MICPA's Report on IASB ED/2017/4: Amendments to IAS 16 Analysis

This report presents the Malaysian Institute of Certified Public Accountants' (MICPA) comments on the International Accounting Standards Board's (IASB) Exposure Draft ED/2017/4, which proposes amendments to IAS 16 concerning proceeds from selling items produced before an asset is ready for its intended use. MICPA generally agrees with the proposal to recognize these proceeds and related costs in profit or loss, but suggests clarifying that the amendment should not apply to proceeds from salvaged or similar items not produced in the ordinary course of business, such as materials from demolished buildings or excess earth from land clearing, as these represent a recovery of costs associated with the property's acquisition and preparation.

APPENDIX I
IASB.ED-2017-4.Amendments to IAS 16.MICPA Comments Page 1 of 2
THE MALAYSIAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
(INSTITUT AKAUNTAN AWAM BERTAULIAH MALAYSIA)
International Accounting Standards Board
IASB Exposure Draft ED/2017/4
Property, Plant and Equipment – Proceeds before Intended Use
(Proposed amendments to IAS 16)
Questionnaire
The IASB invites comments on the proposals in this Exposure Draft, particularly on the
questions set out below. Comments are most helpful if they:
(a) comment on the questions as stated;
(b) indicate the specific paragraph(s) to which they relate;
(c) contain a clear rationale;
(d) identify any wording in the proposals that is difficult to translate; and
(e) include any alternative the Board should consider.
The IASB is not requesting comments on matters that are not considered in this Exposure Draft.
Question 1
The IASB is proposing to amend IAS 16 to prohibit deducting from the cost of an item of
property, plant and equipment any proceeds from selling items produced while bringing that
asset to the location and condition necessary for it to be capable of operating in the manner
intended by management. Instead, an entity would recognise the proceeds from selling such
items, and the costs of producing those items, in profit or loss.
Do you agree with the IASB’s proposal? Why or why not? If not, what alternative would you
propose, and why?
MICPA’s Comments:
The proposed Para 20A states that items may be produced while bringing an asset to the
location and condition necessary for it to be capable of operating in the manner intended
by management, such as inventories produced when testing an asset. An entity recognises
the proceeds from selling any such items, and the costs of producing those items, in profit
or loss in accordance with applicable Standards.
The initial reading of the proposed Para 20A leads one to connect the items produced to
be the goods the PPE is intended to produce and hence to treat these in profit or loss
appears to be a sound basis. However, based on the Basis for Conclusions, Para 20A
appears to include any proceeds from sale of any items “produced” along the way,
including items arising during site preparation for construction of a building, sale of
materials from demolished buildings (such as steel from an old factory) in order to build a
new building or other by-products such as felled trees or excess earth in clearing the land
in order to build on the land. Such proceeds are indeed recovery of costs paid for the
property which is then cleared for building of a new building/plant and hence should be
deductible from the original cost of the purchased PPE.

IASB.ED-2017-4.Amendments to IAS 16.MICPA Comments Page 2 of 2
In this regard, whilst MICPA agrees with the IASB’s proposal, the Institute would like to
propose that the proposed amendments should make very clear that the prohibition of
deducting from the cost of an item of property, plant and equipment any proceeds from
selling items produced does not apply to proceeds from salvaged or similar items not
produced in the ordinary course of business.