The Interpretations Committee received a request to clarify the accounting for net proceeds from selling items produced before an item of property, plant and equipment (PPE) is capable of operating as intended by management. The submitter asked whether an entity recognises the amount by which the net proceeds received exceed the costs of testing in profit or loss or as a deduction from the cost of PPE.
The Interpretations Committee discussed the following approaches for the recognition of proceeds from selling items produced before the item of PPE is capable of operating as intended by management:
- restricting the amount of proceeds that an entity deducts from the cost of PPE to only those proceeds arising from testing activities, and clarifying that the net proceeds deducted should not exceed the costs of testing included as part of the cost of PPE.
- prohibiting the deduction of any proceeds from the cost of PPE.
The Interpretations Committee tentatively decided to propose a narrow-scope amendment to IAS 16 Property, Plant and Equipment to prohibit the deduction of proceeds from selling items produced before the item of PPE is capable of operating as intended by management from the cost of PPE (approach b. above).
Next steps
At a future meeting, the Interpretations Committee will consider:
- whether the disclosure requirements in existing IFRS Standards are sufficient to provide useful information in the context of the proposed amendment; and
- the transition requirements relating to the proposed amendment.
