Presco Nigeria Plc released its 2015 Full Year results showing profit after tax dropped 55% to N2.3 billion (2014 FY N5.2 billion). The company also reported toppling revenue growth of 14% with revenues rising to N10.4 billion compared to N9.1 billion the year earlier.
A further look at the results reveals that the reason for the drop was due to a restatement of profits for the year 2014. Presco in 2014 reported a profit after tax of N2.6 billion. However, it restated the 2014 profits to N5.1 billion after it increased gains from biological assets valuation to N5.7 billion from N1.3 billion.
Presco says as at 31 December 2015, it had material biological asset consisting of only of palm trees coming from 3 existing estates (Obaretin, Cowan and Ologbo): Mature Palm trees for a total of 15,356 hectares, Immature Palm trees for a total of 1,294 hectares and Pre nursery and Main nursery seedlings available to generate a total of 1,800 hectares of planting.
The International Accounting Standards 41 define Fair Value Assets as the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. It represents a market price for the asset based on current expectations.
In essence the standard is saying that biological assets whether sold or not should be valued fairly as if you want to sell (net of selling cost) and the gains booked as if you have gained it already. This suggest, Presco undervalued its Biological Assets in 2014 and as such had to revalue it appropriately. The auditors did not mention this restatement in their audit opinion, however it is likely they may have requested for it retroactively after auditing 2015 results.
Presco did mention the restatement describing it as an error in its results.
“Correction of an error
The following errors were corrected in respect of the prior year(s):
- 1 Biological assets. The fair value of biological asset was understated by N14.7 billion in 2014 (N13.5 billion in 2013)
- 2 Defined benefit obligation: Amounts recognized were different from amounts stated in the valuation report.
- 3 Property, plant and equipment. Error noted in accounting for finance lease obligation (land) for 2014 was corrected.”