Question
Grapes Haven Limited is a company with a primary interest in the viticulture industry. The company purchases large tracts of land and plants grapevines on
Grapes Haven Limited is a company with a primary interest in the viticulture industry. The company purchases large tracts of land and plants grapevines on these lands. When the grapes are ripe, they are harvested and sold to major vinters (winemakers). The company employs the best vignerons (a person who cultivates grapes for wine making) in the business and also boasts with the best grapes in the country. The founder and managing director, Mr Sweet Grapes, attributes the excellent quality of the grapes to their sophisticated planting process, soil quality and regular pruning, maintenance and weed control. You have been approached by the company to help resolve certain accounting issues pertaining to the year ended 31 December 2021: Grapes Haven Limited bought a farm in the Zambezi region area that is suitable for growing grapes. They paid for the farm and immediately started to develop the land and planting of grapevines. This involved the land levelling, drainage, weed reduction, removal of wild hosts and creating fire and wind breaks. Holes were also dug into which young grapevines were planted and fertilised. This was done at a cost of N$200 000 per hectare. Once trees were planted they had to be watered and the weeds had to be controlled. The trees also had to be pruned to ensure that they grew straight on an arbor. This was an ongoing operation with costs continually being incurred. After a period of approximately 3 years the grapevines will be ready for harvest and are expected to yield a return in excess of 30% per annum on the costs incurred to establish them. During the financial year ended 31 December 2021, Grapes Haven Limited developed 15 Hectares at a total cost of N$ 3 million and also spent N$833 927 on watering and maintaining the trees The accountant reflected the cost of N$3 833 927 as an asset in the statement of financial position of Grapes Haven Limited as at 31 December 2021. REQUIRED: Discuss the appropriate recognition of the costs incurred in developing the planting (N$ 3 000 000) and maintaining the plantation (N$ 833 927) in the financial statement of Grapes Haven Limited for the year ended 31 December 2021. Specific reference should be made to the Conceptual Framework of Financial Reporting.
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