JSC Chateau Mukhrani...economic and financial markets of Georgia which display characteristics of an...
Transcript of JSC Chateau Mukhrani...economic and financial markets of Georgia which display characteristics of an...
JSC Chateau Mukhrani
Statement of Financial Position as at 31 December 2014
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The statement of financial position is to be read in conjunction with the notes to, and forming part of, the
financial statements set out on pages 8 to 39.
’000 GEL Note 31 December 2014 31 December 2013
Assets
Property, plant and equipment 9 12,955 14,886
Intangible assets 6 3
Prepayments for non-current assets 9 1,116 -
Deferred tax assets 8 99 -
Non-current assets 14,176 14,889
Inventories 10 4,533 2,963
Trade and other receivables 11 2,694 2,160
Taxes receivable 506 475
Cash and cash equivalents 12 357 754
Current assets 8,090 6,352
Total assets 22,266 21,241
Equity
Share capital 13 10,464 10,464
Share premium 13 18,203 18,203
Revaluation reserve 2,858 2,927
Accumulated losses (27,889) (23,882)
Total Equity 3,636 7,712
Loans and borrowings from a related party 15 14,456 3,150
Non-current liabilities 14,456 3,150
Trade and other payables 16 1,710 1,007
Loans and borrowings from a related party 15 2,464 9,372
Current liabilities 4,174 10,379
Total liabilities 18,630 13,529
Total equity and liabilities 22,266 21,241
JSC Chateau Mukhrani
Statement of Changes in Equity for 2014
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The statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the
financial statements set out on pages 8 to 39.
’000 GEL
Paid in share
capital
Share
premium
Property, plant and
equipment
revaluation reserve
Accumulated
losses Total
Balance at 1 January 2013 5,950 5,673 2,927 (21,186) (6,636)
Total comprehensive
income
Loss and total
comprehensive income for
the year
- - - (2,696) (2,696)
Contributions and
distributions
Financial liability
converted into equity
(note 13(c)) 4,514 12,530 - - 17,044
Balance at 31 December
2013 10,464 18,203 2,927 (23,882) 7,712
’000 GEL
Paid in share
capital
Share
premium
Property, plant and
equipment
revaluation reserve
Accumulated
losses Total
Balance at 31 December
2013 10,464 18,203 2,927 (23,882) 7,712
Total comprehensive
income
Loss for the year - - - (4,007) (4,007)
Other comprehensive
income
Revaluation of property,
plant and equipment - - 431 - 431
Deferred tax effect - - (500) - (500)
Total other
comprehensive income - - (69) - (69)
Total comprehensive
income for the year - - (69) (4,007) (4,076)
Balance at 31 December
2014 10,464 18,203 2,858 (27,889) 3,636
JSC Chateau Mukhrani
Statement of Cash Flows for 2014
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The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial
statements set out on pages 8 to 39.
’000 GEL Note 2014 2013
Cash flows from operating activities
Receipts from customers 4,386 3,412
Payments to suppliers (4,450) (2,974)
Payments to employees (1,367) (1,150)
Other payments (33) -
Payments for taxes other than on income (346) (285)
Cash flows used in operations before income
taxes and interest paid (1,810) (997)
Interest paid (83) -
Net cash flows used in operating activities (1,893) (997)
Cash flows from investing activities
Acquisition of property, plant and equipment (1,892) (1,850)
Net cash used in investing activities (1,892) (1,850)
Cash flows from financing activities
Proceeds from loans and borrowings 3,527 3,184
Repayment of loans and borrowings (97) -
Net cash from in financing activities 3,430 3,184
Net (decrease)/increase in cash and
cash equivalents (355) 337
Cash and cash equivalents at 1 January 754 359
Effect of movements in exchange rates on
cash and cash equivalents (42) 58
Cash and cash equivalents at 31 December 12 357 754
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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Note Page Note Page
Basis of Preparation 9
1. Reporting entity 9
2. Basis of accounting 9
3. Functional and presentation currency 10
4. Use of estimates and judgments 10
Performance for the year 11
5. Revenue 11
6. Expenses 12
7. Net finance costs 13
Income taxes 13
8. Income taxes 13
Assets 16
9. Property, plant and equipment 16
10. Inventories 19
11. Trade and other receivables 20
12. Cash and cash equivalents 20
Equity and liabilities 21
13. Capital and reserves 21
14. Capital management 21
15. Loans and borrowings 22
16. Trade and other payables 23
Financial instruments 23
17. Fair values and risk management 23
Other information 28
18. Commitments 28
19. Contingencies 28
20. Related parties 29
Accounting Policies 30
21. Basis of measurement 30
22. Changes in accounting policies 30
23. Significant accounting policies 31
24. New standards and interpretations not yet
adopted 39
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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1. Reporting entity
(a) Georgian business environment
The Company’s operations are located in Georgia. Consequently, the Company is exposed to the
economic and financial markets of Georgia which display characteristics of an emerging market. The
legal, tax and regulatory frameworks continue development, but are subject to varying interpretations
and frequent changes which together with other legal and fiscal impediments contribute to the
challenges faced by entities operating in the Georgia. The financial statements reflect management’s
assessment of the impact of the Georgian business environment on the operations and the financial
position of the Company. The future business environment may differ from management’s
assessment.
(b) Organisation and operations
Chateau Mukhrani is a Georgian closed joint stock company as defined in the Civil Code of Georgia.
JSC Chateau Mukhrani was incorporated on 12 June 2002 as a Limited Liability Company under the
Georgian legislation. On 17 February 2010 the Company was reorganised into a Joint Stock
Company.
The Company’s register office is Mukhrani, Mtskheta, 3309, Georgia.
The Company’s principal activity is the cultivation of vine, wine production and trading, as well as
tourism and hospitality. The Company is based on the historical tradition of winemaking in the
Mukhrani region. In 2007, a major investment was made in the new winery of the Company. Now it
is equipped with ultra-modern technology and corresponds with ISO 9001:2005 Food Safety and
ISO 9001:2008 Quality Management standards. Since 2007, the Company is making wine from
grapes harvested in its own vineyards. To make the wine more exquisite and truly unique, the winery
receives grapes for processing that are a maximum of 15 minutes from harvesting.
As at 31 December 2014 and 2013 the Company is owned by JSC Marussia Georgia (80%), Mamuka
Khazaradze (11.97%) and Badri Japaridze (8.03%).
The Company’s immediate parent company (JSC Marussia Georgia) is wholly owned by Marussia
Beverages B.V. The Company’s ultimate parent company is Haydn Holding AB. The majority of the
Company’s funding is from, and credit exposures are to, other entities within the group headed by
Haydn Holding AB. As a result the Company is economically dependent upon the group headed by
Haydn Holding AB. The country of principal business and incorporation of Haydn Holding AB is
Sweden. Related party transactions are disclosed in note 20.
The Paulsen Familiae Foundation, a legal entity incorporated under the Jersey law, ultimately
controls the Company.
2. Basis of accounting
Statement of compliance
These financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRSs”).
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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3. Functional and presentation currency
The national currency of Georgia is the Georgian Lari (“GEL”), which is the Company’s functional
currency and the currency in which these financial statements are presented. All financial information
presented in GEL has been rounded to the nearest thousands, except when otherwise indicated.
4. Use of estimates and judgments
The preparation of financial statements in conformity with IFRSs requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from those
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimates are revised and in any future periods
affected.
Information about critical judgments in applying accounting policies that have the most significant
effect on the amounts recognised in the financial statements is included in the following notes:
Notes 9, 23(g) – useful lives of property, plant and equipment;
Note 17(b)(ii) – allowances for trade receivables.
Information about assumptions and estimation uncertainties that have a significant risk of resulting
in a material adjustment within the next financial year is included in the notes:
Note 9 - impairment test: key assumptions underlying recoverable amounts;
Note 10 – determination of fair value less cost to sell of harvested grapes.
Measurement of fair values
A number of the Company’s accounting policies and disclosures require the measurement of fair
values, for both financial and non-financial assets and liabilities.
The Company has an established control framework with respect to the measurement of fair values.
CFO has overall responsibility for overseeing all significant fair value measurements, including Level
3 fair values, and reports directly to the shareholders and to the Group CFO.
The CFO regularly reviews significant unobservable inputs and valuation adjustments. If third party
information, such as market comparable prices, is used to measure fair values, then the CFO assesses
the evidence obtained from the third parties to support the conclusion that such valuations meet the
requirements of IFRS, including the level in the fair value hierarchy in which such valuations should
be classified.
Significant valuation issues are reported to the shareholders and to the Group CFO.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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When measuring the fair value of an asset or a liability, the Company uses market observable data
as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on
the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different
levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the
same level of the fair value hierarchy as the lowest level input that is significant to the entire
measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the
reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following
notes:
Note 9 – property, plant and equipment; and
Note 17(a) – financial instruments.
5. Revenue
’000 GEL 2014 2013
Revenue from sales of wine 4,163 3,168
Revenues from wine tours and events 454 325
Revenue from sales of Spirits 379 402
Other revenues 40 94
Total revenues 5,036 3,989
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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6. Expenses
(a) Administrative expenses
’000 GEL 2014 2013
Management service fee 439 94
Salary 353 532
Depreciation 252 211
Taxes other than on income 263 142
Legal, financial and other consulting costs 115 246
Repair & maintenance 68 93
Travel and accommodation 48 36
Property maintenance and office supplies 41 50
IT consulting & maintenance 36 43
Representative expenses 34 54
Communication 30 26
Other administrative expenses 140 233
1,819 1,760
(b) Sales and distribution expenses
’000 GEL 2014 2013
Impairment loss on trade receivables 500 103
Listing fees 127 140
Management service fee 36 284
Degustation 31 25
Freight cost 18 43
Salary - 197
Other administrative expenses 68 200
780 992
(c) Marketing expenses
’000 GEL 2014 2013
Advertisement and promotion 378 350
Travel and accommodation 3 38
Salary - 65
Other 3 4
384 457
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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(d) Tourism expenses
’000 GEL 2014 2013
Salary 205 149
Fuel expenses 9 5
Travel and accommodation 7 4
Communication 4 3
Repair & maintenance 2 2
Other 107 76
334 239
Salary expense of GEL 828 thousand (2013: GEL 556 thousand) has been charged to cost of sales,
part of which has been included in the carrying value of inventory.
7. Net finance costs
’000 GEL 2014 2013
Recognised in profit or loss
Interest expense on loan from related party 1,082 954
Net foreign exchange loss 58 602
Net finance costs recognised in profit or loss 1,140 1,556
Taxes
8. Income taxes
(a) Amounts recognised in profit or loss
The Company’s applicable tax rate is the income tax rate of 15% (2013: 15%).
’000 GEL 2014 2013
Current tax expense
Current year - -
Deferred tax benefit
Origination and reversal of temporary differences 599 -
599 -
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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(b) Amounts recognised in other comprehensive income
’000 GEL 2014 2013
Before tax Tax Net of tax Before tax Tax Net of tax
Revaluation of property, plant and
equipment 431 (65) 366 - - -
431 (65) 366 - - -
In 2014 management identified that no deferred tax liability was calculated on the surplus of the
property, plant and equipment’s revaluation effects in previous years. To correct this omission, in
these financial statements the management calculated and recognised GEL 435 thousand as deferred
tax liability on the revaluation surplus as at 31 December 2014. The opening balances were not
restated as the management believes that the effect of such adjustment is not material for the financial
statements as a whole, and on the users’ decisions to be made based on these financial statements.
Reconciliation of effective tax rate
2014 2013
’000 GEL % ’000 GEL %
Loss before tax (4,606) 100% (2,696) 100%
Tax using the Company’s tax rate 691 (15%) 404 (15%)
Current year losses for which no deferred tax
asset is recognised (168) 4% (332) 12%
Non-taxable income/(non-deductible costs) 76 (2%) (72) 3%
599 (13%) - -
(c) Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
’000 GEL 2014 2013 2014 2013 2014 2013
Property, plant and equipment - - (115) (113) (115) (113)
Inventories - - (28) (10) (28) (10)
Trade and other receivables 102 31 - - 102 31
Loans and borrowings 140 92 - - 140 92
Tax assets/(liabilities) 242 123 (143) (123) 99 -
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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(d) Movement in deferred tax balances
’000 GEL
1 January
2014
Recognised in
profit or loss
Recognised in other
comprehensive income
31 December
2014
Property, plant and equipment (113) 498 (500) (115)
Inventories (10) (18) - (28)
Trade and other receivables 31 71 - 102
Loans and borrowings 92 48 - 140
- 599 (500) 99
’000 GEL
1 January
2013
Recognised in
profit or loss
Recognised in other
comprehensive income
31 December
2013
Property, plant and equipment - (113) - (113)
Inventories - (10) - (10)
Trade and other receivables - 31 - 31
Loans and borrowings - 92 - 92
- - - -
(e) Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
’000 GEL 2014 2013
Tax losses 1,402 1,491
Tax losses of GEL 257 thousand for the year ended 31 December 2009 expired in 2014. Tax losses
of GEL 251 thousand, GEL 651 thousand, GEL 332 thousand and GEL 168 thousand expire in 2016,
2017, 2018 and 2019, respectively. Deferred tax assets have not been recognised in respect of these
items because it is not probable that future taxable profit will be available against which the Company
can utilise the benefits therefrom.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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9. Property, plant and equipment
’000 GEL Land Buildings
Under
construction
Plant and
equipment
Furniture and
office equipment Other assets Vehicles Bearer plants Total
Cost or deemed cost/Revalued
amount
Balance at 1 January 2013 3,031 2,296 5,652 2,455 104 279 226 944 14,987
Additions - 132 349 20 38 69 - - 608
Balance at 31 December 2013 3,031 2,428 6,001 2,475 142 348 226 944 15,595
Balance at 1 January 2014 3,031 2,428 6,001 2,475 142 348 226 944 15,595
Additions - - 294 249 13 223 31 - 810
Disposals - (1) (2) - - (124) (101) - (228)
Elimination of accumulated
depreciation - (346) - (428) (75) (115) (102) - (1,066)
Revaluation 841 (414) - 1 5 8 (10) - 431
Balance at 31 December 2014 3,872 1,667 6,293 2,297 85 340 44 944 15,542
Depreciation and impairment losses
Balance at 1 January 2013 - 114 - 135 19 25 28 - 321
Depreciation for the year - 116 - 138 26 37 40 31 388
Balance at 31 December 2013 - 230 - 273 45 62 68 31 709
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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Land Buildings
Under
construction
Plant and
equipment
Furniture and
office equipment Other assets Vehicles Bearer plants Total
Balance at 1 January 2014 - 230 - 273 45 62 68 31 709
Depreciation for the year - 116 - 155 30 53 34 31 419
Elimination of accumulated
depreciation - (346) - (428) (75) (115) (102) -
(1,066)
Impairment loss - 954 - 1,468 1 78 68 - 2,569
Disposals - - - - - - (44) - (44)
Balance at 31 December 2014 - 954 - 1,468 1 78 24 62 2,587
Carrying amounts
At 1 January 2013 3,031 2,182 5,652 2,320 85 254 198 944 14,666
At 31 December 2013 3,031 2,198 6,001 2,202 97 286 158 913 14,886
At 31 December 2014 3,872 713 6,293 829 84 262 20 882 12,955
Carrying amounts had no
revaluations taken place
At 1 January 2013 731 1,770 5,652 2,206 77 254 162 944 11,796
At 31 December 2013 731 1,807 6,001 2,108 89 286 122 913 12,057
At 31 December 2014 731 694 6,293 734 71 254 - 882 9,659
Depreciation expense of GEL 164 thousand (2013: GEL 146 thousand) has been charged to cost of sales, part of which has been included in the carrying value of
inventory.
The estimation of the useful life property, plant and equipment is a matter of management estimate based upon experience with similar assets. In determining the useful
life of an item of property, plant and equipment, management considers the expected usage, estimated technical obsolescence, physical wear and tear and the physical
environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
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(a) Impairment loss and subsequent reversal
As of 31 December 2014 the Company has performed a revaluation of its property, plant and
equipment, except for bearer plants, and recognised an impairment loss of GEL 2,569 thousand
(2013: nil).
(b) Revaluation of land
In 2014 management commissioned BDO LLC to independently appraise land as at 31 December
2014. The fair value of land was determined to be GEL 3,895 thousand and reflects market prices in
recent transactions.
(c) Revaluation of property, plant and equipment (excluding land and bearer plants)
In 2014, management commissioned BDO LLC to independently appraise property, plant and
equipment, except for bearer plants, as at 31 December 2014. The fair value of property, plant and
equipment was determined to be GEL 8,178 thousand, which has been categorised as a Level 3 fair
value based on the inputs to the valuation techniques used (see note 4).
The majority of the Company’s property, plant and equipment is specialised in nature and is rarely
sold on the open market other than as part of a continuing business. Except for land, which was
appraised on the basis of recent market transactions, the market for similar property, plant and
equipment is not active in Georgia and does not provide a sufficient number of sales of comparable
property, plant and equipment for using a market-based approach for determining fair value.
Consequently the fair value of property, plant and equipment, except for bearer plants was primarily
determined using depreciated replacement cost. This method considers the cost to reproduce or
replace the property, plant and equipment, adjusted for physical, functional or economical
depreciation, and obsolescence.
Depreciated replacement cost was estimated based on internal sources and analysis of the Georgian
market for similar property, plant and equipment. Various market data were collected from published
information, catalogues, statistical data, etc., and industry experts and suppliers of property, plant
and equipment were contacted in Georgia.
In addition to the determination of the depreciated replacement cost, management estimated the
enterprise value, which represents the fair value less cost to sell of the whole business as of 31
December 2014. In determining the enterprise value, management used multiples of comparable
companies.
The following key assumptions were used by management in calculating the fair value less cost to
sell of the business:
applied a coefficient 2.17 as the average EV (enterprise value)/Revenue multiple of comparable
companies;
current year revenue amount was used in the calculation; and
applied 25% control premium.
As at 31 December 2014 the fair value less cost to sell of the whole business was estimated to be
GEL 13.6 million. This amount represents the value of profit generating assets (working capital,
property, plant and equipment, intangible assets etc.), excluding the assets under construction which
does not generate any cash flows yet (and is not considered to be part of the cash generating unit).
To calculate economical depreciation and obsolescence of the property, plant and equipment valued
using the cost approach, management adjusted the GEL 13.6 million for the net working capital
balance of GEL 6.9 million (mainly inventories) and for GEL 4.2 million which was the fair value
of the land and other fixed assets valued using the market approach as at 31 December 2014. The
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
19
balance of GEL 2.5 million represents recoverable amount of the specialised fixed assets valued
using the cost approach, hence, this resulted in the depreciated replacement cost values of those assets
being decreased by GEL 3.0 million, out of which GEL 0.4 million was recognised as a decrease in
the revaluation reserve and GEL 2.6 million was recognised as an impairment loss for the year ended
31 December 2014.
Management has identified three key assumptions for which there could be a reasonably possible
change that could cause the carrying amount to exceed the discounted amount of future cash flows.
The above estimates are particularly sensitive in the following areas:
a decrease of the EV (enterprise value)/Revenue multiple by 0.5 basis point (from 2.17 to 1.67),
would decrease the enterprise value to GEL 10.5 million.
a decrease in the revenue amount by 20% would decrease the enterprise value to GEL 10.9
million.
a 5% decrease in the control premium would decrease the enterprise value to GEL 13.0 million.
(d) Property, plant and equipment under construction
Construction in progress represents building of the Mukhjranbatoni palace (Chateau). During 2014,
the Company continued construction of the Mukhjranbatoni palace for future development of the
hospitality business. The Company commenced reconstruction of the palace in 2010; costs incurred
up to the reporting date totalled GEL 6,283 thousand (2013: GEL 6,001 thousand).
As described in paragraph c) above, the property, plant and equipment under construction was
revalued as at 31 December 2014 using at cost approach. No economical depreciation and
obsolescence of the property, plant and equipment under construction was calculated as a result of
the revaluation, considering that the construction works are still in process and unique and specific
nature of the Mukhjranbatoni palace (Chateau).
Prepayments for non-current assets represents the amounts prepaid to different companies during
2014 for reconstruction of the Mukhjranbatoni palace (Chateau).
10. Inventories
’000 GEL 2014 2013
Work in progress 3,133 1,970
Packaging materials 658 407
Finished goods 619 458
Winification and vineyard materials 107 118
Other inventories 16 10
4,533 2,963
In 2014 raw materials, consumables and changes in finished goods and work in progress recognized
as cost of sales amounted to GEL 2,229 thousand (2013: GEL 1,528 thousand).
Work in progress contains the bulk wine of GEL 3,057 thousand as at 31 December 2014 (2013:
GEL 1,798 thousand) operating cycle of which is more than 12 months.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
20
Cost of harvested grapes per grape types:
’000 GEL 2014 2013
Saperavi 236 151
Rkatsiteli 118 75
Goruli Mcvane 108 69
Chardonnay 76 49
Tavkveri 55 35
Cabernet Souvignon 43 27
Souvignon Blanc 41 26
Shavkapito 36 23
Muscat 15 9
Petit Verdot 9 6
Syrah 9 6
Total cost of the harvested grapes 746 476
Management estimated that costs of harvested grapes were approximate to its fair value less costs to
sell at the point of harvest.
The total harvested grapes for the year ended 31 December 2014 was 562 tonnes (2013: 587 tonnes).
11. Trade and other receivables
’000 GEL 2014 2013
Trade receivables 3,230 2,209
Advances received 118 152
Other receivables 27 10
Impairment on trade receivables (681) (211)
2,694 2,160
12. Cash and cash equivalents
’000 GEL 2014 2013
Bank balances 357 754
Cash and cash equivalents in the statement of financial
position and in the statement of cash flows 357 754
The Company’s exposure to interest rate risk and a sensitivity analysis for financial assets and
liabilities are disclosed in note 17.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
21
13. Capital and reserves
(a) Share capital and additional paid-in capital
Number of shares unless otherwise stated Ordinary shares
2014 2013
In issue at 1 January 10,464 5,950
Issued for cash - 4,514
In issue at 31 December, fully paid 10,464 10,464
Authorised shares - par value GEL 1 GEL 1
All ordinary shares rank equally with regard to the Company’s residual assets.
(b) Ordinary shares
In accordance with Georgian legislation the Company’s distributable reserves are limited to the
balance of retained earnings as recorded in the Company’s statutory financial statements prepared in
accordance with International Financial Reporting Standards. As at 31 December 2014 and 2013 the
Company had accumulated losses and no distributable reserves were available to be distributed.
(c) Share premium
On 7 May 2013 the charter capital of the Company was increased by issue of 1,188,000 shares
previously authorized but not issued and the issue of 3,326,415 new shares with par value of 1 (one)
Georgian Lari each, which were issued to JSC Marussia (Georgia) in return for the conversion of
convertible loans. Total converted loans amounted to GEL 17,044 thousand as at the conversion date
and the difference between par value of acquired new shares and the then carrying amount of the
converted loan, of GEL 12,530 thousand was recognized as share premium.
14. Capital management
The Company has no formal policy for capital management but management seeks to maintain a
sufficient capital base for meeting the Company’s operational and strategic needs, and to maintain
confidence of market participants. This is achieved with efficient cash management, constant
monitoring of Company’s revenues and profit, and long-term investment plans mainly financed by
the Company’s shareholders and parent companies. With these measures the Company aims for
steady profits growth.
The Company’s debt to capital ratio at the end of the reporting period was as follows:
’000 GEL 2014 2013
Total liabilities 18,630 13,529
Less: cash and cash equivalents 357 754
Net debt 18,273 12,775
Total equity 3,636 7,712
Net debt to equity ratio at 31 December 5.03 1.66
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
22
15. Loans and borrowings
This note provides information about the contractual terms of the Company’s interest-bearing loans
and borrowings, which are measured at amortised cost. For more information about the Company’s
exposure to interest rate, foreign currency and liquidity risk, see note 17.
’000 GEL 2014 2013
Non-current liabilities
Loans from related parties 14,456 3,150
Current liabilities
Current portion of loans from related parties - 7,902
Interest on loans from related parties 2,464 1,470
2,464 9,372
16,920 12,522
(a) Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
31 December 2014 31 December 2013
’000 GEL Currency
Nominal
interest rate
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
Loans from related
parties GEL 9% 2016
16,920 16,920 - -
Loans from related
parties GEL
7% + 12 m
Euribor 2015 - - 3,288 3,288
Loans from related
parties USD
7% + 12 m
Euribor 2014 - - 960 960
Loans from a related
party EUR
7% + 12 m
Euribor 2014 - - 8,274 8,274
Total interest-bearing
liabilities 16,920 16,920 12,522 12,522
On 1 January 2014 a new contract was signed between the Company and the related parties according
to which, the Company has translated all its loans received from the related parties of GEL 10,956
thousand principal and GEL 1,387 thousand interest into a new loan, which was denominated in
GEL, bearing 9% interest rate and with maturity in 2016. As a result of these amendments of the
original loan terms, the original financial liability was accounted for as extinguished and the new
financial liability was recognised.
During 2014 the Company obtained loan from related parties of GEL 3,500 thousand maturing in
2016. On 31 December 2014 the Company had unused loan amount of GEL 1,000 thousand
(2013: nil).
Loans and borrowings from related parties are not secured.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
23
16. Trade and other payables
’000 GEL 2014 2013
Trade payables 1,245 428
Trade payables to related parties 451 552
Other payables 14 27
1,710 1,007
The Company’s exposure to currency and liquidity risk related to trade and other payables is
disclosed in note 17.l in
17. Fair values and risk management
(a) Accounting classifications and fair values
The estimates of fair value are intended to approximate the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. However given the uncertainties and the use of subjective judgment, the fair value
should not be interpreted as being realizable in an immediate sale of the assets or transfer of liabilities.
The Company has determined the fair values of financial assets and liabilities using valuation
techniques. The objective of the valuation techniques is to arrive at a fair value determination that
reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly
transaction between market participants at the measurement date. The valuation technique used is
the discounted cash flow model. Fair value of all financial assets and liabilities is calculated based
on the present value of future principal and interest cash flows, discounted at the market rate of
interest at the reporting date.
Management believes that the fair values of the Company’s financial assets and liabilities
approximate their carrying amounts.
(b) Financial risk management
The Company has exposure to the following risks from its use of financial instruments:
credit risk (see 17 (b)(ii));
liquidity risk (see 17 (b)(iii));
market risk (see 17 (b)(iv)).
(i) Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the
Company’s risk management framework.
The Company’s risk management policies are established to identify and analyze the risks faced by
the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to reflect changes in market conditions
and the Company’s activities. The Company, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
24
(ii) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Company’s
receivables from customers.
Trade receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. However, management also considers the factors that may influence the credit risk of the
Company’s customer base, including the default risk of the industry and country, in which customers
operate, particularly in the currently deteriorating economic circumstances. Approximately 39%
(2013: 17%) of the Company’s revenue is attributable to sales transactions with a single customer.
However, geographically there is no concentration of credit risk.
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region
was as follows:
Carrying amount
’000 GEL 2014 2013
Domestic 89 1,113
CIS countries 1,880 721
Euro-zone countries 163 70
Other regions 417 94
2,549 1,998
The maximum exposure to credit risk for trade receivables at the reporting date by type of
counterparty was as follows:
Carrying amount
’000 GEL 2014 2013
Wholesale customers 1,812 523
Retail customers 372 1,263
Other 365 212
2,549 1,998
The most significant customer of the Company accounts for GEL 324 thousand of the trade and other
receivables carrying amount at 31 December 2014 (2013: GEL nil).
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
25
Impairment losses
The ageing of trade receivables net of impairment at the reporting date was as follows:
’000 GEL 2014 2013
Ageing since the date of sale
0- 30 days 981 354
31-120 days 769 957
121-180 days 771 368
180-365 days 28 319
2,549 1,998
In the above table the aging was calculated from the sales date. Average payment duration stipulated
in the contract is 90 days.
The Company believes that the unimpaired amounts that are past due are still collectible, based on
historic payment behavior and analyses on the underlying customers’ credit ratings, when available.
The movement in the allowance for impairment in respect of trade and other receivables during the
year was as follows:
’000 GEL Individual impairments
2014 2013
Balance at beginning of the year (211) (455)
Impairment loss recognised (500) (103)
Recovery of written off receivables 30 347
Balance at end of the year (681) (211)
At 31 December 2014 an impairment loss of GEL 681 thousand (2013: GEL 211 thousand) relates
to several customers that have indicated that they are not expecting to be able to pay their outstanding
balances, mainly due to economic circumstances.
Cash and cash equivalents
The Company held cash and cash equivalents of GEL 357 thousand at 31 December 2014 (2013:
GEL 754 thousand), which represents its maximum credit exposure on these assets. The cash and
cash equivalents are held with banks which are rated BB-, based on rating agency Fitch ratings.
Management does not believe that counterparties will fail to meet their obligations.
(iii) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial asset.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Company’s reputation.
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Notes to the Financial Statements for 2014
26
The Company aims to maintain the level of cash and cash equivalents at an amount in excess of
expected cash outflows on financial liabilities over the succeeding 60 days. Typically the Company
ensures that it has sufficient cash on demand to meet expected operational expenses for a period of
60 days, including the servicing of financial obligations; this excludes the potential impact of extreme
circumstances that cannot reasonably be predicted, such as natural disasters.
In addition, the shareholders and ultimate parent company of the Company have committed to
provide financial and other support as is necessary to permit the Company to continue in operational
existence.
Exposure to liquidity risk
The following are the remaining contractual maturities of financial liabilities at the reporting date.
The amounts are gross and undiscounted, and include estimated interest payments and exclude the
impact of netting agreements.
31 December 2014 Contractual cash flows
’000 GEL
Carrying
amount Total
On
demand
Less than
2 mths 2-12 mths 1-2 yrs
Non-derivative financial
liabilities
Loans from related parties 16,920 19,521 - - - 19,521
Trade and other payables 1,710 1,710 1,710 - - -
18,630 21,231 1,710 - - 19,521
31 December 2013 Contractual cash flows
’000 GEL
Carrying
amount Total
On
demand
Less than
2 mths 2-12 mths 1-2 yrs
Non-derivative financial
liabilities
Loans from related parties 12,522 13,011 9,373 - - 3,638
Trade and other payables 1,007 1,007 1,007 - - -
13,529 14,018 10,380 - - 3,638
It is not expected that the cash flows included in the maturity analysis could occur significantly
earlier, or at significantly different amounts.
(iv) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates
and equity prices will affect the Company’s income or the value of its holdings of financial
instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimizing the return.
The Company incurs financial liabilities, in order to manage market risks. The Company does not
apply hedge accounting in order to manage volatility in profit or loss.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
27
Currency risk
The Company is exposed to currency risk on sales, purchases and borrowings that are denominated
in a currency other than the respective functional currencies of The Company. The currencies in
which these transactions primarily are denominated are EUR and USD.
Interest on borrowings is denominated in currencies that match the cash flows generated by the
underlying operations of the Company, primarily GEL. This provides an economic hedge and no
derivatives are entered into.
Exposure to currency risk
The Company’s exposure to foreign currency risk was as follows:
’000 GEL
USD-
denominated
EUR-
denominated
USD-
denominated
EUR-
denominated
2014 2014 2013 2013
Trade receivables 388 1,227 342 415
Cash and cash equivalents - 17 120 571
Trade payables (55) (249) (244) (301)
Loans and borrowings - - (960) (8,274)
Net exposure 333 995 (742) (7,589)
The following significant exchange rates have been applied during the year:
in GEL Average rate Reporting date spot rate
2014 2013 2014 2013
USD 1 1.7659 1.6634 1.8636 1.7363
EUR 1 2.3462 2.2094 2.2656 2.3891
Sensitivity analysis
A reasonably possible strengthening (weakening) of the GEL, as indicated below, against all other
currencies at 31 December would have affected the measurement of financial instruments
denominated in a foreign currency and affected profit or loss net of taxes by the amounts shown
below. The analysis assumes that all other variables, in particular interest rates, remain constant and
ignores any impact of forecast sales and purchases.
’000 GEL Profit or loss
Strengthening of GEL Weakening of GEL
31 December 2014
USD (20% movement) (57) 57
EUR (20% movement) (169) 169
31 December 2013
USD (20% movement) 126 (126)
EUR (20% movement) 1,290 (1,290)
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
28
(v) Interest rate risk
Changes in interest rates impact primarily loans and borrowings by changing either their fair value
(fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal
policy of determining how much of the Company’s exposure should be to fixed or variable rates.
However, at the time of raising new loans or borrowings management uses its judgment to decide
whether it believes that a fixed or variable rate would be more favorable to the Company over the
expected period until maturity.
Exposure to interest rate risk
At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments
was as follows:
’000 GEL Carrying amount
2014 2013
Fixed rate instruments
Financial liabilities 16,920 -
16,920 -
Variable rate instruments
Financial liabilities - 12,522
- 12,522
Fair value sensitivity analysis for fixed rate instruments
The Company does not account for any fixed-rate financial instruments as fair value through profit
or loss or as available-for-sale. Therefore a change in interest rates at the reporting date would not
have an effect in profit or loss or in equity.
18. Commitments
The Company is committed to incur capital expenditure of GEL 562 thousand (2013: Nil). These
commitments are expected to be settled in 2015.
19. Contingencies
(a) Insurance
The insurance industry in Georgia is in a developing state and many forms of insurance protection
common in other parts of the world are not yet generally available. The Company has full coverage
for its plant facilities and third party liability in respect of property or environmental damage arising
from accidents on Company property or relating to Company operations. From August 2014 the
Company takes part in the insurance scheme set up by the government of Georgia. This is scheme of
agro insurance sector, according to which the harvest of the Company is insured.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
29
(b) Taxation contingencies
The taxation system in Georgia is relatively new and is characterised by frequent changes in
legislation, official pronouncements and court decisions, which are sometimes unclear, contradictory
and subject to varying interpretation. In the event of a breach of tax legislation, no liabilities for
additional taxes, fines or penalties may be imposed by the tax authorities after six years have passed
since the end of the year in which the breach occurred.
These circumstances may create tax risks in Georgia that are more significant than in other countries.
Management believes that it has provided adequately for tax liabilities based on its interpretations of
applicable Georgian tax legislation, official pronouncements and court decisions. However, the
interpretations of the relevant authorities could differ and the effect on these financial statements, if
the authorities were successful in enforcing their interpretations, could be significant.
20. Related parties
(a) Parent and ultimate controlling party
The Company’s immediate parent company is JSC Marussia (Georgia). The Company’s ultimate
parent company is Haydn Holding AB and the Company’s ultimate controlling party is The Paulsen
Familiae Foundation, a legal entity incorporated under the Jersey law.
No publicly available financial statements are produced by the Company’s immediate parent
company. The next highest parent company that does so is Haydn Holding AB.
(b) Transactions with key management personnel
(i) Key management remuneration
Key management received the following remuneration during the year, which is included in
personnel costs (see note 6(a)):
’000 GEL 2014 2013
Salaries and bonuses 255 204
(c) Other related party transactions
’000 GEL
Transaction value for the year
ended 31 December
Outstanding balance as at
31 December
2014 2013 2014 2013
Sale of goods and services:
Parent company 1,972 51 927 -
Fellow subsidiaries 1,508 168 1,153 -
Supervisory board members 4 15 5 4
Purchase of goods and services:
Parent company 421 762 47 -
Fellow subsidiaries 729 184 451 -
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
30
’000 GEL
Transaction value for the year
ended 31 December
Outstanding balance as at
31 December
2014 2013 2014 2013
Loans received from related parties:
Parent and ultimate parent company 2,800 2,523 14,858 11,088
Minority shareholders who are
presented on Supervisory board 700 630 2,062 1,254
Other (entities under common control) - - - 180
All outstanding balances with related parties other than loans given, are to be settled in cash within
six months of the reporting date. For the loans received from related parties please refer to note 15.
None of the balances are secured.
21. Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following
items, which are measured on an alternative basis on each reporting date.
Items Measurement bases
Property, plant and equipment, except for bearer plants Fair value
Agricultural produce Fair value less costs to sell
22. Changes in accounting policies
Except for the changes below, the Company has consistently applied the accounting policies set out
in note 23 to all periods presented in these financial statements.
The Company has adopted the following amendments to a standard and new interpretation with a
date of initial application of 1 January 2014:
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41): These amendments require a bearer
plant, defined as a living plant, to be accounted for as property, plant and equipment and included
in the scope of IAS 16 Property, Plant and Equipment, instead of IAS 41 Agriculture. The
amendments are effective for annual reporting periods beginning on or after 1 January 2016, with
early adoption permitted.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
31
23. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in
these financial statements, and have been applied consistently by Company entities, except as
explained in note 22, which addresses changes in accounting policies.
Certain comparative amounts have been adjusted as a result of a change in the accounting policy
regarding property, plant and equipment – bearer plants (see note 23(k)).
Set out below is an index of the significant accounting policies, the details of which are available on
the pages that follow:
(a) Revenue 31
(b) Finance income and costs 31
(c) Foreign currency 32
(d) Employee benefits 32
(e) Income tax 33
(f) Inventories 33
(g) Property, plant and equipment 33
(h) Financial instruments 35
(i) Impairment 36
(j) Provisions 38
(k) Comparative information 38
(a) Revenue
(i) Goods sold
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of
the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue
is recognised when persuasive evidence exists, usually in the form of an executed sales agreement,
that the significant risks and rewards of ownership have been transferred to the customer, recovery
of the consideration is probable, the associated costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods, and the amount of revenue
can be measured reliably. If it is probable that discounts will be granted and the amount can be
measured reliably, then the discount is recognised as a reduction of revenue as the sales are
recognized on dispatch when significant risks and rewards of ownership are transferred.
(b) Finance income and costs
The Company’s finance income and finance costs include:
interest income;
interest expense;
the net gain or loss on financial assets at fair value through profit or loss;
the foreign currency gain or loss on financial assets and financial liabilities;
Interest income or expense is recognised using the effective interest method..
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Notes to the Financial Statements for 2014
32
(c) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currency of the
Company at exchange rates ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated
to the functional currency at the exchange rate at that date. The foreign currency gain or loss on
monetary items is the difference between amortised cost in the functional currency at the beginning
of the period, adjusted for effective interest and payments during the period, and the amortised cost
in foreign currency translated at the exchange rate at the end of the reporting period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value
are translated to the functional currency at the exchange rate at the date that the fair value was
determined. Non-monetary items in a foreign currency that are measured based on historical cost are
translated using the exchange rate at the date of the transaction.
Foreign currency differences arising in translation are recognised in profit or loss.
(d) Employee benefits
(i) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided. A liability is recognised for the amount expected to be paid under
short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the obligation
can be estimated reliably.
(e) Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the
extent that it relates to a business combination, or items recognised directly in equity or in other
comprehensive income.
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the
year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years. Current tax payable also includes any tax liability arising from
dividends.
(ii) Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable profit
or loss.
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Notes to the Financial Statements for 2014
33
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting
date.
In determining the amount of current and deferred tax the Company takes into account the impact of
uncertain tax positions and whether additional taxes, penalties and late-payment interest may be due.
The Company believes that its accruals for tax liabilities are adequate for all open tax years based on
its assessment of many factors, including interpretations of tax law and prior experience. This
assessment relies on estimates and assumptions and may involve a series of judgments about future
events. New information may become available that causes the Company to change its judgment
regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax
expense in the period that such a determination is made.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which
they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
(f) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based
on the weighted average principle, and includes expenditure incurred in acquiring the inventories,
production or conversion costs and other costs incurred in bringing them to their existing location
and condition. In the case of manufactured inventories and work in progress, cost includes an
appropriate share of production overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses.
The Company does not apply IAS 23 “Borrowing Costs” standard to borrowing costs directly
attributable to the finished goods (wine) that are manufactured, or otherwise produced, in large
quantities on a repetitive basis.
(g) Property, plant and equipment
(i) Recognition and measurement
After recognition as an asset, an item of property, plant and equipment, except for bearer plants,
whose fair value can be measured reliably is carried at revalued amount, being its far value at the
date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using fair value at the end
of the reporting period. The fair value of land and buildings is determined from market-based
evidence by appraisal that is undertaken by professionally qualified valuators. The fair value of the
items of plant and equipment is their market value determined by appraisal. If there is no market-
based evidence of fair value because of the specialized nature of the item of property, plant and
equipment and the item is rarely sold, except as part of a continuing business, the Company may
need to estimate fair value using an income, market or a cost approach.
The frequency of revaluation depends upon the changes in fair values of the items of property, plant
and equipment being revalued. When fair value of a revalued asset differs materially from its carrying
amount, a further revaluation is conducted.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
34
If an item of property, plant and equipment is revalued, the entire class of property, plant and
equipment to which that asset belongs is revalued. Subsequent depreciation of property, plant and
equipment is charged so as to write off the depreciable amount over the useful life of an asset and is
calculated using a straight line method.
A revaluation increase on property, plant and equipment is recognised directly under the heading of
revaluation surplus in other comprehensive income. However, the increase is recognised in profit or
loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in
profit or loss.
A revaluation decrease on property, plant and equipment is recognised in profit or loss. However,
the decrease is recognised in other comprehensive income to the extent of any credit balance existing
in the revaluation surplus.
(ii) Subsequent expenditure
The cost of replacing a component of an item of property, plant and equipment is recognised in the
carrying amount of the item if it is probable that the future economic benefits embodied within the
component will flow to the Company, and its cost can be measured reliably. The carrying amount of
the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and
equipment are recognised in profit or loss as incurred.
(iii) Bearer plants
Bearer plants are used solely to grow produce. The only significant future economic benefits from
bearer plants arise from selling the agricultural produce that they create. Bearer plants meet the
definition of property, plant and equipment in IAS 16 and their operation is similar to that of
manufacturing. Accordingly, the amendments require bearer plants to be accounted for as property,
plant and equipment and included within the scope of IAS 16, instead of IAS 41. The produce
growing on bearer plants will remain within the scope of IAS 41.
Bearer plants are carried at cost less accumulated depreciation and any accumulated impairment
losses.
The cost of bearer plants comprises the fair value of the assets determined as of 1 January 2013 as
deemed cost.
Depreciation of bearer plants is calculated using the straight-line method to allocate the cost less its
residual value over its estimated useful life of 30 years.
The residual value, useful lives and depreciation method of the Company’s bearer plants are
reviewed, and adjusted if appropriate, if there is an indication of a change since the last reporting
date.
The Company classifies harvested grapes as agricultural produce and uses them predominantly for
production of their own wines.
Agricultural produce harvested from the Company’s bearer plants are measured at its fair value less
costs to sell at the point of harvest. The fair value less costs to sell of agricultural produce at the date
of harvest is the deemed cost of the produce for the purpose of applying IAS 2 Inventories.
A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell is
included in the profit or loss.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
35
(iv) Depreciation
Items of property, plant and equipment are depreciated from the date that they are installed and are
ready for use, or in respect of internally constructed assets, from the date that the asset is completed
and ready for use. Depreciation is based on the cost of an asset less its estimated residual value.
Depreciation is generally recognised in profit or loss on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment, since this most closely reflects the
expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets
are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain
that the company will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives of significant items of property, plant and equipment for the current and
comparative periods are as follows:
Buildings 50 years;
Plant and equipment 5-30 years;
Furniture and office equipment 7-10 years;
Vehicles 3-8 years;
Other assets 5-10 years;
Bearer plants 30 years.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and
adjusted if appropriate.
(h) Financial instruments
The Company classifies non-derivative financial assets into the loans and receivables.
The Company classifies non-derivative financial liabilities into the other financial liabilities
category.
(i) Non-derivative financial assets and financial liabilities – recognition and derecognition
The Company initially recognises loans and receivables and debt securities issued on the date that
they are originated. All other financial assets and financial liabilities are recognised initially on the
trade date at which the Company becomes a party to the contractual provisions of the instrument.
The Company derecognises a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership of the financial asset are
transferred. Any interest in transferred financial assets that is created or retained by the Company is
recognised as a separate asset or liability.
The Company derecognises a financial liability when its contractual obligations are discharged or
cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the
statement of financial position when, and only when, the Company currently has a legally enforceable
right to set off the recognised amounts and intends either to settle on a net basis or to realise the asset
and settle the liability simultaneously. The Company currently has a legally enforceable right to set
off if that right is not contingent on a future event and enforceable both in the normal course of
business and in the event of default, insolvency or bankruptcy of the Company and all counterparties.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
36
Loans and receivables
Loans and receivables are a category of financial assets with fixed or determinable payments that are
not quoted in an active market. Such assets are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at
amortised cost using the effective interest method, less any impairment losses.
Loans and receivables category comprise the following classes of financial assets: trade and other
receivables as presented in note 11 and cash and cash equivalents as presented in note 12.
Cash and cash equivalents
Cash and cash equivalents comprise cash and bank balances with original maturities of three months
or less.
(ii) Non-derivative financial liabilities - measurement
The Company classifies non-derivative financial liabilities into the other financial liabilities
category. Such financial liabilities are recognised initially at fair value less any directly attributable
transaction costs. Subsequent to initial recognition, these financial liabilities are measured at
amortised cost using the effective interest method.
Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other
payables.
(iii) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary
shares and share options are recognised as a deduction from equity, net of any tax effects.
Share premium
When share capital is increased, any difference between the registered amount of share capital and
the fair value of actual consideration received is recognized as share premium.
(i) Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to
determine whether there is any objective evidence that it is impaired. A financial asset is impaired if
objective evidence indicates that a loss event has occurred after the initial recognition of the asset,
and that the loss event had a negative effect on the estimated future cash flows of that asset that can
be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include:
default or delinquency by a debtor;
restructuring of an amount due to the Company on terms that the Company would not consider
otherwise;
indications that a debtor or issuer will enter bankruptcy;
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Notes to the Financial Statements for 2014
37
adverse changes in the payment status of borrowers or issuers in the Company;
economic conditions that correlate with defaults;
the disappearance of an active market for a security; or
observable data indicating that there is measurable decrease in expected cash flows from a group
of financial assets.
Financial assets measured at amortised cost
The Company considers evidence of impairment for these assets at an individual asset. All
individually significant assets are individually assessed for impairment.
An impairment loss is calculated as the difference between an asset’s carrying amount, and the
present value of the estimated future cash flows discounted at the asset’s original effective interest
rate. Losses are recognized in profit or loss and reflected in an allowance account. When the
Company considers that there are no realistic prospects of recovery of the asset, the relevant amounts
are written off. Interest on the impaired asset continues to be recognized through the unwinding of
the discount. When a subsequent event causes the amount of impairment loss to decrease and the
decrease can be related objectively to an event occurring after the impairment was recognized, the
decrease in impairment loss is reversed through profit or loss.
(ii) Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax
assets are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together
into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGU.
The Company’s corporate assets do not generate separate cash inflows and are utilized by more than
one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for
impairment as part of the testing of the CGU to which the corporate asset is allocated.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset or CGU.
An impairment loss is recognized if the carrying amount of an asset or its related cash-generating
unit (CGU) exceeds its estimated recoverable amount.
Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs
are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of
CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on
a pro rata basis.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
38
(j) Provisions
A provision is recognised if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value
of money and the risks specific to the liability. The unwinding of the discount is recognised as finance
cost.
(k) Comparative information
As a result of early adoption of Amendments to IAS 16 and IAS 41, balance of biological assets was
restated and reclassified to property plant and equipment under the bearer plants category that is
measured at cost less depreciation and impairment losses, if any. The bearer plants were recognised
at deemed cost at the beginning of the earliest comparative period which is 1 January 2013.
The following tables summarize the adjustments made to the statements of financial position at
1 January 2013 and 31 December 2013, and its statements of profit or loss and other comprehensive
income for the year ended 31 December 2013 as a result of the change of accounting policy and the
representation:
Statement of financial position 1 January 2013
GEL’000 As previously
reported Adjustments Reclassification
According to new
accounting policy
Biological assets 944 - (944) -
Property, plant and equipment
(bearer plants) - - 944 944
Overall impact on total assets - -
Statement of financial position 31 December 2013
GEL’000 As previously
reported Adjustments Reclassification
According to new
accounting policy
Biological assets 822 91 (913) -
Property, plant and equipment
(bearer plants) - - 913 913
Overall impact on total assets 91 -
Statement of profit and loss and other comprehensive income for 2013
GEL’000 As previously
reported Adjustments Reclassification
According to new
accounting policy
Fair value adjustment (122) 122 - -
Depreciation expense - (31) - (31)
Overall impact on profit and
loss 91 -
JSC Chateau Mukhrani
Notes to the Financial Statements for 2014
39
24. New standards and interpretations not yet adopted
A number of new Standards, amendments to Standards and Interpretations are not yet effective as at
31 December 2014, and have not been applied in preparing these financial statements. Of these
pronouncements, potentially the following will have an impact on the Company’s operations. The
Company plans to adopt these pronouncements when they become effective.
New or amended
standard Summary of the requirements Possible impact on
financial statements
IFRS 9 Financial
Instruments
IFRS 9, published in July 2014, replaces the existing guidance
in IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes revised guidance on the
classification and measurement of financial instruments,
including a new expected credit loss model for calculating
impairment on financial assets, and the new general hedge
accounting requirements. It also carries forward the guidance
on recognition and de recognition of financial instruments
from IAS 39.
IFRS 9 is effective for annual reporting periods beginning on
or after 1 January 2018, with early adoption permitted.
The Company is
assessing the potential
impact on its financial
statements resulting
from the application
of IFRS 9.
IFRS 15 Revenue
from Contracts
with Customers
IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is
recognised. It replaces existing revenue recognition guidance,
including IAS 18 Revenue, IAS 11 Construction Contracts and
IFRIC 13 Customer Loyalty Programmes.
The core principle of the new standard is that an entity
recognises revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The new standard results
in enhanced disclosures about revenue, provides guidance for
transactions that were not previously addressed
comprehensively and improves guidance for multiple-element
arrangements.
IFRS 15 is effective for annual reporting periods beginning on
or after 1 January 2017, with early adoption permitted.
The Company is
assessing the potential
impact on its financial
statements resulting
from the application
of IFRS 15.
Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All
amendments, which result in accounting changes for presentation, recognition or measurement
purposes, will come into effect not earlier than 1 January 2015. The Company has not yet analysed
the likely impact of the improvements on its financial position or performance.