Case Study on Accounting Treatment of Changes in Decommissioning and Site Restoration Liability

Para 4 of Appendix A of Ind AS 16, Property, Plant and Equipment, provides that changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or a change in the discount rate, shall be accounted for in books of accounts. If the adjustment results in an addition to the cost of an asset, the entity shall consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the entity shall test the asset for impairment by estimating its recoverable amount, and shall account for any impairment loss, in accordance with Ind AS 36.

Practical understanding is obtained through a case study on the above provisions of Ind AS 16 which requires an increase in the measurement of an existing decommissioning liability of a company indulged in the telecom business.

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