Accounting Treatment of Changes in Decommissioning and Site Restoration Liability for Revalued PPE
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- Last Updated on 18 October, 2023
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If the related asset is measured using the revaluation model:
(a) changes in the liability alter the revaluation surplus or deficit previously recognized on that asset, so that: (i) a decrease in the liability shall [subject to (b)] be recognized in other comprehensive income and increase the revaluation surplus within equity, except that it shall be recognized in profit or loss to the extent that it reverses a revaluation deficit on the asset that was previously recognized in profit or loss; (ii) an increase in the liability shall be recognized in profit or loss, except that it shall be recognized in other comprehensive income and reduce the revaluation surplus within equity to the extent of any credit balance existing in the revaluation surplus in respect of that asset.
(b) in the event that a decrease in the liability exceeds the carrying amount that would have been recognized had the asset been carried under the cost model, the excess shall be recognized immediately in profit or loss.
(c) a change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Any such revaluation shall be taken into account in determining the amounts to be recognized in profit or loss or in other comprehensive income under (a). If a revaluation is necessary, all assets of that class shall be revalued.
(d) Ind AS 1 requires disclosure in the statement of profit and loss of each component of other comprehensive income or expense. In complying with this requirement, the change in the revaluation surplus arising from a change in the liability shall be separately identified and disclosed as such.
This story explains by way of a case study the provisions for changes in decommissioning liability when the asset is revalued earlier.
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