Proceeds before intended use

Learning objectives

• Determine the treatment of the proceeds from selling samples produced during testing.L3
• Record the sale of items produced before the intended use and their cost.L3, L4

Normative references

• IAS 16 §17Examples of directly attributable costs: employee benefits arising from the construction or acquisition, site preparation, initial delivery and handling, installation and assembly, testing whether the asset is functioning properly (assessing the technical and physical performance of the asset), professional fees.
• IAS 16 §20AItems produced while bringing the asset to the necessary condition (e.g. samples produced when testing): the proceeds from selling them and their cost are recognised in profit or loss in accordance with the applicable Standards; their cost is measured in accordance with IAS 2.
• IAS 16 §74AIf not presented separately in the statement of comprehensive income: (a) compensation from third parties included in profit or loss for items of property, plant and equipment that were impaired, lost or given up; (b) the amounts of proceeds and cost recognised in profit or loss in accordance with para. 20A that relate to items produced that are not an output of the entity's ordinary activities, and the line items that include them.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• While bringing a new production line to working condition, an entity incurs {testing_costs} of costs of testing whether the line functions properly, already included in its cost. The tests produce samples whose cost, measured under IAS 2, is {samples_cost} and was recognised as inventories. The entity sells the samples for {sales_proceeds} in cash before the line is available for use. Record the entry for the sale of the samples.L4