How fair is fair?: Swedish Forest Industry’s Application of the IAS 41- Agriculture

Sammanfattning: Could a market-valuing-method give a better measurement of fair value of standing timber than the DCF model which is current practice of Swedish forestry industry today? In 2005 IAS was implemented in Swedish accounting and fair value became the guideline for biological asset valuation. According to IAS 41 a model-to-model approach as the DCF, is a less preferable way of measuring fair value. In this thesis we will carefully study one large actor on the Swedish forestry market and explain how they use their DCF-model in practice. We will also develop two new methods: Immediate Harvesting Method and Decompose Real Estate Method, with its basis in actual market transaction which we will argue reach higher in the hierarchy of fair value measurement according to IAS 41. These two approaches will be applied on the studied forestry company, and pros and cons will be discussed in accordance of fair value measurement. When applying our developed methods, significantly higher values of the biological assets will be reached.