Bearer plants, their produce and the land beneath
How a farming client accounts for orchards and vines as bearer plants under IAS 16, the produce on them under IAS 41, and the land they stand on.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A wine farm's balance sheet holds a puzzle that catches many first-time preparers. The vines are living plants. The grapes hanging on them are living produce. The soil beneath is land. The wine in the cellar is stock. Each falls under a different rule, and the boundaries between them decide whether a figure is depreciated, remeasured at fair value or simply carried at cost.
The same puzzle turns up on a macadamia orchard in Limpopo, a tea estate in Kericho and an oil palm plantation in the Niger Delta. This article sorts the pieces.
Bearer plants sit under IAS 16
Under IAS 41, bearer plants are accounted for using IAS 16 Property, Plant and Equipment. The IFRS Foundation's summary of IAS 16 confirms that property, plant and equipment includes bearer plants related to agricultural activity. IAS 16 describes property, plant and equipment as tangible items held for use in producing or supplying goods or services, for rental or for administration, and expected to be used during more than one period.
A bearer plant is the plant that keeps on producing: the vine, the fruit tree, the tea bush. In plain terms it is treated like a machine that makes produce. It sits with the farm's other property, plant and equipment and is depreciated over its productive life.
What the preparer needs from the client:
- the costs of establishing the orchard or vineyard, to test against IAS 16's rules on what cost may include;
- the stage each block has reached, still being established or already bearing;
- the expected productive life of the plants, block by block where planting dates differ.
Produce still falls under IAS 41
The produce is different. The IFRS Foundation states that IAS 41 still applies to the produce growing on bearer plants, and under IAS 41 changes in the fair value of biological assets are included in profit or loss.
So the grapes on the vine, the nuts on the tree and the leaf on the bush are biological assets in their own right while they grow. If produce is still on the plants at year end, it has to be measured, and movements in its value pass through profit or loss. For a farm whose year end falls just before harvest, the figure can be material. A year end after harvest does not change the rule, but it often means little produce is hanging at the reporting date.
How IAS 41 measures biological assets is covered in measuring a farming client's biological assets.
Land is measured separately
IAS 41 requires biological assets attached to land, for example trees in a plantation forest, to be measured separately from the land. The land itself is not a biological asset. It is property, and Investopedia explains that land is not depreciated because it is considered to have an unlimited useful life.
For the asset register, a farm therefore has at least three separate kinds of item: the land, the bearer plants and any produce growing at year end, alongside the buildings, irrigation and machinery. A price paid for "the farm" has to be split between them, ideally using a valuer's breakdown at the time of purchase.
Processing after harvest falls outside IAS 41
IAS 41 defines agricultural activity as managing the biological transformation of biological assets, meaning living animals or plants, and harvesting them for sale or for conversion into agricultural produce or into additional biological assets. The IFRS Foundation states that IAS 41 does not deal with processing of agricultural produce after harvest, giving the examples of processing grapes into wine and wool into yarn.
Harvest is where the IAS 41 story ends. What follows is ordinary stock accounting. On a wine farm:
- The vines are bearer plants under IAS 16.
- The grapes on the vines are biological assets under IAS 41.
- The picked grapes become agricultural produce, then stock.
- The wine in the cellar is stock under the normal inventory rules.
A farm that also packs, dries or processes its own crop needs a clear cut-off between the farming activity and the factory activity, both in the accounts and in the costing.
Separate statement lines and depreciation
A farming client's statements are easier to read, and to check, when the categories are visible. In Achekam's Financials Studio, a firm can add its own statement lines and groups and reword any row title, and later builds keep those choices. A "Bearer plants" group within property, plant and equipment, and a "Biological assets" line for produce on the plants, can be set up once and carried forward. Each custom line still totals into a standard line, so the notes and the cash flow statement stay consistent.
The Studio does not calculate depreciation. It presents the depreciation in the trial balance, raises a flag when the charge and the movement in accumulated depreciation disagree, and lets staff post a year-end adjusting entry. The depreciation working for bearer plants therefore comes from the client's register or the firm's own schedule. A wrong adjusting entry is reversed with who did it and why, never deleted. Blocks replanted at different times, or irrigation installed separately, may need their own lives, a point covered in depreciating significant parts separately.
The IFRS Foundation's summary of IAS 41 sets out the accounting treatment, presentation and disclosures for agricultural activity.
Draw the farm first
Before preparing a farming client's statements, sketch the farm as a set of boxes: land, plants, produce on the plants, harvested produce, processed stock. Each box has its own rule and its own evidence. Most of the errors found at review come from boxes that were merged, usually the land with the orchard or the produce with the plants.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
