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Financial ReportingSection AIAS 41IAS 16Agriculture

ACCA · Question 11 · Financial Reporting

Section A

Verdi Vineyards operates a large grape farm. On 1 January 20X2, Verdi planted new vines costing $100,000. The vines take 3 years to mature and produce grapes. On 31 December 20X2, the fair value of the vines was estimated at $115,000, and estimated costs to sell were $5,000.

How should the vines be accounted for in the financial statements for the year ended 31 December 20X2?

Answer options:

A.

As a biological asset at fair value less costs to sell of $110,000.

B.

As Property, Plant and Equipment at cost of $100,000 (assuming no depreciation while immature).

C.

As inventory at the lower of cost and net realizable value.

D.

As an investment property at fair value of $115,000.

How to approach this question

Identify if the asset is a biological asset (IAS 41) or a bearer plant (IAS 16). Bearer plants are used to produce agricultural produce over more than one period and are not sold as produce themselves.

Full Answer

B.As Property, Plant and Equipment at cost of $100,000 (assuming no depreciation while immature).✓ Correct
Grape vines meet the definition of a 'bearer plant' because they are used in the production of agricultural produce, are expected to bear produce for more than one period, and have a remote likelihood of being sold as agricultural produce. Under IAS 16, bearer plants are accounted for as Property, Plant and Equipment, initially at cost, and depreciated once mature.

Common mistakes

Treating bearer plants as biological assets under IAS 41 and measuring them at fair value less costs to sell.
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