FR - Decomissioning Provision

Question 1

Explain what decommissioning defined and constructive obligation

Answer 1

• Is the initial estimate of the cost of dismantling and removing a tangible asset and restoring the site on which it is located, recognized as an asset

Constructive obligation - an obligation that arises from an established pattern of past practice or policies, rather than from a legal agreement or contract

Question 2

What Handbook section is used for decommissioning provisions for IFRS and ASPE

Answer 2

IFRS - IAS 37
ASPE - 3110

Question 3

Explain how to determine the initial measurement

Answer 3

IAS 37 - For decommissioning provision, contingent liabilities, and asset. The following three have to apply:
1. Entity has a present obligation (legal or constructive) because of a past event
2. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
3. A reliable estimate can be made of the amount of the obligation

Recognize as an asset under IAS 16 - PPE

Question 4

Explain how the present obligation occurs

Answer 4

• Present obligation condition is met when an obligating event occurs
• Legally enforceable or reasonably expected that the entity will fulfill its obligation because of an establish pattern
  -Only for obligation for past event

Question 5

What is determined for the probable outflow of economic benefit

Answer 5

• Provision to be recognized, the settlement of the obligation must also be expected to require an outflow of resources embodying economic benefit
• Outflow of resources to resource the asset to the required date

Question 6

How is a reliable estimate determined for the economic benefit

Answer 6

• Use of estimates is an essential part of the preparation of F/S, and it does not undermine their reliability
• An entity will be able to determine a range o possible outcomes and can, therefore, make estimate of the obligation that is sufficiently reliable

Question 7

What is measured when the initial measurement has been determined

Answer 7

• It is measured at the best estimate of the amount that is expected to be required to settle the obligation at the end of the current
• Should be used based on the most reliable information
• Decommissioning cost is recorded at the same time a decommissioning provision is recognized at an equal amount

Question 8

Explain how subsequent measurement is measured

Answer 8

• Provision should be updated to the current best estimate
• Appropriate discount rate has changed and or the timing of the payment has changed, rate and timing should be used to calculate the PV of the obligation

Question 9

What is decommissioning cost

Answer 9

• They are added to the cost of the related tangible asset and will be depreciated over its useful life in line with the depreciation policy

Question 10

How can their be changes in decommissioning or provision cost

Answer 10

• Changes in either the timing or amount of cash outflows required to settle the obligation or a change in the discount rate are account for by increasing or decreasing related asset
• Carrying cost of the asset cannot be reduced below $0
• REvised carrying cost of the asset cannot exceed its recoverable amount. ENtity shall evaluate this aspect and account for shortfall

Question 11

When should derecognition be done for decommissioning provision

Answer 11

1. Decommissioning cost have been incurred
2. Decommissioning is not longer required (no longer meets liability criteria)

Question 12

What is the difference between IFRS and ASPE

Answer 12

ASPE 3110 - It is defined as asset retirement obligation - amount is capitalized and increases the carrying amount of the long lived asset when ARO is recognized as liability
- It must be legally required to be recognized
- The carrying value of the liability is considered an operating expense “ Accertion expense”