MFRS 116 Amendments – what does this mean for your accounts?

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International Accounting Standards Board

The International Accounting Standards Board (IASB) published an amendment to IAS 16 in May 2020, and it became effective for accounting periods that begin on or after January 1, 2022.

Malaysian Accounting Standards Board

In the meantime, on June 5, 2020, the Malaysian Accounting Standards Board (hereafter referred to as “MASB”) released amendments to MFRS 116 Property, Plant and Equipment. The amendments concern the proceeds that an entity receives before the time when that entity intends to use an asset.

The amendments will become effective for any financial year that begins on or after January 1 2022. However, early adoption is allowed by the MASB.

The amendments to MFRS 116 restrict an entity from deducting from the cost of an item of PPE any proceeds from selling items generated while making that item of PPE available for its intended use, such as during a necessary testing or commissioning period. Consequently, an entity would record the proceeds of such sales directly in its profit or loss.

The prior treatment required that any costs incurred, as well as revenue recognised up to the point that the asset is ready for use, be capitalised or in the case of revenue, offset against the cost of an asset.  

The amendments will most impact the extractive and petrochemical industries.

Summary: What’s important to know

  • Proceeds from the sale of the items produced by the property, plant, and equipment (PPE) before its intended use are no longer deducted from the cost of PPE.
  • A rise in the costs of a company’s assets, as shown in its financial statements.
  • Potential tax consequences of new recognition and presentation of profit


It is common practice to carry out a series of tasks after acquiring a particular asset to be able to use that asset in the manner that is wanted.

For instance, you are required to install the asset or carry out the testing procedures.

Additionally, there are occasions where it is possible to produce certain goods while carrying out these procedures.

Prior to the adoption of the new amendment, it was not entirely obvious what should be done with the proceeds obtained from the sale of these goods that were produced while the asset was not put into normal operations.

Because of this, some entities recorded these proceeds as revenue in their income statement, while others subtracted the sale proceeds from the cost of an asset. This distinction is because some entities recognised these proceeds as income while others did not.

After the new amendment, the second alternative is no longer permissible, and sales proceeds can only be recognised in profit or loss.


ABC Company has acquired a machine to facilitate the production of the product glove.

The buying price is RM 10,000, including the installation cost and other directly attributable expenses.

Testing must be performed to ensure that the machine satisfies the safety conditions before it can be put into normal operation.

During the course of the testing that the ABC Company does on the machine, the machine produces a total of 100 units of gloves, each of which is put up for sale at a price of RM 3 per unit.

How do you account for the revenue from selling one hundred of your products? 

Can you tell me What is the acquisition cost of a machine now?

In the past, ABC Company was able to reduce the cost of the machine by using the proceeds it made from the sale of the products it produced.

As a result, the acquisition cost of the machine would be RM 9,700, equivalent to RM 10,000 less RM 300 (RM3 * 100).

However, this is no longer permitted due to a recent amendment to MFRS 116.

Instead, ABC Company must record the revenue in its income statement:

The cost to acquire the machine is then RM 10,000 (no deduction of proceeds from the sale).

What can you do now?

The difficulties that may arise from implementing the amendments can be complex. The process of allocating costs can be challenging and requires much estimation and judgement. You ought to initiate your preparations for this challenge right now.

Make sure that you have a clear awareness of which facts are required, which can only come from in-depth knowledge of the applicable accounting standards.

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