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IASB Exposure Draft ED/2017/4 Property, Plant and Equipment – Proceeds before Intended Use (Proposed amendments to IAS 16).

IAS 16 Property, Plant and Equipment paragraph 17 specifies examples of costs directly attributable to bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management. One such example is the costs of testing. Paragraph 17(e) of IAS 16 states that the cost of an item of property, plant and equipment includes the costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition.

The IASB Interpretations Committee received a request asking two questions about paragraph 17(e) of IAS 16:

(a) whether the proceeds referred to in that paragraph relate only to items produced from testing; and

(b) whether an entity deducts from the cost of an item of property, plant and equipment any proceeds that exceed the costs of testing.

The IASB, after exploring different approaches, decided to propose an amendment to IAS 16 to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity would recognise those sales proceeds in profit or loss.

The IASB views its proposals as a simple and effective way of removing the identified diversity in practice in a manner that would improve financial reporting.

To download the Exposure Draft, click here.