IAS 16 Property, Plant and Equipment — Accounting for proceeds and costs of testing PPE: Should net proceeds reduce the cost of PPE? — Agenda paper 5

Date recorded:


The IFRS Interpretations Committee received a request to clarify the accounting for net proceeds from selling items produced while testing an item of property, plant and equipment (PPE) under construction. The submitter asked whether an entity should recognise the amount by which the net proceeds received exceed the costs of testing in profit or loss or, instead, as a deduction from the cost of the PPE. The Interpretations Committee discussed in March 2016 two approaches (i) to restrict the amount of proceeds an entity deducts from the cost of PPE to only those proceeds arising from testing activities, and clarify that the net proceeds deducted should not exceed the cost of testing included as part of the cost of PPE; or (ii) to prohibit the deduction of proceeds from the cost of PPE. (See agenda paper 2 from March 2016 for further detail). The Interpretations Committee tentatively decided to propose a narrow scope amendment of IAS 16 which would prohibit the deduction of proceeds from the cost of PPE. The purpose of this session was to discuss the staff analysis for whether additional disclosure requirements would be necessary and transition requirements. Appendix B of the agenda paper included the draft wording of the proposed amendments to IAS 16. 

Staff analysis and recommendation

The staff believed that items produced by a PPE item that it were not yet available for use are outputs from the entity’s ordinary activities. The staff considered that such output was within the scope of IFRS 15 (unless the counterparty is not a customer). The staff considered that an entity would be required to apply the disclosure requirements under IFRS 15 (revenue) and IAS 2 (cost of outputs). Accordingly, the staff did not recommend adding further disclosure requirements.

In relation to the transition requirements the staff considered that the amendments would be a narrow-scope amendment which would not affect many entities. Also, the staff believed that applying the amendments retrospectively would be too costly and would not bring additional benefits. The staff recommended requiring prospective application for the proposed amendments to items of PPE made available for use from the beginning of the earliest comparative period. In relation to first-time adopters, the staff considered that IFRS 1 already provided a deemed cost exemption for PPE (including using deemed cost exemption for an entity with oil and gas properties in development and production phases, and entities having PPE items subject to rate regulations). Accordingly, the staff did not recommend providing further transition relief to first-time adopters.


The Interpretations Committee approved the staff recommendation. The staff will inform the Board regarding the Interpretations Committee’s recommendation.

There were no significant concerns noted during the discussion, although some members were concerned about a lack of comparative information on transition. The staff clarified that the proposal was for a modified retrospective approach from the earliest period presented. Some members requested that the Basis for Conclusion should clarify the rationale for not requesting additional disclosures and what disclosures are already required by other Standards. Another concern noted was that there could be items that met the definition of both producing and testing. Also, it was noted that it would be important as a general rule that there should not be revenues without costs because the general principle of cost allocation should be applied. However, it was noted there could be some potential difficulties in industries that require long term testing (such as mining) in which there could be periods with revenue from testing and no costs. 

There was no objection for not providing specific transition relief to first-time adopters. The staff pointed out that IFRS 1 does not provide exceptions in IAS 16 other than using fair value as deemed cost.

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