a wine producer owns and manages a vineyard and produces its own wine onsite the vin 612323

Consistent assumptions about highest and best use in an asset group

A wine producer owns and manages a vineyard and produces its own wine onsite. The vines are measured at fair value less costs to sell in accordance with IAS 41 at the end of each reporting period. The grapes are measured at the point of harvest at fair value less costs to sell in accordance with IAS 41 (being its ‘cost” when transferred to IAS 2). Before harvest, the grapes are considered part of the vines. The wine producer elects to measure its land using IAS 16″s revaluation model (fair value less any subsequent accumulated depreciation and accumulated impairment). All other non-financial assets are measured at cost.

At the end of the reporting period, the entity assesses the highest and best use of the vines and the land from the perspective of market participants. The vines and land could continue to be used, in combination with the entity”s other assets and liabilities, to produce and sell its wine (i.e. its current use). Alternatively, the land could be converted into residential property. Conversion would include removing the vines and plant and equipment from the land.

Scenario A

The entity determines that the highest and best use of these assets in combination as a vineyard (i.e. its current use). The entity must make consistent assumptions for assets in the group (for which highest and best use is relevant, i.e. non-financial assets). Therefore, the highest and best use of all non-financial assets in the group is to produce and sell wine, even if conversion into residential property might yield a higher value for the land on its own.

Scenario B

The entity determines that the highest and best use of these assets is to convert the land into residential property, even if the current use might yield a higher value for the vines on their own. The entity would need to consider what a market participant would do to convert the land, which could include the cost of rezoning, selling cuttings from the vines or simply removing the vines, and the sale of the buildings and equipment either individually or as an asset group.

Since the highest and best use of these assets is not their current use in this scenario, the entity would disclose that fact, as well as the reason why those assets are being used in a manner that differs from their highest and best use.