DECOMMISSIONING COSTS [pic] |GAAP Switch | |
|IAS 37.19 |Decommissioning costs are those that arise, for example, where an oil installation or nuclear | | |power station has to be dismantled at the end of its life. The impact of IAS 37 on the accounting| | |for such costs is profound. | |IAS 37 Appx C |The accounting for decommissioning costs is dealt with in IAS 37 by way of example 3 in Appendix | | |C. This example requires that an entity should recognise a liability as soon as the | | |decommissioning obligation is created, which is normally when the facility is constructed and the | | |damage that needs to be restored is done. The total decommissioning cost is estimated, discounted| | |to its present value and it is this amount which forms the initial provision and is added to the | | |corresponding asset’s cost. Thereafter, the asset is depreciated over its useful life, while the | | |discounted provision is progressively unwound, with the unwinding charge showing as an interest | | |cost. No guidance is provided on accounting for changes in the decommissioning provision as a | | |result of changes in cost estimates or changes in discount rates. This is acknowledged by the | | |Issues Paper Extractive Industries – issued in November 2000 by the IASC Steering Committee on | | |Extractive Industries – which identifies three possible treatments: | | |• |the change should be recognised on the same basis as the charge was | | |...
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