asset retirement obligation ind as

ARO liability balance becomes Rs.4000 and revaluation reserve balance becomes Rs.10000. Ind AS 1 requires disclosure in the statement of profit and loss of each component of other comprehensive income or expense. Your email address will not be published. The inflation rate is assumed as 5.876% and the discount rate used is 9%. WDV of Assets Calculated after taking consideration of Accumulated Depreciation upto the Date of Transition. In the case of an oil installation or nuclear power station, the entity shall recognise provision for the decommissioning costs of an oil installation or a nuclear power station to the extent that the entity is obliged to rectify damage already caused. Usually this obligation arises when an asset is installed in a leased premise and the lessee is bound by the contract terms to dismantle and remove the same on expiry of the lease term. Building A/c                    Dr   Rs.8417, To ARO Liability A/c   Cr               Rs.8417. Rs.25250. However it should be assessed whether the retired assets could be used further, in which case the assets shall be depreciated over its useful life. An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset and Decommission Liability is the Estimated amount of dismantling and restoration cost that a company expects to incurred in the future on the Asset Dismantling Date. As per the Ind AS roadmap under Companies Act, 2013, with effect from financial year beginning 1 April 2016 (financial year 2016-17), phase I companies i.e., listed and unlisted companies with net worth of Rs.500crores or more have applied Ind AS, along with their holding, subsidiary, joint venture and associate companies. Assets Retirement Obligation shall be added in the Assets as ARO (Assets Retirement Obligation) Assets and simultaneously booked Present Value of Decommission Liability on the Date of Capitalisation of Assets. The Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. For instance in the example of demolition of building, in arriving at the ARO cost, the entity has made an estimate of the expected cost to dismantle and restore the site on expiry of the lease term and discounted the same using a suitable discount rate. Could you please let us know which Ind AS deals with ARO. CERCLA Comprehensive Environmental Response, Compensation, and Liability Act . The Value of PV of Decommissioning as on Capitailsation Date of Assets will be calculated and Accumulation Depreciation Calculated on the PV of Decommissioning as on Capitalisation Date to the date of Transition. ARO is in the nature of a provision where the entity is having a present obligation as a result of past event. (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 Ind AS 37        (this includes changes in the time value of money and the risks specific to the liability); and. However IFRS allows ARO cost to be added to the carrying amount of inventories as is discussed in paragraph BC15 of IAS 16. In case there is significant time gap between the period of estimation and the occurrence of past event, adjustment should be made for the effect of inflation. As per para 60 of Ind AS 37, where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. For instance, where a building is constructed in a leased premise and the lease term requires the demolition of the building and restoration of the site on expiry of the lease term, the obligation arises upon construction of the building and as per Ind AS 16, the cost of meeting the obligation shall be capitalised as part of the cost of the building. The difference is accounted as finance cost. In order to submit a comment to this post, please write this code along with your comment: 4a2f22b3c4ff379f0162e9b96b57a5e8. If the retired assets could not be used further, it shall be depreciated over the period of lease unless it is more than the useful life of the asset. These factors used to compute the ARO cost are subject to change. As per para 47, the discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. FASB Statement no. But it may be noted that Ind AS 2 does not explicitly provide for the treatment of ARO incurred in producing inventories during that period. Under ARO, the entity weighs different options to carefully estimate the possible outflow of resources required to settle the obligation. If in the above example after the lapse of 10 years, the entity realises that the discount rate being used was not adequate considering the market assessment of time value of money. This Roadmap is intended to help entities address the impact of certain environmental and asset retirement The estimate of the amount that an entity would rationally pay to settle or transfer the obligation to a third party gives the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. We shall have no liability for the accuracy of the information and cannot be held liable for any third-party claims or losses of any damages. The impact of such changes are to be made to the ARO amount recognised as part of the cost of the asset as well as the ARO amount recognised as a liability as follows: If the related asset is measured using the cost model. Finally, in addition to our regular round up of regulatory updates, we also provide an update on the proposed amendment on accounting for income taxes on intercompany transfers and balance sheet classification of deferred tax asset CSP concentrated solar power . If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss. As per para 45 of Ind AS 37, where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. As per para 56(d) of Ind AS, while considering the useful life of an asset, legal or similar limits on the use of the asset, such as the expiry dates of related leases shall be considered. If a        revaluation is necessary, all assets of that class shall be revalued. Accounting for Asset Retirement Obligation. The emphasis in ICDS X is more on the degree of estimation involved with regard to the future expenditure required in settlement, rather than on the uncertainty involved in the timing or amount. Even if an estimate is arrived on the possible expenditure required to settle the obligation as at the date of incurrence of the obligation, due to the impact of inflation, the possible expenditure on the date of settlement may vary significantly. For instance, in estimating the expenditure required to demolish a building constructed in a lease land on expiry of the lease term, the entity may verify for any similar transactions done earlier, or may get report from independent experts engaged in similar activities etc. If the value of the ARO asset is adjusted on account of revision of ARO provision, the adjusted depreciable amount of the such asset shall be depreciated prospectively over its remaining useful life or remaining period of lease as the case may be. However where an entity incurs ARO as a consequence of having used the item during a particular period to produce inventories during that period, such cost of obligation may be treated as per Ind AS 2- Inventories. AROs: The large tower network and other assets and properties on lease give rise to obligations to restore and return the underlying assetlpropertylsite in the manner received — this is commonly referred to as asset retirement obligations (AROs). Journal entry for accounting of ARO is as follows: Building A/c                    Dr    Rs.17777, To ARO Liability A/c   Cr                  Rs.17777, [Being ARO cost capitalised as part of cost of Building and ARO liability created for meeting the obligation later], ARO liability GL shall be disclosed in the Balance Sheet under non- current liabilities. Revision in ARO liability if the related asset has reached its useful life, Once the related asset has reached the end of its useful life, all subsequent changes in the ARO liability shall be recognised in profit or loss as they occur. Suppose in the above example, instead of revaluation surplus, there was revaluation deficit of Rs.3000 and the ARO liability was to be reduced to Rs.1500. Required fields are marked *, Notice: It seems you have Javascript disabled in your Browser. In the case of ARO, the assets are to be retired upon expiry of the lease period. In this publication, we highlight the impact of Ind AS on various topics including revenue recognition under Ind AS 115, Revenue From Contracts with Customers, and how revenue recognition would be impacted for a typical player in this sector upon adoption of Ind AS 115. If a fair value is not initially obtainable, recognize the … Transition adjustment relating to ARO will be included in the book profit for MAT purposes over a period of 5 years staring from the year of Ind AS adoption. In such cases, such estimate arrived should be adjusted for appropriate inflation factor so that a best estimate of the amount required to settle the obligation at a future date is arrived. Asset retirement obligation/decommissioning cost broadly refers to the amount that a company expects to incur in disposing of the asset and reversing modifications made to the installation site. If the revised estimate was Rs.60000 which is higher than the initial estimate, then the revised ARO amount would have been: Since the revised ARO amount is higher by Rs.8417 [50501-42084], the ARO liability as well as the carrying amount of the asset shall be increased. If the related asset for which ARO is created was accounted using the cost model, the treatment should be as follows: Any changes in the ARO liability shall be added to, or deducted from, the cost of the related asset in the current period. MSA metropolitan statistical area . counting for employee obligations with an option to recognize the entire such gain or loss to retained earnings, at the ... practicable then the fair value of the financial asset at the date of transition to Ind ASs shall be the new ... cept for recognizing asset retirement obligations. Revised calculation is as follows: Since the revised ARO amount is lower by Rs.762 [42084-41322], the ARO liability as well as the carrying amount of the asset shall be decreased. Made about the cost model and the related asset assumed as 5.876 % and the discount rate other! Board ( FASB ) Statement of profit and loss of each Component of other Comprehensive income or.! Comment: 4a2f22b3c4ff379f0162e9b96b57a5e8 for asset retirement obligation in the liability is commonly a legal to. Obligations ( AROs ) will vary depending on the laws and regulations governing such obligations may consider example. Weighs different options to carefully estimate the possible outflow of resources required to demolish the building owing to some changes. As Rs.4000 the building owing to some technological changes and now expects to cost only Rs.30000 Read about retirement... Us know which Ind as 16 specifically excludes OIL Mine, if the ARO cost be... 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