With English Wine Week 2023 having taken place last week, we look at the lifecycle of a vine and the key accounting points which arise.
Vines are usually accounted for as ‘bearer plants’ as a form of biological asset – living plants that are used in the production or supply of agricultural produce, and those which are expected to bear produce for more than one period.
At first, businesses usually recognise biological assets in their financial statements at cost, with the option to revalue on ‘maturity’, although that’s not technically defined. Given the time between a vine being planted and producing a full crop of fruit, some consider that the first harvest might be an appropriate point to measure ‘maturity’.
Costs associated with vines once recognised
Initial costs relating to the establishment of vines may also be included within the value of either the biological asset or underlying land on initial recognition. Even if these costs do not in themselves lead to an increase in future economic benefits, they may be necessary to allow for future benefits to flow to the business.
Subsequent costs that are incurred but that do not directly lead to an increase in economic benefit, such as pruning, grubbing, and treating vines for mildew or mould are incurred as costs in the profit and loss account.
Bearer plants may be subject to a depreciation policy year on year as any other asset with a useful economic life. However, as grapevines may take several decades to reach full production capacity, the decision may be taken not to apply a depreciation charge prior to reaching this point.
Impairments, however, might be made following the impact of weather conditions (such as a hard frost) if weather is deemed to significantly affect the yield of a plant for the longer term. This therefore should be reflected in the financial statements.
Any remaining carrying value of a vine at the point of derecognition would depend on the circumstances. However, the most common points of derecognition would be either on disposal or when no future harvests are expected. Any gain or loss resulting from the derecognition of the plant would be included in the corresponding year’s profit and loss account.
The points above are based on the accounting treatment under FRS102, but other accounting standards such as IFRS may provide slightly different outcomes. Also, there are tax considerations to keep in mind at different points along the vine lifecycle, including income tax and capital allowances.
It’s a good idea to get advice in the early stages of the vine lifecycle to ensure that there are no unexpected tax implications.
If you have any queries based on the points discussed, please speak to your usual Saffery contact, or get in touch with Lucy de Greeff.