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. A is required by the contract to dismantle and remove the asset and to restore the land on expiry of the lease term of 20 years. Since there is not sufficient information, to measure its asset retirement obligation due to an indeterminate settlement date LOI, does not recognize the obligation. ARO is in the nature of a provision where the entity is having a present obligation as a result of past event. The liability is commonly a legal requirement to return a site to its previous condition. 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. - DTA on asset retirement obligation, security deposits & tax free bonds: 14.63 Additionally in consolidation there is DTL recognized on undistributed earnings in subsidiaries for Rs. Thus, in accordance with Ind AS 37, there is a present obligation as a result of past event, and a provision should be created for such liability. They call it “asset retirement obligation (ARO)”. The principles are almost identical, but there are some differences – therefore, please be careful when preparing your financial statements under both standards. For instance, if the actual dismantling expenses incurred was Rs.38000 and the balance in ARO GL was Rs.41500, then the journal entry will be as follows: ARO liability                        Dr           41500, To Cash/Bank                                38000, To Gain on dismantling                    3500. Therefore the internal profits are eliminated and abnormal cost is not included in the cost. LOI’s plans to sell the building in the next five years signifies an active, market for the transfer obligation and meets the criteria for recognizing the fair value of. To Building A/c   Cr                 Rs.9587, If the related asset is measured using the revaluation model. Because of the wording of the asset ceiling, a gain is sometimes recognised solely as a result of deferring and amortising an actuarial loss or added past service cost in the current period. In this case, only the net asset can be shown in the balance sheet i.e. From Wikipedia, the free encyclopedia An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset in which the timing or method of settlement may be conditional on a future event, the occurrence of which may not be within the control of the entity burdened by the obligation. Superannuation, Provident Fund Defined Benefit Plans 1. (a) An asset retirement obligation represents a liability for the legal obligation associated with the retirement of a tangible, long-lived asset that a service company is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract, or by legal construction of a contract under the doctrine of promissory estoppel. (a) an entity’s decision to terminate an employee’s employment before the normal retirement date; or (b) an employee’s decision to accept voluntary redundancy in exchange for those benefits . An asset group consists of asset X with an estimated remaining life of five years, asset Y with an estimated life of seven years and asset Z (the primary asset) with a four-year life. 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. 25 crores. amount of asset 20.2 Ind AS 24 Related Party Disclosures Change in definition of close family members 24.2 Additional guidance for IFRSaggregation of transactions 24.3 Ind AS 27 Consolidated financial statements Format of consolidated financial statements 27.1 Ind AS 33 Earnings per Share Compulsory disclosure of EPS in 143 (FAS 143), Accounting for Asset Retirement Obligations, requires an entity to recognize the fair value of a liability for legal obligations associated with the retirement of a tangible long-lived asset in the period in which it is incurred if a reasonable estimate of fair value can be made. • Ind AS puts forward the concept of functional currency which, if di fferent from Indian Rupee could have significant implications on the computation of taxable income as well as deferred taxes 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. Entities recognize a liability for an asset retirement obligation when incurred if its fair value reasonably can be estimated. Notifications Description: G.S.R 111(E) dated 16 Feb 2015 : The Companies (Indian Accounting Standards) Rules, 2015. Changes in the ARO liability affects the revaluation surplus or deficit already recognised as follows: any decrease in ARO liability shall increase the revaluation surplus created at the time of revaluation of the related asset except where there is a revaluation deficit in respect of the asset already recognised in profit and loss account in which case such decrease in ARO liability shall reverse the deficit so recognised in profit and loss account. Thus a changes due to the effect of asset ceiling results in a re-measurement, and this component also forms part of the OCI. Retirement Benefits e.g. 962 CO) University of North Carolina, Greensboro • ACCOUNTING 319, Northwestern State University • ACCT 3190, University of California, Los Angeles • ESL 32, University of North Carolina, Greensboro • ACC 319. Asset Retirement Obligations. 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. Ind AS financials (as per the amended Schedule III) 2. Generally-accepted accounting standards (GAAP) require the company to include the present value of the expected (face value of) future decommissioning cost in the total acquisition cost of the asset. B. Ind AS Accounting for Gratuity Trust. 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. Ind AS 1 requires disclosure in the statement of profit and loss of each component of other comprehensive income or expense. 38,018,395 ; Present Value o f Obligation as at the end . The entire disclosure for an asset retirement obligation and the associated long-lived asset. Here the obligation to dismantle and restore the asset may arise on having acquired the asset or as a result of using the asset over a period of time. The ARO amount capitalised as part of the cost of the asset should be depreciated over the period of useful life of the related asset. As per para 51 of Ind AS 37, gains from the expected disposal of assets shall not be taken into account in measuring a provision, even if the expected disposal is closely linked to the event giving rise to the provision. Thank you! 143 in June 2001 that requires public companies to recognize the fair value of retirement obligations for tangible, long-lived assets in order to make their balance sheets more accurate. Asset recognition is permitted when it is controlled by the entity and it is probable that there will be an inflow of future economic benefits attributable to the asset and that the cost of the asset is measurable reliably. Background. Finance cost to be charged each year= ARO liability X discount rate. Thereafter finance cost is to be charged on the new ARO balance for each accounting period till the date of obligation. As per Ind AS, An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset in which the timing or method of settlement may be conditional on a future event 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. Asset retirement obligations are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of such assets. The evidence considered includes any additional evidence provided by events after the reporting period also. Accounting for Asset Retirement Obligation. Accounting for Asset Retirement Obligation (ARO). Retirement obligations can be recognized either when the asset is placed in service or. Indian Accounting Standard (Ind AS) 101 The building has a useful life of 20 years and the company uses straight-line depreciation.Yearly depreciation is hence $200,000/20 or $10,000. Example of OCI in Ind AS 19 Reporting. Accounting for asset retirement obligation. their obligation. And, if you have any questions, please comment below. Other Benefits e.g. Gratuity and Pension b. The difference is accounted as finance cost. Indian Accounting Standard (Ind AS) 101 asset. Due to the re estimation, revised ARO amount is as follows: Thus the ARO balance as on date is higher by Rs.16834 [42084-25250]. They call it “asset retirement obligation (ARO)”. 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 a        revaluation is necessary, all assets of that class shall be revalued. 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. 143 in June, 2001 that requires public companies to recognize the fair value of retirement obligations for. Post employment medical care Defined Contribution Plans 1. Introduction With the applicability of the new Ind AS on certain class of Companies, it was evident that there was now a need for an amendment to the Schedule III of The Companies Act, 2013. Inflated cost of meeting the obligation= 25200 X [1+5.876%]^12 = Rs.50000. Such a market may not always exist so CPAs might need to estimate fair value. And, if you have any questions, please comment below. Thus Ind AS requires that an entity shall arrive at an initial estimate of the expected cost for dismantling and removing the asset and restoration of the site and shall capitalise the same as part of the cost of the asset. Hence while estimating the expenditure to be incurred for settlement of obligation, the possible realisation from the disposal of the assets or any components will not be considered. THE STATEMENT REQUIRES ENTITIES TO RECOGNIZE asset retirement obligations at their fair value—the amount at which an informed willing party would agree to assume the obligation. 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. 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