (605-905-25-4).
  • Departmental or functional losses may be offset against profitable departments, recovered from that department's patrons under bylaws or a marketing agreement, subtracted from net nonpatronage income, charged to unallocated retained earnings, or offset against subsequent-year patronage allocations (605-905-25-4).
  • Offsetting patronage losses against nonpatronage income may not eliminate income tax due on the nonpatronage income of a nonexempt cooperative (605-905-25-4(c)).
  • Cooperative earnings are classified as patronage source earnings (excess of revenues over costs from transactions for or with patrons) or nonpatronage earnings such as investment income, nonpatronage rental income, and nonpatronage sales/purchases (605-905-45-1; 905-505-45-1).
  • Scope follows the General and Cooperatives Subsections of Section 905-10-15; numerous paragraphs in Sections 05, 15, 25, and 45 were superseded by ASU 2014-09 (605-905-25-5 through 25-9; 605-905-45-2).

For students. Most of this Subtopic's customer-contract revenue guidance was superseded by ASU 2014-09, so what survives is essentially government program income recognition and cooperative patronage/loss allocation mechanics — students often mistakenly apply ASC 606 to farm subsidy payments, which are not revenue from contracts with customers.

agricultural cooperativepatronage earningsnonpatronage earningsdeficiency paymentsdisaster paymentsgovernment subsidy incomeloss allocation to patronsfunctional and departmental accounting

Machine-generated study aid for ASC 605-905. Check the source paragraphs below.

605-905-00Status

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605-905-00-1
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
905-605-05-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
905-605-05-1 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-05-3 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-05-4 Superseded Accounting Standards Update No. 2014-09 05/28/2014
905-605-05-4 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-15-2 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-15-3 Superseded Accounting Standards Update No. 2014-09 05/28/2014
905-605-15-3 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-25-2 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-25-5 Superseded Accounting Standards Update No. 2014-09 05/28/2014
905-605-25-5 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-25-7 through 25-9
 Superseded Accounting Standards Update No. 2014-09 05/28/2014
905-605-45-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
905-605-45-1 Amended Accounting Standards Update No. 2014-06 03/14/2014
905-605-45-2 Superseded Accounting Standards Update No. 2014-09 05/28/2014

605-905-05Overview and Background

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605-905-05-1
This Subtopic addresses revenue recognition for entities in the agricultural industry. The guidance for accounting by different entities is presented in the following two Subsections:
  1. a
    General
  2. b
    Cooperatives
  3. c
    Subparagraph superseded by Accounting Standards Update No. 2014-09.
605-905-05-2
The General Subsections provide guidance for all entities in the agricultural industry.

Cooperatives

605-905-05-3
The Cooperative Subsections address revenue recognition for cooperatives in the agricultural industry.

Cooperatives—Patrons

605-905-15Scope and Scope Exceptions

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Overall Guidance

605-905-15-1
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

605-905-15-2
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.

Cooperatives—Patrons

605-905-20Glossary

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605-905-25Recognition

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Income Replacement and Subsidy Programs

605-905-25-1
Income replacement and subsidy programs are designed to bring income from commodities to certain predetermined levels and include:
  1. a
    Deficiency payments, which are subsidy payments resulting from low prices for designated commodities.
  2. b
    Disaster payments, which may be made to producers when disasters prevent planting or reduce yields on crops.
  3. c
    Other programs, which are available to producers to encourage production, provide indemnity for certain types of losses, and reimburse producers for withholding land from production.
All of the above payments, while different in nature, constitute additional income and should be recorded when the amount of and right to receive the payment can be reasonably determined.

Cooperatives

605-905-25-2
A cooperative may incur an overall loss in a given year. The disposition of losses may be made based on bylaws or the board of directors' action. Agricultural cooperatives use a number of different methods for disposing of an overall loss, including the following:
  1. a
    Allocating the loss to patrons on the basis of current patronage. The loss may offset the patrons' equities, future patronage allocations, or future cash contributions.
  2. b
    Allocating the loss to all equities without considering current patronage. However, patrons with substantial equities and decreasing patronage may be treated inequitably if this method is used.
  3. c
    Charging the loss to unallocated retained earnings. This method is equitable when the loss is attributable to nonpatronage business.
  4. d
    Offsetting the loss against amounts available for patronage allocation in subsequent years before making any such allocation to patrons. This method may be acceptable if the patrons are substantially the same from year to year.

Departmental and Functional Accounting

605-905-25-3
Cooperatives operating on a functional or departmental basis may have net earnings from one function or department and operating losses from another. It is a common practice for losses from one function or department to be absorbed by profits from another function or department before earnings to patrons are allocated. Some cooperatives distribute departmental earnings to patrons and charge departmental losses to unallocated retained earnings.
605-905-25-4
To allocate earnings to patrons equitably, cooperatives usually account for revenues and costs by function (supply or marketing) or departments within the function. Expenses common to one or more functions or departments shall be allocated on a reasonable and consistent basis. In addition, one department of a cooperative may handle several commodities, and departmental revenues and expenses may have to be allocated among them. Cooperatives may incur a loss in one department or function and realize earnings in another. Methods of accounting for these departmental and functional losses include the following:
  1. a
    Offsetting the losses of unprofitable departments against profitable ones, and allocating the remaining profit to the patrons of the profitable departments by using the allocation method adopted by the cooperative.
  2. b
    Recovering the loss from the patrons of that department or function on the basis of bylaw provisions or a marketing agreement.
  3. c
    Subtracting the loss from net nonpatronage income. Offsetting patronage losses against nonpatronage income may not eliminate the income tax due on the nonpatronage income of a nonexempt cooperative.
  4. d
    Charging the loss to unallocated retained earnings, and allocating income from profitable departments or functions to patrons on the basis of the cooperative's allocation methods.
  5. e
    Offsetting the losses against patronage allocation for subsequent years before making departmental and functional allocations to patrons.

Cooperatives—Patrons

605-905-25-6
[Not used]

605-905-45Other Presentation Matters

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Cooperatives

605-905-45-1
As indicated in paragraph 905-505-45-1, 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 is patronage source earnings. As indicated in that paragraph, 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 recognized on sales or earned on purchases made on a nonpatronage basis.

Cooperatives—Patrons

605-905-75GAAP Taxonomy Elements

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