ASC

ASC 905-10

Overall

905 Agriculture

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In brief

IntermediateIndustry-specificInventory and PP&ERevenue

ASC 905-10 is the Overall subtopic of the Agriculture Topic, setting out the background and scope for industry-specific accounting by agricultural producers, agricultural cooperatives, and patrons of those cooperatives. The Topic's guidance is organized into three Subsections—General, Cooperatives, and Cooperatives—Patrons—and provides only incremental industry guidance, so entities must also apply all other applicable GAAP (905-10-15-1). It covers inventories of agricultural producers and development costs of land, trees and vines, intermediate-life plants, and animals (905-10-15-5), but excludes timber growers, tropical pineapple and sugarcane growers, raisers of animals for competitive sports, and merchants/noncooperative processors (905-10-15-4).

Key points (7)
  • The Agriculture Topic gives only incremental industry-specific guidance; entities in scope must also comply with all other applicable standards (905-10-15-1).
  • Guidance is presented in three Subsections—General, Cooperatives, and Cooperatives—Patrons—with the General Subsection covering all agricultural industry entities except those scoped out (905-10-05-2; 905-10-05-3).
  • The Topic does not apply to growers of timber, growers of pineapple and sugarcane in tropical regions, raisers of animals for competitive sports, or merchants and noncooperative processors of agricultural products (905-10-15-4).
  • The Topic applies to inventories of agricultural producers and to development costs of land, trees and vines, intermediate-life plants, and animals (905-10-15-5).
  • A cooperative typically distributes assets to patrons on a patronage basis, is controlled by members as patrons rather than equity investors, limits membership to patrons, limits the return on capital investment, and does at least 50 percent of its business on a patronage basis (905-10-05-5).
  • Under the price adjustment theory, a cooperative agrees to do business at cost and must return to patrons amounts received in excess of cost, so patronage distributions differ from dividends (905-10-05-7; 905-10-05-8); the Internal Revenue Code allows deductions for earnings allocated to patrons if certain requirements are met (905-10-05-9).
  • The Cooperatives Subsections address accounting by cooperatives for products received from patrons, while the Cooperatives—Patrons Subsections address patrons' accounting for product deliveries and for investments in and income from cooperatives (905-10-15-8; 905-10-15-11).

For students. This subtopic is mostly scope and background, but it is the gatekeeper: the most common mistake is assuming agriculture guidance replaces general GAAP or applies to every farm-related business—it is incremental only, and timber growers, tropical pineapple/sugarcane growers, sport-animal raisers, and noncooperative processors are expressly excluded.

agricultural produceragricultural cooperativepatronage basisprice adjustment theorypatronage distributionsdevelopment costssupply and marketing cooperativesincremental industry guidance

Machine-generated study aid for ASC 905-10. Check the source paragraphs below.

905-10-00Status

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905-10-05Overview and Background

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905-10-05-1
The Agriculture Topic includes the following Subtopics relating to agricultural producers, agricultural cooperatives, and patrons of such cooperatives:
  1. a
    Overall
  2. b
    Presentation of Financial Statements
  3. c
    Receivables
  4. d
    Investments—Other
  5. e
    Inventory
  6. f
    Property, Plant, and Equipment
  7. g
    Liabilities
  8. h
    Equity
  9. i
    Revenue Recognition—Cooperatives
  10. j
    Cost of Sales and Services.
Each Subtopic provides background on the guidance provided.
905-10-05-2
The guidance throughout this Topic for accounting for different entities in the agricultural industry is presented in the following three Subsections:
  1. a
    General
  2. b
    Cooperatives
  3. c
    Cooperatives—Patrons.
905-10-05-3
The General Subsections provide guidance for all entities operating in the agricultural industry, except those noted in paragraph 905-10-15-4. Agricultural producers use every form of business organization, from sole proprietorship to a large publicly held entity. They engage in numerous activities, for example:
  1. a
    Growing wheat, milo, corn, and other grains
  2. b
    Growing soybeans, vegetables, sugar beets, and sugarcane
  3. c
    Growing citrus fruits, other fruits, grapes, berries, and nuts
  4. d
    Growing cotton and other vegetable fibers
  5. e
    Operating plant nurseries
  6. f
    Breeding and feeding cattle, hogs, and sheep, including animals for wool production
  7. g
    Operating dairies
  8. h
    Operating poultry and egg production facilities
  9. i
    Breeding horses
  10. j
    Raising mink, chinchilla, and similar small animals
  11. k
    Raising fish and shellfish.
In addition, the operations of agricultural producers often involve various combinations of those activities. Agricultural practices and products may vary still further because of differences in temperature, soil, rainfall, and regional economics. Farm products may be used in related activities, such as the feeding of hay and grain to livestock, or they may be marketed directly by the producer. Producers often sell products in accordance with government programs or through agricultural cooperatives. Marketing strategies may include forward contracts or commodity futures contracts to reduce the risks of fluctuations in market prices.
905-10-05-4
Agricultural producers often borrow to finance crop development costs and the costs of acquiring facilities and equipment.

Cooperatives

905-10-05-5
A cooperative typically has the following characteristics:
  1. a
    Assets are distributed periodically to patrons on a patronage basis. In certain situations, however, assets in the amount of net-of-tax earnings may be accumulated by the cooperative and may or may not be allocated to patrons' accounts.
  2. b
    Members control the organization in their capacity as patrons and not as equity investors.
  3. c
    Membership is limited to patrons.
  4. d
    The return that can be paid on capital investment is limited.
  5. e
    At least 50 percent of the cooperative's business is done on a patronage basis.
905-10-05-6
The main difference between agricultural cooperatives and other business entities is that cooperatives and their patrons operate as single economic units to accomplish specific business purposes, such as the marketing of farm products, the purchase of supplies, or the performance of services for the benefit of the patrons. The aim is to reduce costs, increase sales proceeds, and share risks through the increased bargaining power that results from the patrons' combined resources and buying power. The patron's role as an investor is secondary and incidental to his business relationship with the cooperative.
905-10-05-7
Another difference between cooperatives and other business corporations is that the cooperative's bylaws usually require it to distribute assets to patrons, or allocate to patrons' accounts amounts equal to its earnings, on the basis of their patronage. Distributions to patrons are different from dividend payments to stockholders in other entities.
905-10-05-8
Under the price adjustment theory, a cooperative agrees to do business at cost. In a purchasing cooperative, for example, a patron may be charged more than cost at the time of purchase; however, the cooperative normally must return to the patron all amounts received in excess of cost, including costs of operation and processing.
905-10-05-9
If certain requirements are met, the Internal Revenue Code permits cooperatives tax deductions for earnings allocated to their patrons. Earnings not so allocated are taxed at corporate income tax rates. Both exempt and nonexempt cooperatives are subject to federal income taxes on patronage earnings that are not distributed in cash or allocated on a qualified basis. Nonexempt cooperatives are subject to income taxes on earnings arising from sources other than patronage.
905-10-05-10
Cooperatives generally try to buy or sell at the current market price. Periodically, they determine total costs and make distributions to patrons in the form of cash, certificates, or other notices of allocation based on the excess of revenues over costs.
905-10-05-11
The two major types of cooperatives are supply cooperatives and marketing cooperatives:
  1. a
    Supply or purchasing cooperatives
  2. b
    Marketing cooperatives.
905-10-05-12
Services related to those functions are provided by some supply and marketing cooperatives; they are also provided by separate associations known as service cooperatives, which include bargaining cooperatives. The members of local cooperatives are agricultural producers whose activities are generally centralized. The members of federated cooperatives are other cooperatives whose activities are regional. Some cooperatives have both individual producers and other cooperatives as members.

Cooperatives—Patrons

905-10-05-13
For an overview and background of cooperative members and patrons of agricultural cooperatives, see the Cooperatives Subsection of Section 905-10-05.

905-10-15Scope and Scope Exceptions

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Overall Guidance

905-10-15-1
The Subtopics within the Agriculture Topic only provide incremental industry-specific guidance for the entities defined in this Scope Section, or as further defined in the Scope Sections of the individual Agriculture Subtopics. Entities within the scope of this Topic shall also comply with the applicable standards not included in this Topic.
905-10-15-2
The General Subsection of this Section establishes the pervasive scope for this Subtopic, with specific qualifications noted in the other Subsections of this Section.

Entities

905-10-15-3
The Agriculture Topic provides guidance for all entities in the agricultural industry, including agricultural producers and agricultural cooperatives, with the exceptions noted below.
905-10-15-4
The guidance in this Topic does not apply to the following entities:
  1. a
    Growers of timber
  2. b
    Growers of pineapple and sugarcane in tropical regions
  3. c
    Raisers of animals for competitive sports
  4. d
    Merchants or noncooperative processors of agricultural products that purchase commodities from growers, contract harvesters, or others serving agricultural producers.

Transactions

905-10-15-5
The guidance in this Topic applies to the following transactions and activities:
  1. a
    Inventories of agricultural producers
  2. b
    Development costs of land, trees and vines, intermediate-life plants, and animals of agricultural producers.

Cooperatives

Overall Guidance

905-10-15-6
The Cooperatives Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic, see the General Subsection of Section 905-10-15, with specific qualifications noted below.

Entities

905-10-15-7
The guidance in the Cooperatives Subsections applies to agricultural cooperatives.

Transactions

905-10-15-8
The guidance in the Cooperatives Subsections applies to the following transactions and activities:
  1. a
    Accounting by agricultural cooperatives for products received from patrons.

Cooperatives—Patrons

Overall Guidance

905-10-15-9
The Cooperatives—Patrons Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic, see the General Subsection of Section 905-10-15, with specific qualifications noted below.

Entities

905-10-15-10
The guidance in the Cooperatives—Patrons Subsections applies to agricultural producers that are patrons of agricultural cooperatives.

Transactions

905-10-15-11
The guidance in the Cooperatives—Patrons Subsections applies to the following transactions and activities:
  1. a
    Accounting by patrons for product deliveries to cooperatives
  2. b
    Accounting by patrons for investments in and income from cooperatives.

Related subtopics