Decommissioning Provisions Flashcards
1
Q
What is Decommissioning Provisions (IFRS) under ASPE?
A
Asset Retirement Obligation (ARO)
2
Q
Decommissioning Provision
A
- obligation for an expected future cost to decommission a tangible asset
3
Q
When to recognized a decommissioning provision?
A
- recognized when ALL of the following are met:
1) present obligation (legal or constructive) arising from past event– the present obligation is met when the entity’s obligation become unavoidable. Also, only recognized interest expense to the extent of damage it caused
2) probable outflow to settle obligation – expected outflow of resources to bring asset to required state
3) reliable estimate can be made – which is usually a range that can be determined, also it is rare that an estimate is not able to be determined, and if this is the case it should be disclosed
4
Q
Constructive obligation
A
- reasonably expected to occur
- versus legal which is legally enforced by contract in the courts
5
Q
Decommissioning provision – Initial measurement
A
- measured at the best estimate expected to be required to settle
- estimates made by judgement of management, costs of similar transactions, and reports prepared independently
- use PV at the pre-tax rate that reflects the market risk a.k.a. market discount rate
- DR. Asset, CR. Decommissioning provision
6
Q
Decommissioning provision – Liability Subsequent measurement
A
- update provision at the end of the period to the most current best estimate
- if the rate or timing has changed, that should be updated to the book value
- the changes are reflected in the provisions and corresponding asset accounts
- adjust for the time value of money and recognize an interest expense
7
Q
Decommissioning provision – Asset Subsequent measurement
A
- depreciate yearly
8
Q
ASPE differences
A
- legal obligations only (IFRS has legal and constructive obligations)
- interest expense recognized as operating expenses (interest expense is recognized as an interest expense under IFRS)