IFRIC INTERPRETATION 1 CHANGES IN EXISTING DECOMMISSIONING, RESTORATION AND SIMILAR LIABILITIES
REFERENCES
BACKGROUND	1
SCOPE	2
ISSUE	3
CONSENSUS	4
EFFECTIVE DATE	9
TRANSITION	10
APPENDIX
Amendments to IFRS 1 First‑time Adoption of International Financial Reporting Standards
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLES
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS

IFRIC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities (IFRIC 1) is set out in paragraphs 1⁠–⁠10 and the Appendix. IFRIC 1 is accompanied by illustrative examples and a Basis for Conclusions. The scope and authority of Interpretations are set out in the Preface to IFRS Accounting Standards.

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

References

IFRS 16 Leases
IFRS 18 Presentation and Disclosure in Financial Statements
IAS 8 Basis of Preparation of Financial Statements
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

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. [Refer:IAS 16 paragraph 16(c)] IAS 37 contains requirements on how to measure decommissioning, restoration and similar liabilities. [Refer:IAS 37 paragraphs 36⁠–⁠52] This Interpretation provides guidance on how to account for the effect of changes in the measurement of existing decommissioning, restoration and similar liabilities.

[Refer:Basis for Conclusions paragraphs BC2⁠–⁠BC5]

Scope

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 [Refer:IAS 16 paragraphs 6 (definition of cost), 7 and 16(c)] or as part of the cost of a right-of-use asset in accordance with IFRS 16 [Refer:IFRS 16 paragraphs 24(d) and 25]; and
(b)	recognised as a liability in accordance with IAS 37. [Refer:IAS 37 paragraphs 14⁠–⁠26]

For example, a decommissioning, restoration or similar liability may exist for decommissioning a plant, rehabilitating environmental damage in extractive industries, or removing equipment.

[Refer:Basis for Conclusions paragraph BC6]

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).

Consensus

[Refer:Basis for Conclusions paragraphs BC7⁠–⁠BC18]

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.

If the related asset is measured using the cost model: [Refer:IAS 16 paragraph 30]

(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. [Refer:IAS 36 paragraphs 7⁠–⁠17] If it is such an indication, the entity shall test the asset for impairment by estimating its recoverable amount, [Refer:IAS 36 paragraphs 18⁠–⁠57] and shall account for any impairment loss, in accordance with IAS 36. [Refer:IAS 36 paragraphs 58⁠–⁠125]

[Refer:Illustrative Examples paragraphs IE1⁠–⁠IE5]

If the related asset is measured using the revaluation model: [Refer:IAS 16 paragraphs 31⁠–⁠42]

(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)

IFRS 18 requires items of other comprehensive income to be presented as line items in the statement presenting comprehensive income. [Refer:IFRS 18 paragraph 89(b)] In complying with this requirement, the change in the revaluation surplus arising from a change in the liability shall be separately identified and presented as such. [Refer:Basis for Conclusions paragraph BC29]

[Refer:

Basis for Conclusions paragraphs BC24 and BC25

Illustrative Examples paragraphs IE1 and IE6⁠–⁠IE12]

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 [Refer:IAS 16 paragraph 30] and the revaluation model. [Refer:IAS 16 paragraphs 31⁠–⁠42]

The periodic unwinding of the discount shall be recognised in profit or loss as interest expense from liabilities other than those that arise from transactions that involve only the raising of finance as it occurs and classified—applying paragraph 61 of IFRS 18—in the financing category of the statement of profit or loss. Capitalisation under IAS 23 is not permitted.

[Refer:Basis for Conclusions paragraphs BC26 and BC27]

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.

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.1

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

9C	IFRS 18 issued in April 2024 amended paragraphs 6 and 8. An entity shall apply those amendments when it applies IFRS 18.

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.2 [Refer: Basis for Conclusions paragraphs BC30⁠–⁠BC33 Illustrative Examples paragraphs IE13⁠–⁠IE18]

Appendices

AppendixAmendments to IFRS 1 First‑time Adoption of International Financial Reporting Standards

The amendments in this appendix shall be applied for annual periods beginning on or after 1 September 2004. If an entity applies this Interpretation for an earlier period, these amendments shall be applied for that earlier period.


* * * * *

The amendments contained in this appendix when this Interpretation was issued in 2004 have been incorporated into IFRS 1 as issued on and after 27 May 2004. In November 2008 a revised version of IFRS 1 was issued.

Footnotes

1	In April 2024 the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements and carried over these requirements in IAS 1 Presentation of Financial Statements to IFRS 18. (back)

2	When it issued IFRS 18, the IASB changed the title of IAS 8 to Basis of Preparation of Financial Statements. (back)

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