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Hi
How does decommissioning costs affect PPE? Does this included in the cost of the asset and then depreciated over the useful life and also a provision is raised? Is the Journal entry Dr PPE Cr Provision
Does this then mean that that we PV the decommissioning cost using effective interest rate till the decommissioning happens? What are the journal entries for these
Do we include the PV of decommissiong in the PPE cost or the cost it will be in the year the decommissiong takes place
Do we then unwind the decommissioning provision? What will the JE be here?
Hi Anisa
First entry is to Dr TNCA and Cr Provision with the present value of the future decommissioning costs.
Then as each year rolls by, we unroll that present value and the double entry for that is DFinance charges and Cr the Provision.
Meanwhile, we are also depreciating the decommisioning-cost-increased TNCA over estimated useful life
As each year we get closer to the decommissioning date, we need to re-assess our original guess for the costs of decommissioning and adjust the provision by that re-estimation
And then the big day arrives! Look at the provision account and there you have the today value of the costs of decommissioning! Dr Provision, Credit Cash
And at the same time, the TNCA account should have been written down to zero
OK?
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