IAS 16 — Proceeds before intended use

Date recorded:

IAS 16 Property, Plant and Equipment—Proceeds before intended use (Agenda Paper 7)


In June 2017, the Board published the Exposure Draft Property, Plant and Equipment––Proceeds before Intended Use (ED). The comment period ended in October 2017 and many respondents to the ED either disagreed with, or expressed concerns about, the proposed amendments.

The primary matters for consideration that the staff have identified with respect to this project relate to:

  • (a) The recognition of sales proceeds as revenue (or income) in profit or loss
  • (b) The potential diversity that may result from cost allocation
  • (c) The point in time at which an asset is considered to be available for use
  • (d) The significance of the issue for different industries and whether industry specific guidance is required
  • (e) Balancing the importance of disclosing clear and transparent information in this area with concerns relating to disclosure overload

To facilitate the discussion on how best to proceed on this project at this meeting, the staff have set out possible approaches for consideration:

  • Approach 1—Proceed with the ED as published, largely without modification
  • Approach 2—Proceed with the ED with some modifications that address the feedbacks, including adding the principle regarding the identification of the costs of producing items sold, expanding the definition of 'testing' included in the proposals and incorporating specific disclosure requirements relating to the sale of items produced before an item of property, plant and equipment is available for use.
  • Approach 3—Do not proceed with the proposed amendments; however, introduce additional disclosure requirements, including the amount of sale proceeds credited against the cost of property, plant and equipment ("PPE") in the period and a description of how an entity has determined the date at which PPE is available for use. Also, consider alternative standard-setting approaches, including exploring to amend IAS 16 to clarify the date at which PPE is available for use, or considering the issue of sale proceeds before intended use as part of its research project on Extractive Activities.

In the staff's view, the feedback in the comment letters received suggests that the benefits of proceeding with the ED as published (Approach 1) might not outweigh the costs. In particular, the staff noted the risk that in reducing the diversity in the reporting of sale proceeds, the proposed amendments could create new diversity in the costs recognised in profit or loss.

The paper does not contain a staff recommendation. Instead, the staff are interested in the Committee’s advice on how best to proceed on this project.


Most of the Committee members supported Approach 2 while some Committee members supported Approach 3. None of the Committee members considered Approach 1 appropriate.

One of the Committee members said that they rejected Approach 1 on the basis of the comment letters received.

Most of the Committee members supported Approach 2. At the beginning, some Committee members questioned whether the amounts involved are material. Another Committee member was of the opinion that without disclosure it is not possible to know whether the proceeds received or production costs incurred before the asset is ready for intended use by the management are material in each specific case. One of the Committee members pointed out that the proposed amendments would provide useful information on the recognition of sales proceeds as revenue (or income) in profit or loss and such disclosure would help to narrow the diversity of accounting over time. Another Committee member also suggested that such kind of disclosure is particularly useful for users of financial statements of mining companies.

However, the biggest issue for this topic is determining when the asset is capable of production as intended by the management which has not been dealt with in Approach 2. It is observed that the gross profit margin from this stream of income and ongoing production are different and hence direct cost associated with those revenue-generating activities must not be capitalised in the asset. Another Committee member suggested it is worth adding to Approach 2 the disclosure about the description of how an entity has determined the date at which PPE is available for use (which is a disclosure requirement suggested as part of Approach 3). Another Committee member highlighted that another disadvantage of Approach 2 is not having a discussion about the issue of "testing" which has to be dealt with in another situation.

The Chair suggested that the content of the ED should be enhanced with more prescriptive guidance on the principles of cost allocation and relevant disclosure requirements.

Supporters of Approach 3 consider in some circumstances the pre-production stage is multiple years and can result in significant amounts of revenue being generated. Approach 3 could provide an opportunity to address the specific issue of the point in time when the pre-production stage is over.


There was no decision made in the meeting.


Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.