IFRIC 1
Published
Changes in Existing Decommissioning, Restoration and Similar Liabilities
Addresses the accounting for changes in existing decommissioning, restoration and similar liabilities that are included as part of the cost of property, plant and equipment under IAS 16.
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Conceptual Framework Linkage
Why IFRIC 1 exists as a bridge interpretation
IAS 16 requires the initial estimate of decommissioning, restoration, and similar obligations to be capitalised as part of an asset's cost; IAS 37 governs how that provision is subsequently remeasured. Neither standard, on its own, specified what happens to the ASSET when the LIABILITY changes after initial recognition – IFRIC 1 closes that gap.
Without IFRIC 1, entities could faithfully apply IAS 16 and IAS 37 individually yet reach inconsistent answers on where a subsequent remeasurement of the liability should land – asset cost, equity, or profit or loss.
Faithful representation of a genuinely two-sided event
A change in a decommissioning estimate is not simply an income statement event – it originates in a re-estimation of a future cash outflow that is directly linked to an asset already capitalised. IFRIC 1's cost-model mechanics preserve the historical-cost linkage between asset and liability wherever that remains a faithful representation, and default to profit or loss only where capitalisation would no longer depict an economic reality.
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Scope & Definitions
What IFRIC 1 covers
IFRIC 1 applies to changes in the measurement of any existing decommissioning, restoration, or similar liability that is BOTH recognised as a provision under IAS 37 AND included as part of the cost of an item of property, plant and equipment under IAS 16 (or, by extension, a right-of-use asset or similar capitalised cost base).
TYPICAL FACT PATTERNS
Nuclear plant decommissioning obligations Mine site restoration and rehabilitation obligations Oil and gas platform removal obligations Leasehold restoration obligations linked to a right-of-use asset
Key definitions
Decommissioning, restoration and similar liability
A provision recognised under IAS 37 for the estimated cost of dismantling, removing, or restoring an item of property, plant and equipment, capitalised as part of that asset's cost under IAS 16.
Unwinding of the discount
The periodic increase in the provision that reflects the passage of time, since the liability is initially measured at a discounted, present-value amount.
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The Three Change Drivers
What can cause the liability to move after initial recognition
DriverDescription
Change in estimated outflowA revision to the estimated amount or timing of the resources required to settle the obligation
Change in the discount rateA change in the current market-based discount rate used to measure the provision
Unwinding of the discountThe routine increase in the liability reflecting the passage of time – NOT a remeasurement in the same sense as the first two
⚠️ Only the first two drivers are "changes in measurement" that IFRIC 1's asset-adjustment mechanics apply to. The unwinding of the discount is deliberately carved out and always hits profit or loss as a finance cost.
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Cost Model Treatment
The core mechanic
Under the cost model, a change in the liability is added to, or deducted from, the cost of the related asset in the current period. The adjusted depreciable amount is then depreciated PROSPECTIVELY over the asset's remaining useful life – no restatement of prior depreciation.
CEILING RULE
The amount deducted from asset cost cannot exceed the asset's carrying amount. If a decrease in the liability would exceed the carrying amount, the excess is recognised IMMEDIATELY in profit or loss.
Worked example – upward revision of a closure estimate
Example: Increase in decommissioning estimate
A mining company's asset has a carrying amount of $2,400,000 and 8 years of remaining useful life. An updated environmental survey increases the present value of the restoration obligation by $360,000.
Entry: Debit Asset cost $360,000 / Credit Decommissioning provision $360,000.
Revised carrying amount = $2,760,000, depreciated over the remaining 8 years.
Revised carrying amount = $2,760,000, depreciated over the remaining 8 years.
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Revalued Asset Treatment
The core mechanic
For assets carried under the revaluation model, a change in the liability alters the revaluation surplus or deficit previously recognised on that specific asset. A DECREASE in the liability is credited to other comprehensive income and increases the revaluation surplus – UNLESS it reverses a revaluation deficit previously recognised in profit or loss.
INCREASE IN THE LIABILITY
Recognised in profit or loss, EXCEPT to the extent there is a credit balance in the revaluation surplus for that asset
Worked example – revalued asset, increase in liability
Example: Increase absorbed partly by revaluation surplus
A revalued oil platform asset carries a revaluation surplus of $150,000. A change in discount rate increases the decommissioning provision by $200,000.
$150,000 of the increase is debited against the existing revaluation surplus (OCI); the remaining $50,000 is recognised as an expense in profit or loss.
⚠️ A revaluation surplus/deficit adjustment under IFRIC 1 may also indicate the whole class of assets needs to be revalued, to ensure the carrying amount does not differ materially from fair value.
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The Unwinding of Discount
Always a finance cost, never capitalised
The periodic increase in the provision that reflects the passage of time is recognised in profit or loss as a finance cost AS IT OCCURS – it is explicitly excluded from the asset-cost adjustment mechanics that apply to genuine remeasurements.
TYPICAL ENTRY EACH PERIOD
Debit Finance cost (profit or loss) / Credit Decommissioning provision – for the discount unwinding amount only
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Ceiling Tests
When the decrease exceeds carrying amount
Because a decommissioning asset is depreciated over time while the related liability can still be revised upward or downward, it is possible for a downward revision to the liability to exceed the asset's remaining carrying amount. In that case, the amount that CANNOT be absorbed into asset cost is recognised IMMEDIATELY in profit or loss instead.
Example: Decrease exceeding carrying amount
An asset nearing the end of its useful life has a carrying amount of $40,000. A favourable revision to closure cost estimates reduces the provision by $65,000.
$40,000 reduces the asset's carrying amount to nil; the remaining $25,000 is recognised immediately as a gain in profit or loss.
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Interaction with Impairment (IAS 36)
A capitalised increase can itself trigger an impairment test
Because an upward revision to a decommissioning liability increases asset cost without necessarily increasing the asset's recoverable amount, entities must consider whether the resulting higher carrying amount is an indicator of impairment under IAS 36, and test accordingly.
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Disclosure
What IFRIC 1 requires
Nature and amount of changes in decommissioning estimates recognised during the period Whether recognised in the asset, profit or loss, or other comprehensive income Discount rate(s) used and the basis for the estimate
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether a revised cost estimate reflects a genuine change in obligation versus a change in the entity's own execution plan Selecting a current market-based discount rate appropriate to the currency and term of the obligation
SIGNIFICANT ESTIMATES
Estimated cost of decommissioning and the timing of cash outflows
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IFRIC 1 vs US GAAP
Comparison – IFRIC 1 vs ASC 410 (Asset Retirement Obligations)
FeatureIFRIC 1 (IFRS)US GAAP (ASC 410)
Discount rate on remeasurementCurrent market-based rate applied to the WHOLE revised liabilityA "layered" approach – each upward revision is discounted at the rate at the time of the revision
Revalued assetsExplicit mechanics linking liability changes to revaluation surplus/OCINot applicable – revaluation of PPE is not permitted under US GAAP
Ceiling on downward asset adjustmentDecrease capped at carrying amount, excess to profit or lossBroadly similar outcome in substance
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Statement Mapping
Where every IFRIC 1 event lands
EventStatement(s) affectedNotes
Increase/decrease in liability – cost model, within carrying amountSOFPAsset cost and provision both adjusted; no immediate SOPL impact
Decrease exceeding carrying amountSOFP SOPLExcess recognised immediately as a gain
Decrease on a revalued assetOCI SOFPCredited to revaluation surplus, unless reversing a prior SOPL deficit
Increase on a revalued asset, beyond available surplusSOPL OCIAbsorbed by surplus first, excess to profit or loss
Unwinding of the discountSOPLFinance cost, every period
Revised depreciation chargeSOPL SOFPProspective only – no restatement of prior periods
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Related Standards
Cross-reference map
StandardConnection
IAS 16Governs initial capitalisation of the obligation and depreciation of the resulting asset cost
IAS 37Governs recognition and measurement of the underlying provision
IAS 36Impairment testing may be triggered by an upward asset-cost adjustment
IFRS 16Restoration obligations linked to leased assets follow analogous logic
Quick-reference glossary
Revaluation surplus
The cumulative OCI balance representing the excess of an asset's revalued amount over its historical cost carrying amount.
Obligating event
The past event that creates a present legal or constructive obligation under IAS 37, giving rise to the decommissioning provision.
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Glossary
Cost model
The IAS 16 measurement model under which PPE is carried at cost less accumulated depreciation and impairment – the default model to which IFRIC 1's asset-cost-adjustment mechanics most directly apply.
Revaluation model
The alternative IAS 16 measurement model under which PPE is carried at fair value less subsequent depreciation – triggers the OCI/revaluation-surplus mechanics under IFRIC 1.
Ceiling rule
The IFRIC 1 rule that the amount deducted from asset cost cannot exceed the asset's carrying amount; any excess is recognised immediately in profit or loss.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
May-2004
In May 2004 the International Accounting Standards Board issued IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. It was developed by the Interpretations Committee.
Jan-2016
IFRS 16 Leases and IFRS 18 Presentation and Disclosure in Financial Statements
Minor consequential amendment to IFRIC 1