How are the proceeds of the sale of product from the pre-production stage to be treated under AASB 6?
A) Material revenues earned from the sale of product at the pre-production stage should be transferred to a reserve and recognised when the production revenues come on line. Immaterial revenues from sales at the pre-production stage are to be netted against costs incurred in the period for the area of interest.
B) Revenue earned from pre-production sales is to be treated as a reserve and recognised once production revenues come on stream so that the accumulated costs for an area can be amortised against the total revenues earned from the area.
C) Immaterial proceeds should be offset against the relevant pre-production costs, while material proceeds should be treated as production revenue and the costs of producing the product sold deducted from the revenue as cost of sales.
D) Any revenue earned at any stage of production should be recognised as revenue in the period earned. When the revenue is earned at the pre-production stage and costs are being capitalised, those costs may continue to be capitalised until revenues from production are generated. The accumulated costs are then to be amortised against the post-production revenues.

Question

Quizplus · Accepted Answer

Option C is correct because it aligns with the principle of matching revenue with the related costs. Immaterial proceeds are offset against pre-production costs to avoid overstating both expenses and revenues, while material proceeds are recognized as revenue, with the associated costs treated as cost of sales, reflecting the economic substance of the transactions.

How Are the Proceeds of the Sale of Product from the Pre-Production