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Revenue earned before an asset is ready for its intended use
In June 2019, the IASB (the Board) decided to finalise the amendments to IAS 16 Property, Plant and Equipment. In October 2019, the Board agreed the amendments should apply to reporting periods beginning on or after 1 January 2022, with earlier application permitted.
The amendments to IAS 16 will prohibit entities from deducting from the cost of an item of property, plant and equipment (PP&E), any sales proceeds earned before the asset is ready for its intended use. The amendments also require an entity to identify and measure the cost of items produced before an item of PP&E is available for use, applying the existing measurement requirements of IAS 2 Inventories.
During the process of bringing an asset to the location and condition necessary for it to be capable of operating in the manner intended by management, revenue may be earned by an entity. This is common in the mining and oil and gas sectors.