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In the initial period, the tenant measures the asset’s right to use and includes appropriate estimates of the cost to dismantle and remove the asset or restore the asset to the prior situation before the contract begins. The obligation for these costs is recognized and measured by IAS 37.
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.
Except for IAS 37, there’s the standard IAS 16 Property, Plant and Equipment that requires including the initial estimate of the costs of dismantling and removing the item and restoring the site into the cost of an asset.
Under paragraph 16 (c) of AASB 116, the cost of an item of PPE includes the initial estimated cost of dismantling, removing and restoring an item (that is, make good costs), where the obligation was incurred either: when the item was acquired, or; as a consequence of having used the item. Make good costs. Make good costs include the costs of:
Satellite intends to refurbish the building in six years’ time at a cost of $6m in order to meet the requirements of the lease. This amount includes the cost of renovating the exterior of the building and is based on current price levels.
IFRIC 1 contains guidance on accounting for changes in decommissioning, restoration and similar liabilities that have previously been recognised both as part of the cost of an item of property, plant and equipment under IAS 16 and as a provision (liability) under IAS 37.
IFRIC 1 mainly addresses how an entity accounts for any subsequent changes to the amount of the liability that may arise from (a) a revision in the timing or amount of the estimated decommissioning, restoration and rehabilitation costs or from (b) a change in the current market-based discount rate.
Examples of restoration provisions include: Manufacturers required to cleanup environmental damage. Exploration entities required to rectify land damage caused by drilling. Oil and gas entities required to decommission and remove pipelines and infrastructure including any offshore and certain subsea infrastructure.
Advisory. Insights into IAS 36. Global. Comparing recoverable amount with carrying amount. IAS 36 ‘Impairment of Assets’ sets out the requirements for carrying out impairment reviews of assets (both tangible and intangible).
Offshore oil rig must be removed and sea bed restored: Recognise a provision for removal costs arising from the construction of the the oil rig as it is constructed, and add to the cost of the asset. Obligations arising from the production of oil are recognised as the production occurs [Appendix C, Example 3]
