Under UK GAAP, how should proceeds from sales of items used to bring Property, Plant and Equipment (PPE) to its present location be treated?

Under UK GAAP, proceeds from the sales of items used to bring Property, Plant and Equipment (PPE) to its present location should be deducted from the cost of the assets. This treatment is based on the principle that costs incurred to acquire and prepare PPE for intended use should be capitalized, while any proceeds from the disposal of materials or items that are not required for the asset’s functioning should reduce the total capitalized cost of that asset.

When an entity incurs costs in bringing PPE to its intended location and condition, those costs can include various expenditures, such as transportation and installation costs. If there are sales proceeds from items that were part of the process of preparing the PPE, those proceeds effectively reduce the overall expenditure attributed to the asset. This approach aligns with the accounting principle of matching costs and revenues, ensuring that only the net cost of acquiring the asset is reflected on the balance sheet.

Recognizing proceeds as revenue or including them in the carrying amount of PPE would not accurately reflect the cost recognition principle that governs asset capitalization. By properly deducting the proceeds from the cost of assets, the financial statements will provide a clearer view of the investment in PPE and its true carrying value.