IAS 16 — Accounting for net proceeds and costs of testing on property, plant and equipment

Date recorded:

The project manager introduced the paper based on a request for clarification received by the IC for the accounting for net proceeds received during the course of testing an item of property, plant and equipment (PPE), in the case that the net proceeds exceed the costs of testing. The submission describes a situation in which the ‘revenue from production when testing the plant’ exceeds the ‘direct production cost when testing the plant during the period’. The submitter has asked whether the amount by which the revenue received exceeds the costs should be recognised in profit or loss or as a deduction from the cost of the PPE.

The staff has concluded based on paragraph 17(e) of IAS 16 Property, Plant and Equipment that the excess of net proceeds over the costs of testing cannot be included in the cost of the asset and must therefore be included in profit or loss. The staff recommended that IFRIC should not take this issue into its agenda. The staff also considered that additional disclosure requirements were not necessary.


There was substantive discussion about whether the unit of account was the asset or the testing phase. Some IC members indicated that they agreed with the staff conclusion for not taking the issue into IFRIC agenda but they did not agree with the assessment. They believed that the unit of account was the entire asset and accordingly, the gain should be deducted from the cost of the asset. On the other hand, other IC members believed that in their view the unit of account was the testing phase and if the net proceeds resulted in a credit, that amount should be credited to P&L. One IC member indicated that when testing was necessary to make the asset capable of production in the manner intended by management (a very judgemental decision to make), then it was a necessary part of the cost of the asset and any credit should be taken to the cost of the asset as stated by IAS 16.21. When testing was not necessary, the credit should be included in P&L. The implementation director responded that the focus of the paper was on IAS 16.17 as an example of costs. If the net proceeds were a credit, that credit would not meet the definition of cost; accordingly, it should be included in P&L. Another IC member indicated that he did not agree with the staff conclusion not to issue an interpretation because there was diversity in practice. One IC member mentioned that there could be cases where the net proceeds exceeded the entire cost of the asset, and in that case it would be necessary to analyse the definition of testing.


The Chairman requested a vote and a majority of IC members agreed that the net proceeds should be included in P&L (9 votes); they have also approved the agenda decision.

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