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IAS 16 – Contingent pricing of property, plant and equipment

Date recorded:

In January 2011, the Committee added to its agenda a request for guidance on how to account for contingent payments agreed for the separate purchases of property, plant and equipment or intangible assets. During the March 2011 Committee meeting, the Committee requested the staff to prepare further analysis on how to account for subsequent changes to the liability.

The staff provided the Committee with an analysis of existing IFRS literature that could be analogised to for subsequent changes to the liability. In particular, the staff highlighted IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities and IFRS 3 Business Combinations. The staff also presented the Committee with an update on decisions from the revenue recognition and lease accounting projects as these may have implications on the Committee's consideration of the topic.

A few of the Committee members had concerns with the staff's analogising subsequent changes to contingent payments related to property, plant and equipment to IFRS 3 noting that IFRS 3 dealt specifically with business combinations. Other Committee members felt that it may be an alternative to remove the liability from the scope of IAS 32/39 which would require changes in fair value being recognised in profit or loss.

The Committee ultimately decided that they could not proceed with this issue further until the Board had further finalised its views in the leases and revenue recognition projects. The lease project was specifically noted because of the structuring opportunities that may be presented should the Committee have a view for purchases of property, plant and equipment with a contingent payment features that differs from the Board's view of leases with contingent payment features.