Decommissioning obligation
When IAS 37 recognition criteria are met, recognise a provision measured at the best estimate of settlement expenditure, discounted where material. Initial estimates of dismantling and restoration obligations may form part of the cost of the related IAS 16 asset when the obligation is incurred. Subsequent changes in the liability are treated under the applicable requirements, and the discount unwinds as time passes.
Worked example
A company installs equipment and incurs a present legal duty to restore the site after five years. If the discounted best estimate is $40,000, it recognises a $40,000 provision and, where IAS 16 applies, includes the corresponding amount in the asset’s initial cost.
Common mistake
Waiting until cash is paid or assuming every restoration cost is immediately expensed regardless of when and why the obligation arose.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |