Ch. 16 Decommissioning Provisions

Question 1

What are decommissioning provisions?

Answer 1

A future cost to the entity that forces them to decommission a tangible asset.

Question 2

What are the three steps in evaluating a decommissioning provision?

Answer 2

1. Recognition
2. Initial measurement
3. Subsequent measurement

Question 3

When do you recognize a decommissioning provision?

Answer 3

When there is a present obligation (legal or constructive) arising from past events, probable outflow to settle obligations, or when a reliable estimate can be made

IFRS - Legal and constructive obligations - interest expense
ASPE - accretion as an operating expense for passage of time (legal only) – accretion expense (ASPE term)

Question 4

What do you do at the initial measurement?

Answer 4

You calculate the present value at pre-tax rate that reflects market risks.

Dr. Asset
Cr. Decommissioning provision

Question 5

What do you do on sequent dates?

Answer 5

Liability - update the liability for changes in the amount and timing of future payments and changes in the discount rate. These changes impact the liability and the income statement. Accretion - a systematic increase of the obligation over time.

Asset - depreciate the asset over its useful life in line with the depreciation policy.