Date recorded:

Property, Plant and Equipment: Proceeds before Intended Use (Agenda Paper 12A–C)


The Board issued the Exposure Draft Property, Plant and Equipment — Proceeds before Intended Use (ED) in June 2017. This set of papers summarised the feedback received, possible approaches for the project, and the recommendations for next steps.

The proposal to amend the measurement requirements in IAS 16 Property, Plant and Equipment was developed in response to an Interpretations Committee (Committee) request to address diverse reporting of sales proceeds before intended use. The amendments would require recognition of any sales proceeds before intended use in profit or loss.

Committee members noted that crediting property, plant and equipment (PPE) to account for sales proceeds has a pervasive effect on financial statements. It effects the cost, depreciation, net assets and profits presented, and as such affects computation of financial ratios. Given that the sales proceeds meet the definition of income, the Committee concluded that these proceeds should instead be recognised within profit or loss.

The amendments have elicited mixed views among stakeholders. Particular consideration should be given to four significant concerns. These concerns are detailed below, along with a summary of the discussion points.

Can proceeds before intended use be addressed, without broader consideration of when an item of PPE is available for use?

Stakeholders suggested the Board should consider clarification of the “available for use” definition, rather than the current review of accounting for sales proceeds. They consider the existence of significant proceeds before intended use to be a conceptual inconsistency. The paper concludes that it is possible to complete the proposed reporting matter without considering a wider review of “available for use” clarification.

Would the requirement to allocate costs result in diversity in practice?

Stakeholders stated that allocating costs related to sales of items sold before an item of PPE is available for use would require extensive judgement. The Board could limit diversity of application by developing high-level principles of cost allocation, developing detailed requirements on the allocation, or by incorporating observations into IAS 16.

Would the recognition in profit or loss provide relevant information?

Stakeholders stated that the recognition of proceeds in profit or loss might not provide users with relevant information as this is not predictive, and may lead to users making adjustments to financial information and increased use of non-GAAP measures.

The paper views the information to be useful for its confirmatory value. Presentation and disclosure requirements could help users of the statements identify these sales proceeds and costs.

Would the amending of measurement requirements in IAS 16 exceed the costs of standard-setting?

Stakeholders raised a question around the value of expected benefits of amendments against the costs of standard-setting. This was raised due to stakeholders thinking that the level of proceeds would be immaterial for most entities, other than those in the extractive industry, and as such should be considered within the research project on extractive activities.

The Board observed in the ED that the matter of sales proceeds before intended use mainly affects few industries. In the view of the staff, if the Board is unable to conclude on the expected benefits, and that these justify the costs, that the Board may want to choose not to amend the measurement requirements.

In light of the significant concerns raised, the following approaches could be taken:

  • Option 1—‘Modified ED’: Proceed with the proposed amendments to prohibit deducting proceeds from items sold before the item of PPE is available for use from PPE and clarification of the meaning of “testing”, and in addition develop requirements on determination of production costs and related disclosures.
  • Option 2—‘Testing and Disclosure’: Proceed with proposed clarification of “testing”, but do not proceed with amendments to prohibit deduction from PPE. Instead, require entities to disclose amount of proceeds recognised in PPE.
  • Option 3—‘Do not proceed’: Do not proceed with any of the proposed amendments.

Option 1 has the merit of retaining the benefits of the proposed amendments, however this does not address the concern raised over the potential costs of the amendments. If the Board proceeds with this option, further analysis would be required on the requirements of cost allocation and presentation and disclosure requirements.

Option 2 addresses the matter through additional disclosure as opposed to amendments to the measurement requirements. This option reduces the benefits of the proposed amendments, as this does not eliminate the diversity in application. It would however provide greater transparency. A number of members support the disclosure focused approach.

Applying Option 3, the Board would not undertake any further work on this project at this stage––i.e. the Board would amend neither the measurement nor the disclosure requirements in IAS 16.

For Options 2 and 3, the Board may decide to refer this matter to its research project on Extractive Activities, adding this matter to its scope.

Staff recommendation

The staff recommended that the Board not amend IAS 16 to require an entity to recognise in profit or loss any proceeds from selling items produced before an item of property, plant and equipment (PPE) is available for use. Instead, staff recommended that the Board:

  • proceed with the proposed clarification of the meaning of ‘testing’ included in the Exposure Draft
  • require an entity to disclose the amount of any proceeds from selling items produced before an item of PPE is available for use
  • consider addressing the matter of sales proceeds before intended use as part of its research project on Extractive Activities

Board discussion

As regards unit cash cost calculation, Board members noted that extractive industries have significant non-cash costs, such as those relating to decommissioning. This brings into question which impact any difference in the method of unit cash cost allocation (as mentioned in the agenda paper) will have on the accounts. It was noted that any difference is likely to be immaterial to the users, and so consideration should be given to the appropriateness of providing any specific guidance on how to allocate unit cash costs.

Consideration should also be given to the need to account for different sections of the same mining activity, as they are likely to be at different stages of development. As such, these businesses are already using complex cost-allocation models, again bringing into question the need for specific guidance.

A question was raised as to the significance of the sensitivity users have to the diversification of cost allocation. If this is not a significant issue for the user group of extractive industries entities, the Board should consider waiting to make amendments to this area as part of a wider research project over extractive industries. It was noted that the scope of this change would go beyond extractive industries. The pervasive point the Board is looking to address is where sales are netted against the cost of PPE. This results in lower deprecation and increased profitability over the life of the asset.

There was some agreement with the proposal to add possible amendments to IAS 16 to the wider extractive industries research project. The Board did however question if the amendments should be added to the scope of this project or if the proposed amendments should be abandoned altogether, given the negative responses to the proposed amendments.

The Board members summarised that the reports and responses on the proposed amendments have been balanced and clearly show that for extractive industries the cost allocation resulting from proposed amendments would be considered a difficulty for the sector. It has also been highlighted that for industries other than extractive, the prevalence and significance of proceeds before intended use is minimal.

The Board members considered the disclosure approach to be inappropriate as this would still only aid understanding of the users in the period of the sale, and in future periods the effects of netting these proceeds against the PPE would be felt across the balance sheet and the P&L.

A Board member also mentioned that based on the stakeholder responses a fourth possible option should be considered, where the definition of available for use is defined in greater detail. This could affect the diversity in application and the issue of recognition of these proceeds. Board members agreed that this was a common theme in the stakeholder responses, but noted that this was not considered as an option in Agenda Paper 12C as this would require additional resources. Additionally, it was outside the scope of the Exposure Draft. To review ‘available for sale’ generally would also lead to effects for all entities with PPE, which is not in line with the original scope.

It was noted that the scale and strength of opposition to the proposals in the Exposure Draft from stakeholders suggests that this is a far more complex issue than initially anticipated. The current Standard’s wording seems to result in these proceeds being less material than expected. This suggests that the IASB should review the scope of the proposals in the Exposure Draft to fully understand what the current practice is, specifically in the mining sector. A number of Board members agreed with this sentiment, suggesting that an amendment to the proposals in the Exposure Draft may be a more appropriate action.

The question was raised around the profile of the comments received from stakeholders. Board members noted that mining-specific responses tended to repeat the cost allocation difficulties. Responses from standard-setters and preparers were more focused towards the classification of available for use; however, there was still mention of the cost allocation difficulties.

A number of Board members decided to change their view on next steps to a preferred option of modification to the current exposure draft.

Board decision

With 11 to 3 votes, the Board tentatively decided to proceed with the proposed amendments with some modifications. Those modifications might include clarifying how entities identify the costs related to sales of items produced before an item of PPE is ready for its intended use and adding disclosure and presentation requirements.

Cryptocurrencies: Potential new research project (Agenda Paper 12D)


In July 2018 the Board whether to add a project on cryptocurrencies to its work plan or research pipeline. It decided it did not have sufficient information to reach a conclusion and decided to consult the IFRS Interpretations Committee.  The Board asked the Committee to:

  1. Provide information about how an entity might apply existing IFRS Standards in accounting for holdings of cryptocurrencies
  2. Consider whether that accounting provides users with useful financial information
  3. Advise the Board about whether standard-setting is necessary and should be a priority for holdings of cryptocurrencies

The Committee also discussed the application of existing IFRS Standards for an entity in accounting for cryptoassets issued in an Initial Coin Offering (“ICO”).

Holdings of cryptocurrencies

The staff think that an entity accounts for its holdings of cryptocurrencies applying IAS 38 Intangible Assets unless the entity holds the cryptocurrencies for sale in the ordinary course of business, in which case an entity applies IAS 2 Inventories.

There were concerns that the application of existing IFRS Standards may not always provide useful information to financial statement users. These focused around the measurement choice that is available to an entity applying IAS 38 for cryptocurrencies that are traded in an active market and the recognition of some changes in fair value in other comprehensive income.

The staff considered that the possible standard-setting activities previously discussed by the Board and the Committee would be more than a minor project and that the evidence obtained about the prevalence of holdings of cryptocurrencies indicates that holdings of cryptocurrencies are not a higher priority than other projects on the Board’s workplan or research pipeline at this time. Consequently, instead of standard-setting the staff recommend that the Board continue to monitor developments in cryptoassets. In addition the staff recommend the Board ask the Committee to consider publishing an agenda decision clarifying the application of existing IFRS Standards to holdings of cryptocurrencies and highlighting the applicable disclosure requirements.


The staff think that how an entity accounts for an ICO depends on the rights and obligations attached to the ICO. After identifying the obligations, an entity determines whether the transaction is within the scope of an IFRS Standard. The staff think there are a number of IFRS Standards that might apply to an ICO, for example, IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IAS 32 Financial Instruments: Presentation and IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The staff think that the evidence obtained indicates the matter is not prevalent at this time and accordingly the staff recommend that the Board ask the staff to consider ICOs as part of the proposed monitoring activities on cryptoassets. However the staff recommend the Board take no further action in relation to ICOs at this time.

Staff recommendations

The staff recommend that the Board not undertake standard-setting for holdings of cryptocurrencies or accounting for cryptoassets issued in an ICO but instead to monitor developments in cryptoassets and ICOs and ask the Interpretations Committee to consider publishing an agenda decision clarifying the application of existing IFRS Standards, including the applicable disclosures, to holdings of cryptocurrencies.


There was a general consensus that cryptocurrencies were an emerging phenomenon and that there was evidence of diversity in practice so that doing nothing was not an option, even if the prevalence of these transactions was currently low.

All Board members agreed with the staff’s suggestion to continue monitoring developments in this area.

Several Board members did not agree with the suggestion to publish an agenda decision. Some felt uncomfortable with the accounting treatment that resulted by applying existing Standards and did not feel it was appropriate for cryptocurrencies. There was also concern over whether existing accounting practice was transparent enough in regards to disclosures. Similarly, it was noted that a majority of entities in the research performed by the staff were not reporting how the Board thinks they should report and therefore an agenda decision, which would be expected to be followed as best practice, may not be helpful. Consequently, there was a suggestion that standard-setting should instead be undertaken, with a suggestion that the Committee could develop an Interpretation covering IAS 38, IAS 2 and IAS 1 Presentation of Financial Statements, which would be mandatory.

Other Board members did agree with the recommendation of issuing an agenda decision as it would confirm and reiterate the discussions that the Committee had had and the suggestion of additional disclosures for visibility could be highlighted. The level of prevalence is currently so low that it would be difficult to justify allocating significant resources to standard-setting when other matters are higher priority.

It was summarised by one Board member that under existing Standards the scope requirements take reporters to either IAS 2 or IAS 38 and if the Board members were comfortable with that then issuing an agenda decision, which is not standard-setting, would not substantively change anything. If that outcome was unacceptable then standard-setting would need to be undertaken.

Finally, although the prevalence of ICOs in listed entities was found to be low by the staff’s research, concerns were raised that the prevalence of ICOs in small and medium-sized entities (SMEs) could be substantially higher.


All Board members voted in favour of continuing to monitor development in cryptoassets and ICOs.

Seven Board members voted in favour of publishing an agenda decision. As the result was a tie, the Chair used his casting vote in favour of the recommendation.

Onerous Contracts: Costs of Fulfilling a Contract (Amendments to IAS 37) (formerly Costs Considered in Assessing whether a Contract is Onerous): Sweep issue — early application (Agenda Paper 12E)

In July 2018 the IASB decided to propose a narrow-scope amendment to IAS 37 relating to the ‘cost of fulfilling an onerous contract.

 The proposed amendment would:

  • a) Specify that the cost of fulfilling a contract comprises the costs that relate directly to the contract
  • b) Provide examples of costs that do, and do not, relate directly to a contract to provide goods or services
  • c) Include transition requirements for entities already reporting using IFRS Standards

Comments received on a draft of the proposed amendment highlighted that the proposals did not address early application.

Staff recommendation

The staff recommend that the proposed amendment to IAS 37 allow for early application.


The Board unanimously agreed with the recommendation. There was no significant discussion on this issue.

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