IFRS INTERPRETATIONS COMMITTEE
IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities
IFRIC 1 was adopted by the European Commission by Regulation (1126/2008/EC) and amended by the following regulations:
Regulation (1260/2008/EC) – IAS 23,
Regulation (1274/2008/EC) – IAS 1,
Regulation (EU) 2017/1986 – IFRS 16 Leases.
Presentation of Financial Statements
Accounting policies, changes in accounting estimates and errors
Property, plant and equipment
Impairment of assets
Provisions, contingent liabilities and contingent assets
1.Many entities have obligations to dismantle, remove and restore items of property, plant and equipment. In this interpretation such obligations are referred to as ‘decommissioning, restoration and similar liabilities’. Under IAS 16, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. IAS 37 contains requirements on how to measure decommissioning, restoration and similar liabilities. This interpretation provides guidance on how to account for the effect of changes in the measurement of existing decommissioning, restoration and similar liabilities.
2.This Interpretation applies to changes in the measurement of any existing decommissioning, restoration or similar liability that is both:
recognised as part of the cost of an item of property, plant and equipment in accordance with IAS 16 or as part of the cost of a right-of-use asset in accordance with IFRS 16; and
recognised as a liability in accordance with IAS 37.
For example, a decommissioning, restoration or similar liability may exist for decommissioning a plant, rehabilitating environmental damage in extractive industries, or removing equipment.
3.This interpretation addresses how the effect of the following events that change the measurement of an existing decommissioning, restoration or similar liability should be accounted for:
a change in the estimated outflow of resources embodying economic benefits (e.g. cash flows) required to settle the obligation;
a change in the current market-based discount rate as defined in paragraph 47 of IAS 37 (this includes changes in the time value of money and the risks specific to the liability); and
an increase that reflects the passage of time (also referred to as the unwinding of the discount).
4.Changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or a change in the discount rate, shall be accounted for in accordance with paragraphs 5-7 below.
5.If the related asset is measured using the cost model:
subject to (b), changes in the liability shall be added to, or deducted from, the cost of the related asset in the current period;
the amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss;
if the adjustment results in an addition to the cost of an asset, the entity shall consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the entity shall test the asset for impairment by estimating its recoverable amount, and shall account for any impairment loss, in accordance with IAS 36.
6.If the related asset is measured using the revaluation model:
changes in the liability alter the revaluation surplus or deficit previously recognised on that asset, so that:
a decrease in the liability shall (subject to (b)) be recognised in other comprehensive income and increase the revaluation surplus within equity, except that it shall be recognised in profit or loss to the extent that it reverses a revaluation deficit on the asset that was previously recognised in profit or loss;
an increase in the liability shall be recognised in profit or loss, except that it shall be recognised in other comprehensive income and reduce the revaluation surplus within equity to the extent of any credit balance existing in the revaluation surplus in respect of that asset;
in the event that a decrease in the liability exceeds the carrying amount that would have been recognised had the asset been carried under the cost model, the excess shall be recognised immediately in profit or loss;
a change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Any such revaluation shall be taken into account in determining the amounts to be recognised in profit or loss or in other comprehensive income under (a). If a revaluation is necessary, all assets of that class shall be revalued;
IAS 1 requires disclosure in the statement of comprehensive income of each component of other comprehensive income or expense. In complying with this requirement, the change in the revaluation surplus arising from a change in the liability shall be separately identified and disclosed as such.
7.The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability shall be recognised in profit or loss as they occur. This applies under both the cost model and the revaluation model.
8.The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs. Capitalisation under IAS 23 is not permitted.
9.An entity shall apply this interpretation for annual periods beginning on or after 1 September 2004. Earlier application is encouraged. If an entity applies the interpretation for a period beginning before 1 September 2004, it shall disclose that fact.
9A.IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In addition it amended paragraph 6. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period.
9B.IFRS 16, issued in January 2016, amended paragraph 2. An entity shall apply that amendment when it applies IFRS 16.
10.Changes in accounting policies shall be accounted for according to the requirements of IAS 8 Accounting policies, changes in accounting estimates and errors 1.
If an entity applies this interpretation for a period beginning before 1 January 2005, the entity shall follow the requirements of the previous version of IAS 8, which was entitled Net profit or loss for the period, fundamental errors and changes in accounting policies, unless the entity is applying the revised version of that standard for that earlier period.