CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (783)

IFRIC-1 CHANGES IN EXISTING DECOMMISSIONING, RESTORATION

[PRIOR KNOWLEDGE]
1. Issue
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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2. Consensus
2.1

2.2
If the related asset is measured using the cost model:
(a)

(b)

(c)

(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.
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.
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.
If the related asset is measured using the revaluation model:
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.
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(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.

2.3 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.
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (784)

2.4 The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs.
2.5 If revalued amount (i.e. fair value) is provided by valuer as net of dismantling obligation, then for
revaluation accounting, revalued amount will be the sum of (i) net value determined by valuer and (ii)
dismantling provision amount.
NOTE MAH * If question is silent about revalued amount then given revalued amount shall be assumed to be
gross.

AH
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CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (785)

PRACTICE QUESTIONS & PAST PAPERS

QUESTION NO 1
Genius Limited (“GL”) bought plant on 1st January 2018 for Rs. 5,100 million.GL has a legal obligation to dismantle the plant
at the end of life. On the date of acquisition it was estimated that the cost of dismantling would amount to Rs.760 million.
Other information related to plant are as follows :
(i) Useful life of plant is five years
(ii) GL follows revaluation model for subsequent measurement of its property, plant and equipment
(iii) GL accounts for revaluation on the net replacement method
(iv) Depreciation is provided on straight line basis.
(v) GL transfers maximum possible amount from revaluation surplus to retained earnings on annual basis.
(vi) Applicable discount rate to GL is 13 % p.a

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(vii) The details of revaluation carried out by the Professional valuer and the revision in the estimated cost of dismantling
as at 31 December 2018 and 2019 are as follows:

Required :
Revalued amount of plant
Revised Estimate of Dismantling Cost

International Financial Reporting Standards.

QUESTION NO 2
“Rs. In million”
2019
2470
520
2018
3875
920

Prepare journal entries to record the above transactions for the year ended 31 December 2019, in accordance with
(11)

Alpha Limited (“AL”) bought plant on 1st July 2017 for Rs. 4,500 million.AL has a legal obligation to dismantle the plant at
the end of life of four years. On the date of acquisition it was estimated that the cost of dismantling would amount to Rs.600
million . AL uses the revaluation model for subsequent measurement of its property, plant and equipment and accounts for
revaluation on the net replacement method. Depreciation is provided on straight line basis. Applicable discount rate to AL is
10 % p.a.

The details of revaluation carried out by the Professional Valuer and the revision in the estimated cost of dismantling as at 30
June 2018 and 2019 are as follows:
“Rs. In million”
2019 2018
Revalued amount of plant * 1800 3375
Revised Estimate of Dismantling Cost 450 826
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*excluding dismantling cost
Required :
Prepare journal entries to record the above transactions in the books of AL for the year ended 30 June 2019, in accordance
with International Financial Reporting Standards. (11)
QUESTION NO. 3
On January 1, 2016 a plant was purchased and installed at a cost of Rs. 120 million. As per agreement, plant will have to be
dismantled after a stipulated period of 10 years. The dismantling cost was initially estimated at Rs. 20 million to be discounted
at 8%. The management decided to follow revaluation model. In this regard, revalued amounts, including dismantling costs,
were determined as follows:
Date of valuation Fair value (Rs. million)
31-12-16 126.00
31-12-18 91.00

On January 1, 2018 due to a change in technology, management decided to change the estimate of dismantling cost to Rs. 18
million. On July 1, 2020 prevailing market based discount rate was revised to 5%.
Required:
Prepare all journal entries for the year ending December 31, 2020.
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (786)

QUESTION NO. 4
Violet Power Limited is running a coal based power project in Pakistan. The Company has built its plant in an area which
contains large reserves of coal. The company has signed a 20 years agreement for sale of power to the Government. The
period of the agreement covers a significant portion of the useful life of the plant. The company is liable to restore the site by
dismantling and removing the plant and associated facilities on the expiry of the agreement.
Following relevant information is available:
(i) The plant commenced its production on July 1, 2007. It is the policy of the company to measure the related assets
using the cost model;
(ii) Initial cost of plant was Rs. 6,570 million including erection, installation and borrowing costs but does not include
any decommissioning cost;
(iii) Residual value of the plant is estimated at Rs. 320 million;
(iv) Initial estimate of amount required for dismantling of plant, at the time of installation of plant was Rs. 780 million.

AH
(v)
(vi)
However, such estimate was reviewed as of June 30, 2008 and was revised to Rs. 1,021 million;
The Company follows straight line method of depreciation; and
Real risk-free interest rate prevailing in the market was 8% per annum when initial estimates of decommissioning
costs were made. However, at the end of the year such rate has dropped to 6% per annum.
Required:
Work out the carrying value of plant and decommissioning liability as of June 30, 2008.

QUESTION NO. 5

Other relevant information is as under:

(i)

(ii)
(08)
{Winter 2008 Q-5}

Waste Management Limited (WML) had installed a plant in 2005 for generation of electricity from garbage collected by the
civic agencies. WML had signed an agreement with the government for allotment of a plot of land, free of cost, for 10 years.
However, WML has agreed to restore the site, at the end of the agreement.

Initial cost of the plant was Rs. 80 million. It is estimated that the site restoration cost would amount to Rs. 10
million.
It is the policy of the company to measure its plant and machinery using the revaluation model.
(iii) When the plant commenced its operations i.e. on April 1, 2005 the prevailing market based discount rate was 10%.
(iv) On March 31, 2007 the plant was revalued at Rs. 70 million including site restoration cost.
(v) On March 31, 2009 prevailing market based discount rate had increased to 12%.
(vi) On March 31, 2011 estimate of site restoration cost was revised to Rs. 14 million.
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(vii) Useful life of the plant is 10 years and WML follows straight line method of depreciation.
(viii) Appropriate adjustments have been recorded in the prior years i.e. up to March 31, 2010.
Required:
Prepare accounting entries for the year ended March 31, 2011 based on the above information, in accordance with
International Financial Reporting Standards. (Ignore taxation.) (17)
{Summer 2011 Q-3}
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (787)

QUESTION NO. 6
The financial statements of Bravo Limited (BL) for the year ended 30 September 2013 are under finalization and the
following matter is under consideration:
BL’s plant was commissioned and became operational on 1 April 2008 at a cost of Rs. 130 million. At the time of
commissioning its useful life and present value of decommissioning liability was estimated at 20 years and Rs. 19 million
respectively.
BL’s discount rate is 10%.
There has been no change in the above estimates till 30 September 2013 except for the decommissioning liability whose
present value as at 1 April 2013 was estimated at Rs. 25 million.
Required:
For the above matter, compute the related amount as that would appear in the statements of financial position and

AH
comprehensive income of Bravo Limited for the year ended 30 September 2013 in accordance with IFRS. (Ignore
corresponding figures)

QUESTION NO. 7
(06)
{Winter 2013 Q-3(i)}

On 1 January 2014, Zalay Limited (ZL) acquired a plant for Rs 3,000 million. ZL has a legal obligation to dismantle the plant
at the end of its four years useful life.
On the date of acquisition it was estimated that the cost of dismantling would amount to Rs. 400 million.
ZL uses the revaluation model for subsequent measurement of its property, plant and equipment and accounts for revaluation
on the net replacement method. Depreciation is provided on straight line basis.
The details of revaluation carried out by the Professional Valuer and the revision in the estimated cost of dismantling as at 31
December 2014 and 2015 are as follows:

Revalued amount of plant & machinery*

Revised estimate of dismantling cost
2015

1,200
300
Rs. in million
2,250
550
2014

*excluding decommissioning cost

Tax and discount rates applicable to ZL are 30% and 10% respectively. The tax authorities allow initial and normal
depreciation at the rate of 50% and 10% respectively under the reducing balance method.
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Required:
Prepare journal entries to record the above transactions for the year ended 31 December2015, in accordance with
International Financial Reporting Standards. (20)
{Summer 2016 Q-5}
Question No. 8
Faraz is a chartered accountant and employed as Finance Manager of Gladiator Limited (GL). He has recently returned after a
long medical leave and has been provided with draft financial statements of GL for the year ended 30 June 2017.
Following figures are reflected in the draft financial statements:
Rs. in million
Profit before tax 125
Total assets 1,420
Total liabilities 925
While reviewing the financial statements, he noted the following issues:
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (788)

(i) Details of two of GL’s products which are carried at historical cost as on 30 June 2017, are as under:
Product A Product B
Units in inventory 5,000 20,000
Historical cost (Rs. per unit) 10,000 1,500
Estimated selling price (Rs. per unit) 9,700 1,700
Estimated cost to sell (Rs. per unit) 300 100
Current replacement cost (Rs. per unit) 9,100 1,400
Details of firm sale contracts:
Units to be sold 3,000 28,000
Contract price (Rs. per unit) 9,800 1,300
Cost to sell (Rs. per unit) 200 100

AH
(ii)

(iii)

(iv)
A government loan of Rs. 50 million was received on 1 July 2016. The loan carries interest @ 6% per annum
payable annually and principal is repayable on 30 June 2021. The loan was granted on certain conditions which had

recognition. The prevailing market interest rate as on 1 July 2016 was 11% per annum.
The amount received was credited to loan and finance cost for the year has been recorded @ 6%.
On 1 January 2017, GL entered into a contract for the sale of a plant to Tahir Limited for Rs. 100 million when the

is still in use of GL, it was immediately derecognised from the books. Under the terms of agreement, GL has the
option to repurchase the plant by 31 December 2018 at Rs. 123.21 million.
(04)

all been met on 1 July 2016. The loan was not designated as measured at fair value through profit or loss on initial

(03)

carrying value and remaining useful life of the plant were Rs. 80 million and 10 years respectively. Though the plant

As at 30 June 2017, dismantling cost relating to a plant has increased from initial estimate of Rs. 30 million to Rs. 40
million. Further, fair value of the plant on that date was assessed at Rs. 112 million (net of dismantling cost). No
accounting entries have been made in respect of increase in dismantling liability and revaluation of the plant.
The plant had a useful life of 5 years when it was purchased on 1 July 2015. The carrying value of plant and related
revaluation surplus included in the financial statements are Rs. 135.4 million (after depreciation for the year ended
30 June 2017) and Rs. 3.15 million (after transferring incremental depreciation for the year ended 30 June 2017)
respectively.
Applicable discount rate is 8% per annum. (04)
Required:
Determine the revised amounts of profit before tax, total assets and total liabilities after incorporating the impact of
above adjustments, if any.
(Winter 2017, Q # 5(a)(iv))
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Question No. 9
You are the Finance Manager of Dirham Limited (DL). Your assistant has prepared draft financial statements of DL for the
year ended 31 December 2018. However, he could not prepare statement of changes in equity due to certain outstanding
issues.
For the purpose of preparation of statement of changes in equity, the following information is available:
(i) Share capital and reserves as on 31 December:
2017 2016 2015
------------ Rs. in million ----------
Share capital (Rs. 10 each) 700 700 700
Retained earnings 1,013 702 530
Revaluation surplus 281 172 151

(ii) Net profit for 2018 (draft), 2017 (audited) and 2016 (audited) were Rs. 198 million, Rs. 311 million and Rs. 242
million respectively.
(iii) The draft statement of financial position as on 31 December 2018 shows total assets and total liabilities of Rs. 2,977
million and Rs. 785 million respectively.
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (789)

Details of outstanding issues:

(i) In 2018, it was discovered that a senior executive was granted share options on 1 January 2016 but nothing was
recorded in the books in 2016 as well as in subsequent years.
DL had granted 120,000 share options to the senior executive, conditional upon the executive remaining in DL’s
employment till 31 December 2019. The exercise price per option is Rs. 90. However, the exercise price drops to Rs.
50 if DL’s net profit increases by at least 8% in each year.
Estimated fair values of share option are as under:
On grant date On 31-Dec-2018
--------- Rs. per option ---------
Exercise price of Rs. 90 150 190
Exercise price of Rs. 50 175 225

AH
(ii)

(iii)
The increase in net profit by more than 8% was always expected. However, due to unexpected economic conditions,
DL could not achieve 8% increase in profits in 2018.
In view of significant changes in the technology, it has been decided to reduce the remaining useful life of a plant by
5 years. No entry has been made for depreciation on the plant and adjustments in related decommissioning cost for
2018.
As at 1 January 2018, the plant had a carrying value of Rs. 150 million and a remaining useful life of 11 years.
Further, in respect of this plant, revaluation surplus of Rs. 24 million and provision for decommissioning cost of Rs.
40 million were also appearing in the books as at that date. There is no change in expected decommissioning cost
except for the timing due to change in useful life. Applicable discount rate is 11% per annum.
It is the policy of DL to transfer revaluation surplus to retained earnings only upon disposal.
It was noted that investment in debentures has not been accounted for correctly.
On 1 January 2018, DL purchased 2.5 million debentures (having face value of Rs. 100 each) issued by Peso
Limited. Debentures were purchased at Rs. 103 each. However, the fair value of each debenture as on the date of
purchase was Rs. 105 in the quoted market. Transaction cost of Rs. 1.5 million was also incurred on purchase of
debentures.
Coupon rate of debentures is 12% which is payable annually on 31 December. DL has classified the investment in
debentures as financial asset at fair value through other comprehensive income. At initial recognition, DL
determined that debenture was not credit impaired.
DL estimated that 12 months expected credit losses in respect of the investment in debentures at 1 January 2018
and 31 December 2018 amounted to Rs. 8 million and Rs. 6 million respectively. As on 31 December 2018, the
debentures were quoted on Pakistan Stock Exchange at Rs. 109 each.
Upon purchase, transaction price was recorded as financial asset whereas the transaction cost was charged to profit
or loss. Interest has been received and taken to profit or loss. No further entries have been made in the books.
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(iv) The following information has been received from actuary in respect of DL’s pension fund for the year ended 31
December 2018:
Rs. in million
Contribution paid 40
Benefits paid 32
Current service cost 45
Re-measurement gain 18*
*Re-measurements were nil in 2017 and 2016.
Applicable annual discount rate and net pension liability as on 1 January 2018 were 10% and Rs. 85 million
respectively.
During the year, payments made by DL were charged to profit or loss. No further adjustment has been made.
Required:
(a) Determine the revised amounts of total assets and total liabilities after incorporating effects of the above
corrections. (15)
(b) Prepare DL’s statement of changes in equity for the year ended 31 December 2018 along with comparative figures
after incorporating effects of the above corrections, if any. (Ignore taxation. ‘Total’ column is not required) (10)
(Winter 2019 Q # 2)
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (790)

SOLUTIONS TO PRACTICE QUESTIONS & PAST PAPERS

SOLUTION NO. 1
Date Accounting Head Debit Credit
31.12.2019 Depreciation 968.75
Acc. Dep 968.75
31.12.2019 Finance Cost 73.35
Provision for
dismantling cost 73.35
31.12.2019 Accumulated Depreciation 968.75
Plant & machinery 968.75

AH
31.12.2019

31.12.2019

(W-1)

Date
1.1.2018
31.12.2018
31.12.2018
31.12.2018

31.12.2018
31.12.2018
31.12.2018
31.12.2018
Profit & Loss

Particulars
Plant & machinery
Provision for dismantling cost

Asset purchase
Depreciation
Finance Cost
Profit & Loss

Balance before
revaluation
Revaluation- Elimination
Revaluation increase
Estimate change
Balance SOFP
Cost
5,512.50

5,512.50
-

(1,102.50)
(535.00)

3,875.00
-
436.25

267.48

Acc. Dep
-
(1,102.50)
-

(1,102.50)
1,102.50
-
-
-
436.25

267.48

WDV
5,512.50
(1,102.50)

4,410.00

(535.00)

3,875.00
-

-
P4DL
412.50

53.62

466.12

98.13
564.25
-

-
-
Revaluation
Surplus
-
-
-

-
-
-
-
-
P&L
-

-
-
(535.00)
(98.13)
(633.13)
31.12.2019 Depreciation - (968.75) (968.75) - - 158.28
31.12.2019 Finance Cost - - - 73.35 - -
Balance before
31.12.2019 revaluation 3,875.00 (968.75) 2,906.25 637.61 - (474.85)
31.12.2019 Revaluation -Elimination (968.75) 968.75 - - -
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31.12.2019 Revaluation decrease (436.25) - (436.25) - - (436.25)
31.12.2019 Estimate change - - - (267.48) - 267.48
31.12.2019 Balance SOFP 2,470.00 - 2,470.00 370.13 - (643.62)

Rev Amount = 3875 3875.00 564.25 P4DC 2018

Rev Amount = 2470 2470.00 370.13 P4DC 2019
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (791)

SOLUTION NO. 2
Date Accounting Head Debit Credit

30.6.2019 Depreciation 1,331.86

Acc. Dep 1,331.86

30.6.2019 Finance Cost 62.06

Provision for dismantling cost 62.06

30.6.2019 Revaluation Surplus 47.81

Retained Earnings 47.81

AH
30.6.2019

30.6.2019

30.6.2019

(W-1)

Date

1.7.2017
30.6.2018
30.6.2018
30.6.2018
30.6.2018
30.6.2018
Accumulated Depreciation
Plant & machinery

Revaluation Surplus
Profit & Loss
Plant & machinery

Provision for dismantling cost

Profit & Loss

Particulars

Asset purchase
Depreciation
Finance Cost
Balance before revaluation
Revaluation- Elimination
Revaluation increase
Cost

4,909.81

-
4,909.81
(1,227.45)
313.23
1,331.86

95.62
396.20

310.74

Acc. Dep

-
(1,227.45)
-
(1,227.45)
1,227.45
-
1,331.86

491.82

310.74

WDV

4,909.81
(1,227.45)

3,682.36
-

-
313.23
P4DL

409.81
-
40.98
450.79
-
-
Revaluati
on
Surplus
-
-
-
-
-
313.23
P&L

-
-
-
-
30.6.2018 Estimate change - - - 169.80 (169.80) -
30.6.2018 Balance SOFP 3,995.59 - 3,995.59 620.59 143.43 -
30.6.2019 Depreciation - (1,331.86) (1,331.86) - (47.81)
30.6.2019 Finance Cost - - - 62.06 - -
30.6.2019 Balance before revaluation 3,995.59 (1,331.86) 2,663.72 682.64 95.62 -
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30.6.2019 Revaluation -Elimination (1,331.86) 1,331.86 - - -
30.6.2019 Revaluation decrease (491.82) - (491.82) - (95.62) (396.20)
30.6.2019 Estimate change - - - (310.74) - 310.74
30.6.2019 Balance SOFP 2,171.90 - 2,171.90 371.90 - (85.46)

Rev Amount = 3375 + 826*1.1^-3 3995.59 620.5860255

Rev Amount = 1800 + 450*1.1^-2 2171.90 371.9008264
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (792)

SOLUTION NO. 3

Dr. Cr.
--- Rs. million ---
30-06-20 Depreciation 6.50
Accumulated depreciation 6.50
[Depreciation for 6-months]

30-06-20 Revaluation surplus 0.10

Retained earnings 0.10
[Incremental depreciation for 6-months]

30-06-20 Finance cost 0.45

AH
01-07-20

31-12-20

31-12-20

01-01-16
Depreciation
Provision for dismantling
[Finance cost for 6-months]

Revaluation surplus
P&L
Provision for dismantling
[Change in provision due to discount rate change]

Accumulated depreciation
[Depreciation for 6-months]

Finance cost

Cost
Provision for dismantling
[Finance cost for 6-months]

NBV

129.26
Surplus
1.15
0.82

6.50

0.34

P&L
0.45

1.97

6.50

0.34

Provision
---------------------- Rs. million ---------------------
9.26 [20 x 1.08-10]
31-12-16 Dep / Interest (12.93) 0.74
116.33 - - 10.00
31-12-16 Revaluation 9.67 9.67 - -
126.00 9.67 - 10.00
31-12-17 Dep / Interest (14.00) (1.07) 0.80
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112.00 8.60 - 10.80
01-01-18 Estimate change - 1.08 (1.08)
112.00 9.68 - 9.72 [18 x 1.08-8]
31-12-18 Dep / Interest (14.00) (1.21) 0.78
98.00 8.47 - 10.50
31-12-18 Revaluation (7.00) (7.00) -
91.00 1.47 - 10.50
31-12-19 Dep / Interest (13.00) (0.21) 0.84
78.00 1.26 - 11.34
01-07-20 Dep / Interest (6.50) (0.10) 0.45
71.50 1.15 - 11.79
01-07-20 Estimate change - (1.15) (0.82) 1.97
71.50 - (0.82) 13.76 [18 x 1.05-5.5]
31-12-20 Dep / Interest (6.50) - 0.07 0.34
65.00 - (0.74) 14.10
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (793)

SOLUTION NO. 4
Assets carrying value as at June 30, 2008 (Asset)
Cost (Given) 6,570
20 167
Decommissioning liability on July 1, 2007 (780 / (1+0.08) )
Depreciation for the year (321) W-1
Adjustment for revision in provision for decommissioning cost 157 W-2
6,573

Decommissioning liability on June 30, 2008 (1,021 / (1+0.06)19) 337

Working 1: Depreciation for the year (P&L)

Cost 6570

AH
Decommissioning liability on July 1, 2007
Residual Value

Depreciation (6,417 / 20) =

Working 2: Increase in decommissioning liability during the year ended June

30, 2008
Decommissioning liability on June 30, 2008
Less: Decommissioning liability on July 1, 2007
Less: Unwinding of interest for the year (167 x 8%)

SOLUTION NO. 5

Date Particulars
6,417

337
(167)
(13)
157

Dr.
167

(320)

321

Cr.
Rs. in million
31-03-11 PL Account (Depreciation exp) 70,000/8 8.750
Accumulated depreciation 8.750
PL Account (Unwinding of discount) 0.681
Site restoration liability (Unwinding of discount) 0.681
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Revaluation surplus (Incremental depreciation) 0.461
Retained earnings (Incremental depreciation) 0.461
PL account (Excess of increase in site restoration cost over revaluation 0.699
balance) 2.542-1.843
Revaluation surplus (Increase in site restoration cost) 1.843
Site restoration liability (Increase in site restoration cost) 2.542
12.434 12.434
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (794)

Working
P4DC RS
01-04-05 PV of site restoration cost of Rs. 10 million at 10% 10/(1.1)10 3.855
discount rate
31-03-06 Unwinding at 10% 0.386
31-03-07 Unwinding at 10% 0.424
31-03-07 Carrying value of the plant (80+3.855)*8/10 67.084
31-03-07 Revalued amount of the plant 70.000 2.916
31-03-08 Unwinding at 10% / Incremental dep. (2.916/8) 0.467 (0.365)
31-03-09 Unwinding at 10% / Incremental dep. 0.513 (0.365)
5.645 2.186
31-03-09 Increase / (decrease) in liability / revaluation surplus on 5.066 (0.579) 0.579
revision of discount rate to 12%

AH
31-03-09

31-03-10
31-03-11

31-03-11

31-03-11

SOLUTION NO. 6
PV of site restoration cost of Rs. 10 million at 12%
discount rate
Unwinding at 12% / Incremental dep. (2.765/6)
Unwinding at 12% / Incremental dep.

Increase / (decrease) in liability relating to site

restoration costs
PV of site restoration cost of Rs. 14 million at 12%
discount rate

1. Decrease in decommissioning liability

Carrying amount as at 30-06-2012

(130/19)/20 x (20-4.5)
FC/
depreciation
Rs. (million)
10/(1.12)6

8.8976.355

14/(1.12)4

PPE

Rs. (million)

115.48
5.066

0.608
0.681
6.355

2.542

8.897

P4DC
2.765

(0.461)
(0.461)
1.843

(1.843)

Rs. (million)
-

[19x(1.10)^4.5] 29.18
3.73 (3.73)
Depreciation Oct 2012 –Mar 2013
[(130/19) /20 x 0.5]
1.42 1.42
Finance cost Oct 2012 – Mar 2013
M
[19x(1.1)^5]-[19 x (1.10)^4.5]
(5.60) (5.60)
Decrease due to revision in liability
(30.6-25)
106.15 25.00
Revised balance as at 1-4-2013
Depreciation Apr - Sep 2013
3.54 (3.54)
(106.15/15x0.5)
Finance cost Apr – Sep 2013 1.22 1.22
9.91 102.61 26.22
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (795)

SOLUTION NO. 7

Date Accounting Head Debit Credit

31.12.2015 Depreciation 887.74
Acc. Depreciation 887.74

31.12.2015 P&L 41.32

P4DL 41.32

31.12.2015 P4DL 206.61

RS 144.63
DTL 61.98

AH
31.12.2015

31.12.2015

31.12.2015

2014
Date
RS
DTL

RS
P&L
DTL

DTL
P&L

Particulars
RE
P&L

PPE
22.35
9.58

189.32
57.09
81.14

245.77

PPE
22.35
9.58

327.55

245.77

P4DL Rev. Surplus DTL/(DTA) P&L

1.1.2014 Asset purchase 3,273.00 273.00 - -
31.12.2014 Depreciation (818.25) - - - 818.25
31.12.2014 Unwinding - 27.52 - - 27.52
31.12.2014 Revaluation 208.47 - 145.93 62.54 -
M
31.12.2014 Revision in P4DL - 112.70 (78.89) (33.81) -
31.12.2014 Def Tax Cloing Adj - - - 241.27 241.27

1.1.2015 2,663.22 413.22 67.04 270.00 1,087.04

31.12.2015 Depreciation (887.74) - - - 887.74
31.12.2015 Unwinding - 41.32 - - 41.32
31.12.2015 Revision in P4DL - (206.61) 144.63 61.98 -
31.12.2015 Inc. Dep Transfer - - (22.35) (9.58) (9.58)
31.12.2015 Revaluation (327.55) - (189.32) (81.14) 57.09
31.12.2015 Def Tax Cloing Adj - - - (245.77) (245.77)
1,447.93 247.93 - (4.50) 1,817.85
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (796)

Deferred tax
Date Description Carrying amount Tax base Temp. diff.
@ 30%
1-Jan-14 Plant & Machinery 3,273.00 3,000
Provision for decommission liability 273.00 -
3000.00 3,000 - -

31-Dec-14 Plant & Machinery 2,663.22 1,350

3,273 – 818.25*1 + 208.47*2 3,000 – 1,650*1

Provision for decommission liability 413.22 -

273+27.53*3+112.70*4

2,250.00 1,350 900 270

31-Dec-15 Plant & Machinery 1,447.93 1,215

2,663.22-887.74*1 – 327.55*5 1,350 – 135

Provision for decommission liability 247.93 -

AH
SOLUTION NO. 8
(a)

As per question
Net charge / (reversal)

NRV adjustment (W-1)

Onerous contract of product B (8000 × 200)

Govt. grant (W-2)

Finance cost[(40.76 × 11%) – (50 × 6%)]

Reversal of disposal
413.22+41.32 *3– 206.61*4

Net
profit

125.00

(8.40)
(1.60)

9.24
(1.48)

(20.00)
1,200.00

Impact on
Total
assets

1,420.00
Total
liabilities
----------- Rs. in million -----------
925.00

(8.40)

80.00
1,215

1.60

(9.24)
1.48

100.00
(15) (4.5)
(274.50)

Depreciation (80 ÷ 10) × 6/12 (4.00) (4.00)

Finance cost 100 × 11%*× 6/12 (5.50) 5.50
*√( )

Revaluation of plant (W-3) 8.35

M
Increase in provision (W-3) 7.94
Revised Amounts 93.26 1,495.95 1,032.28

W-1: NRV adjustment Product A Product B

Total
Committed Normal Committed
---------------- Rs. in million ----------------
Cost 30.00 20.00 30.00
(28.8) (18.80) (24.00)
NRV 3,000×(9,800-200) 2,000×(9,700-300) 20,000×(1,300-100)
1.20 1.20 6.00 8.40

W-2: Government grant

Rs. in million
Total proceeds 50.00
PV at market interest rate of 11% [(50 × 6% × 3.6959) + (50 × 0.5934)] (40.76)
Component of Government grant 9.24
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (797)

W-3: Revaluation of plant

Rs. in million
Net Revalued amount 112.00
PV of revised dismantling cost (40 × 0.7938) 31.75
Gross revalued amount 143.75
Carrying amount as on 30 June 2017 (135.40)
Increase in value of plant 8.35
Increase in dismantling cost 10÷(1.08)3 (7.94)
Revaluation surplus balance 3.15
(4.79)
Revaluation surplus 3.56

AH
SOLUTION NO. 9
DIRHAM LIMITED
(a) Effect of corrections/issues:

Balances as given
(i) Share options

Expense for 2016: (120,000×175×1÷4)

Expense for 2017: [(120,000×175×2÷4) – 5.25]
Expense for 2018: [(120,000×150×3÷4)–5.25–5.25]

(ii) Plant and decommissioning cost

Depreciation on plant
Decommissioning cost revision
Unwinding of interest
(150÷6)
[40×( 1.11)5 –40]
[(40.00+27.40)×11%]
Total
assets

2,977.00

(25.00)
Total
liabilities

785.00

27.40
7.40
Profit
for 2018

198.00

(3.00)
(3.00)

(25.00)
(3.40)
(7.40)
Profit
for 2017

(5.25)

(5.25)
Other

-------------------- Rs. in million --------------------

311.00

(5.25)
5.25
5.25
3.00
13.5
Equity
(5.25)
Op RE

(24.00)

(25.00) 34.80 (35.80) (24.00)

Rev. Sur.
(iii) Investment in debenture
Gain on initial recognition [2.5×(105–103)] 5.00 5.00
Transaction cost 1.50 1.50
Fair value adjustment [2.5×(109–105.6)] 8.50 8.50
M
Impairment (6.00) 6.00
15.00 0.50 14.50
OCI
(iv) Pension scheme
Increase in pension expense [45.00+(85×10%)–40] 13.50 (13.50)
Re-measurement gain (18.00) 18.00
(4.50) (13.50) 18.00
OCI
2,967.00 815.30 146.20 305.75 16.75
CHAPTER 24 IFRIC-1 Changes in Existing Decommissioning, Restoration [Prior Knowledge] (798)

(b) Statement of changes in equity for the year ended 31 December 2018
Share Retained Rev. surplus Fair value Share
capital earnings reserve options
----------------------- Rs. in million -----------------------
Balance as at 31-12-2016, as previously reported 700.00 702.00 172.00 - -
Correction of prior year’s error (5.25) 5.25
Balance as at 31-12-2016: Restated 700.00 696.75 172.00 - 5.25
Equity-settled share based payment: Restated 5.25
Total comprehensive income for 2017:
- Profit for the year: Restated 305.75
- Other comprehensive income 109.00 -
(281‒172)
Balance as at 31-12-2017: Restated 700.00 1,002.50 281.00 - 10.50
Equity-settled share based payment 3.00

AH
Total comprehensive income for 2018:
- Profit for the year
- Other comprehensive income
Balance as at 31 December 2018 700.00
146.20
18.00
1,166.70
(24.00)
257.00
14.50
14.50 13.50
M