•Amendments to IFRS 3 

Business
Combinations update a reference in IFRS 3 to the
Conceptual Framework for Financial Reporting
without changing the accounting requirements for
business combinations.

•Amendments to IAS 16 Property, Plant

and Equipment prohibit a company from

AMENDMENTS TO IAS 16 deducting from the cost of property,

plant and equipment amounts received

Property, Plant and Equipment: from selling items produced while the
company is preparing the asset for its

Proceeds Before Intended Use intended use. Instead, a company will

recognize such sales proceeds and related
cost in profit or loss.
•Amendments to IAS 37 Provisions, Contingent
Liabilities and Contingent Assets specify which
costs a company includes when assessing whether
a contract will be loss-making.

•Annual Improvements make minor amendments

to IFRS 1 First-time Adoption of International
Financial Reporting Standards, IFRS 9 Financial
Instruments, IAS 41 Agriculture and the Illustrative
Examples accompanying IFRS 16 Leases

All amendments are effective

January 1, 2022.
Reference:

https://www.ifrs.org/news-and-events/news/
2020/05/iasb-issues-package-of-narrow-scope-
amendments-to-ifrs-standards/
 BACKGROUND
Before 2020 amendments, paragraph 27 specified that
directly attributable cost included the cost of testing WHAT TRIGGERED
whether an asset was functioning properly, after deducting THIS AMENDMENT?
the net proceeds from selling items produced while
bringing the asset to the location. - The issue mainly
affects a few industries

- Different entities had

applied the
requirements in IAS 16
differently
 UNDER THE NEW AMENDMENT:
- Sale proceeds no longer deducted from the cost of property, plant and
equipment before its intended use.
-Testing the functioning of PPE means assessing its technical and PRIOR TO THE
physical performance. AMENDMENT:
- Additional disclosure requirements for sale proceeds and related
production cost. The proceeds from
- Transition requirements selling the items
produced while
bringing the asset to
the location will be
deducted from the
cost of an item of
P.P.E.
ILLUSTRATION:
ABC Co. acquired factory equipment overseas on cash basis for P100k. Additional
costs incurred include the following: commissions paid to brokers on the purchase, Companies will therefore
P5k; import duties, P25k; non-refundable purchase taxes, P10k; freight cost of need to clearly
transferring the equipment to ABC Co. premises, P1k; costs of assembling &
distinguish:
installing the equipment, P2k; costs of testing the equipment, P1.5k; administration
& gen. OH cost, P4.2k; and advertisement & promotion costs of the new product to
be produced by the equipment, P3.8k. The samples generated from testing the 1. costs of producing
equipment were sold at P500. What is the initial cost of the equipment?
and selling items before
the PPE is available for
its intended use

2. costs of making the

PPE available for its
intended use
SOLUTION (prior to the amendment)

Purchase Price (cash price equivalent) P100,000 SOLUTION (under the new
Commission to brokers 5,000 amendment)
Import duties 25,000
Nonrefundable purchase taxes 10,000
Purchase Price P100,000
Transportation cost 1,000
Commission to brokers 5,000
Assembling and installation cost 2,000
Testing cost 1,500 Import duties 25,000
Net proceeds from samples generated (500) NRF purchase taxes 10,000
Initial cost of equipment P144,000 Transportation cost 1,000
A & I costs 2,000
Testing cost 1,500
Initial COE P144,500

*Must be recognized in the P/L

under the new amendment

Net proceeds from samples

generated P500
 ANALYSIS Testing the Functioning of PPE

Testing whether an item of PPE

1. The amount of cost capitalized is higher under the amendment is functioning properly means
2. Net proceeds from the sale of samples were not offset against assessing its technical and
physical performance rather than
the cost of testing
assessing its financial
3. The amount generated from the sale of samples and the related performance. The assessment if
cost of incurred used are now recognized in P/L functioning properly is not an
assessment of the financial
performance of an asset.

When do the amendments

come into effect?

The amendments are effective for

annual periods beginning on or
after January 1, 2022. However,
early application is permitted.