Question

Select all that apply. What are the requirements of IFRIC 1 in regard to changes in the decommissioning provision?

A. The revised carrying amount of the asset is depreciated over its remaining useful life.
B. Changes in either the timing or amount of cash outflows required to settle the obligation or a change in the discount rate are accounted for by flowing the difference through profit or loss.
C. The revised carrying cost of the asset cannot exceed its recoverable amount.
D. The carrying cost of the asset cannot be reduced below $0.

Answer 1

According to IFRIC 1, changes in the decommissioning provision involve adjusting the asset's carrying amount, depreciating the revised amount over the remaining life, ensuring it does not exceed the recoverable amount, and not reducing it below zero. Excess decreases are recognized in profit or loss.

Step-by-step explanation:

IFRIC 1 Requirements for Changes in Decommissioning Provisions

IFRIC 1 relates to the accounting for changes in decommissioning, restoration, and similar liabilities (often referred to as "provision for decommissioning"). According to IFRIC 1, the following are requirements regarding changes in the decommissioning provision:

• A. Any adjustment to the decommissioning provision should be added to or deducted from the cost of the associated asset. The adjusted carrying amount of the asset should then be depreciated over its remaining useful life.
• B. Changes in the decommissioning provision, due to changes in the timing or the amount of the estimated cash outflows or a change in the discount rate, are accounted for by adjusting the carrying amount of the associated asset.
• C. The revised carrying amount of the asset should not exceed its recoverable amount. If it does, an impairment loss should be recognized.
• D. The carrying cost of the asset resulting from a change in the decommissioning provision cannot be reduced below zero. If a decrease in the provision exceeds the carrying amount of the asset, the excess should be recognized immediately in profit or loss.

These steps ensure that changes in the decommissioning provision are reflected accurately in the financial statements, in compliance with the relevant International Financial Reporting Standards (IFRS).