IASB issues proposals on bearer plants that will affect the South African wine industry
The International Accounting Standards Board (IASB) yesterday published, for public comment, an Exposure Draft of proposals to include bearer plants within the scope of IAS 16 Property, Plant and Equipment.
It seems that it is no longer just labour unrest and wage negotiations that will be bring unrest to the majestic vines of the South African Cape but now also the International Accounting Standards Board’s (IASB) ED2013/8.
Bearer plants are a class of biological asset that, once mature, is defined as plants that are used in the production or supply of agricultural produce, are expected to bear produce for more than one period, and are not intended to be sold as a living plant or harvested as agricultural produce themselves. The most applicable example for South Africa being grape vines (which is the corner stone of the South African wine export industry). Other examples include rubber trees and oil palms.
Plants that are grown both to bear produce and for sale as living plants or agricultural produce remain in the scope of IAS 41 and are not deemed bearer plants. The produce of the bearer plants would however continue to be accounted for under IAS 41 as the Exposure Draft focuses on the accounting of the bearer plant in isolation and does not include the produce of the bearer plant like the grapes.
IAS 41 Agriculture requires all biological assets that are related to agricultural activity, including bearer plants, to be measured at fair value less costs to sell. The significant change for South African wine farmers will now be that the IASB proposes that before bearer plants are placed into production (ie before they reach maturity and bear fruit) they should be measured at accumulated cost. After they reach maturity, bearer plants would be accounted for either under the cost model or a revaluation model.
Complex valuation criteria may be at the order of the day for those farmers choosing to follow the revaluation model.
Source: International Accounting Standards Board (IASB)