In May 2020, IASB issued the amendment to IAS 16 applicable for the periods starting on or after January 1, 2022.

This amendment says that we should not deduct any proceeds from selling items produced in the process of bringing the asset to the location and condition for the asset to be able of operating as intended by the management from the cost of that asset.

Please, can you explain in plain terms what it means with the example?


Sometimes, when you acquire certain assets, you must perform some operations before you can use the asset in a desired way.

For example, you must install the asset or run the testing operations.

And, sometimes, you can actually produce some products while performing these operations.

Before the new amendment it was not totally clear what to do with income received from selling of these items produced while asset was not put in normal operations.

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As a result, some entities recognized these proceeds as revenue in profit or loss, and other entities deducted the sale proceeds from the cost of an asset.

After the new amendment, the second option is prohibited and you can only recognize the proceeds from sales of the products in profit or loss.


ABC acquired a machine for the production of product XY. The acquisition cost including installation and other directly attributable expenses is CU 10 000. Before the machine can be placed into normal operation, the testing is required in order to satisfy the safety conditions.

ABC runs testing of the machine and in the testing operations, the machine produces 100 pieces of XY product that are sold for CU 3 / piece.

How do you recognize the revenue from the sale of 100 produced items? What is the acquisition cost of a machine?

Before, ABC could deduct the proceeds from such a sale from the acquisition cost of a machine. Thus the acquisition cost would be CU 10 000 – CU 300 (3*100) = CU 9 700.

However, new amendment of IAS 16 prohibits that.

Instead, ABC must recognize the proceeds in profit or loss:

  • Debit Cash received: CU 300

  • Credit Other operating income in profit or loss (or other line item as relevant): CU 300

The acquisition cost of a machine is then CU 10 000 (no deduction of proceeds from sale).