IFRIC 1

IFRIC Interpretation 1
Changes in Existing Decommissioning, Restoration and Similar
Liabilities

References
• IFRS 16 Leases
• IAS 1 Presentation of Financial Statements (as revised in 2007)
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 16 Property, Plant and Equipment (as revised in 2003)
• IAS 23 Borrowing Costs
• IAS 36 Impairment of Assets (as revised in 2004)
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Background
1 Many entities have obligations to dismantle, remove and restore items of property, plant and equipment. In
this Interpretation such obligations are referred to as ‘decommissioning, restoration and similar liabilities’.
Under IAS 16, the cost of an item of property, plant and equipment includes the initial estimate of the costs
of dismantling and removing the item and restoring the site on which it is located, the obligation for which
an entity incurs either when the item is acquired or as a consequence of having used the item during a
particular period for purposes other than to produce inventories during that period. IAS 37 contains
requirements on how to measure decommissioning, restoration and similar liabilities. This Interpretation
provides guidance on how to account for the effect of changes in the measurement of existing
decommissioning, restoration and similar liabilities.

Scope
2 This Interpretation applies to changes in the measurement of any existing decommissioning, restoration or
similar liability that is both:
(a) recognised as part of the cost of an item of property, plant and equipment in accordance with
IAS 16 or as part of the cost of a right-of-use asset in accordance with IFRS 16; and
(b) recognised as a liability in accordance with IAS 37.
For example, a decommissioning, restoration or similar liability may exist for decommissioning a plant,
rehabilitating environmental damage in extractive industries, or removing equipment.

Issue
3 This Interpretation addresses how the effect of the following events that change the measurement of an
existing decommissioning, restoration or similar liability should be accounted for:
(a) a change in the estimated outflow of resources embodying economic benefits (eg cash flows)
required to settle the obligation;
(b) a change in the current market‑ based discount rate as defined in paragraph 47 of IAS 37 (this
includes changes in the time value of money and the risks specific to the liability); and
(c) an increase that reflects the passage of time (also referred to as the unwinding of the discount).

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Consensus
4 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 accordance with
paragraphs 5–7 below.
5 If the related asset is measured using the cost model:
(a) subject to (b), changes in the liability shall be added to, or deducted from, the cost of the related
asset in the current period.
(b) the amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease
in the liability exceeds the carrying amount of the asset, the excess shall be recognised
immediately in profit or loss.
(c) 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 IAS 36.
6 If the related asset is measured using the revaluation model:
(a) changes in the liability alter the revaluation surplus or deficit previously recognised on that asset,
so that:
(i) a decrease in the liability shall (subject to (b)) be recognised in other comprehensive
income and increase the revaluation surplus within equity, except that it shall be
recognised in profit or loss to the extent that it reverses a revaluation deficit on the
asset that was previously recognised in profit or loss;
(ii) an increase in the liability shall be recognised in profit or loss, except that it shall be
recognised 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
recognised had the asset been carried under the cost model, the excess shall be recognised
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 recognised 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) IAS 1 requires disclosure in the statement of comprehensive income 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.
7 The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related
asset has reached the end of its useful life, all subsequent changes in the liability shall be recognised in
profit or loss as they occur. This applies under both the cost model and the revaluation model.
8 The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs.
Capitalisation under IAS 23 is not permitted.

Effective date
9 An entity shall apply this Interpretation for annual periods beginning on or after 1 September 2004. Earlier
application is encouraged. If an entity applies the Interpretation for a period beginning before 1 September
2004, it shall disclose that fact.
9A IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In addition it amended
paragraph 6. An entity shall apply those amendments for annual periods beginning on or after 1 January
2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for
that earlier period.

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9B IFRS 16, issued in January 2016, amended paragraph 2. An entity shall apply that amendment when it
applies IFRS 16.

Transition
10 Changes in accounting policies shall be accounted for according to the requirements of IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.1

1
If an entity applies this Interpretation for a period beginning before 1 January 2005, the entity shall follow the requirements of
the previous version of IAS 8, which was entitled Net Profit or Loss for the Period, Fundamental Errors and Changes in
Accounting Policies, unless the entity is applying the revised version of that Standard for that earlier period.

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