Asset decommissioning requirements - IFRS accounting rules

Question

We have purchased a chemical treatment plant for $1.5Million. As per government regulations we are required to remove the plant and restore the site after the end of its useful life, which is around 8 years. How can we account for this requirement under IFRS accounting rules? Should we recognize the site restoring cost at the beginning?

Answer 1

Hello,

As per IAS 16 ,dismantling cost must be added to the initial cost of the asset if there is an obligation to restore the site after the use of the asset.So the cost of dismantling must be reliably estimated and then in this case discounted from the 8 yrs to the present value.

This discounted cost must be added to the initial coat and any other direct cost attributable to bringing the asset to it's present location.

At the end of every year the discounted value must unwinded .