Management Report 2020
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Management Report 2020
The provision for adjustment of inventory to market value of agricultural prod-
ucts is set up when the fair value recorded in the inventory is higher than the
realizable value. The realizable value is the estimated selling price in the nor-
mal course of business less the estimated costs necessary to sell them.
c) Biological assets
The biological assets correspond substantially to the soybeans, corn, cotton
and other minor crops, whose agricultural products are sold to third parties.
They are measured by the expenses incurred with the formation of the crops
up to the point of biological transformation, when they are valued at fair value,
deducting sales expenses and costs to be incurred. At this time the transfor-
mation of the biological asset is significant and the impact on the value is
material.
The fair value measurement of biological assets is classified as level 3 - Assets
and liabilities whose prices do not exist or those prices or valuation techniques
are supported by a small or non-existent market, unobservable or illiquid.
This measurement is an accurate estimate based on various assumptions and
methodologies adopted by the Company's management, for which internal and
external information was used, mainly related to: productivity volume, profita-
bility, costs necessary to put in sale condition, prices and discount rate.
The fair value of biological assets is determined using discounted cash flow
methodology, considering basically:
(a) cash inflows obtained by multiplying (i) estimated production (hec-
tares planted multiplied by estimated productivity), and (ii) market
price/prices sold.
(b) Cash outflows represented by the total cost of production for the crop
such as: (i) seeds, fertilizers, agricultural pesticides, depreciation and
labor applied to crops.
Based on the estimated revenues and costs, the Company determines the dis-
counted cash flows to be generated and brings the corresponding amounts at
present value, considering a discount rate, compatible for investment remu-
neration. Changes in fair value are recorded under the biological assets
SLC
Agrícola
heading and are offset against "Changes in fair value of biological assets" in
the statement of income.
The valuation of biological assets at fair value considers certain estimates,
which are subject to uncertainties and may have effects on future results as a
result of their variations.
d) Investments (Parent Company)
Investments in subsidiary are determined by the equity method of accounting,
as CPC18 (R2) (IAS 28), for the purpose of the parent company's financial
statements.
After the application of the equity method for the purposes of the parent com-
pany's financial statements, the Company determines whether it is necessary
to recognize an additional impairment loss on the Company's investment in
each of its subsidiaries. The Company determines, at each balance sheet clos-
ing date, whether there is objective evidence that investments in subsidiaries
have suffered impairment losses. If so, the Company calculates the amount of
the impairment loss as the difference between the subsidiary's recoverable
amount and book value and recognizes the amount in the parent company's
income statement.
e) Fixed assets
Recognition and measurement | Property, plant and equipment items are
stated at historical acquisition or construction cost, net of accumulated depre-
ciation and impairment losses.
The cost includes expenses that are directly attributable to the acquisition of
an asset. The cost of assets built by the Company itself includes:
The cost of materials and direct labor;
The costs of dismantling and restoring the site where these assets are
located;
Costs of loans on qualifying assets;
Any other costs to place the assets on the premises and conditions neces-
sary for them tobe able to operate in the manner intended by Management.
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