Clarification of Acceptable Methods of Depreciation and Amortization - IDG

May 31, 2016

At its meeting on May 31, 2016, the AcSB staff provided an update on this issue to the IFRS Discussion Group. The AcSB staff noted that the IFRS Interpretations Committee tentatively decided at its March 2016 meeting to propose a narrow-scope amendment to IAS 16, Property, Plant and Equipment. The amendment would prohibit the deduction of proceeds from selling items produced from the cost of property, plant and equipment before it is capable of operating as intended by management. However, the IFRS Interpretations Committee decided not to address the issue of when the property, plant and equipment is capable of operating in the manner intended by management because this issue was beyond the scope of the submitter’s issue. The Group members briefly discussed the tentative direction of the IFRS Interpretations Committee and noted that the proposed amendments would have a significant effect on practice in Canada, particularly for entities in the extractive industries. Group members were concerned that the aspect of cost allocation has not been addressed by the IFRS Interpretations Committee. The Group noted that the underlying issue of determining when an asset is capable of operating as intended by management is particularly relevant to the issues discussed such as ongoing cost allocation and commencement of depreciation expense. Since the underlying issue continues to be a challenge in practice and will become even more of an issue if the proposed amendments to IAS 16 materialize, the Group recommended that the AcSB discuss whether a submission is needed to the IFRS Interpretations Committee to highlight this matter.