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IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and
Environmental Funds
References
IAS 8 Accounting Policies Changes i n Accounti ng Esti mates and Errors
IAS 27 Consoli dated and Separate Fi nancial Statements
IAS 28 Investments in Associates
IAS 31 Interests In Joint Ventures
IAS 37 Provisions, Contingent Liabil ities and Conti ngent Assets
IAS 39 Fi nancial Instruments: Recognition and Measurement
SIC 12 Consoli dation Special Purpose Enti ti es
History
IFRIC D4 Decommi ssi oni ng, Restoration and Environmental Rehabil itation Funds
was issued 15 January 2004
Comment Deadline 19 March 2004
IFRIC 5 Issued 16 December 2004
Effective for annual periods beginning on or after 1 January 2006
Press Release on IFRIC 5 (PDF 65k).
SUMMARY OF IFRIC 5
Some entities have obligations to decommission assets or to perform environmental
restoration or rehabilitation. Some such entities contribute to a fund established to
reimburse the decommissioning, restoration or rehabilitation costs when they are
incurred. The fund may be set up to meet the decommissioning costs of a single
contributor or for many contributors.
The issues addressed in IFRIC 5 are:
How should a contributor account for its interest in a fund?
When a contributor has an obligation to make additional contributions, how should
that obligation be accounted for?
Under IFRIC 5:
If an entity recognises a decommissioning obligation under IFRSs and contributes to
a fund to segregate assets to pay for the obligation, it should apply IAS 27
Consoli dated and Separate Fi nancial Statements, SIC 12 Consoli dation Special
Purpose Entities, IAS 28 Investments in Associates, and IAS 31 Interests in Joint
Ventures, to determine whether decommissioning funds should be consolidated,
proportionately consolidated or accounted for under the equity method.
When a fund is not consolidated, proportionately consolidated, or accounted for
under the equity method, and that fund does not relieve the contributor of its
obligation to pay decommissioning costs, the contributor should recognise:
its obligation to pay decommissioning costs as a liability, and
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its rights to receive reimbursement from the fund as a reimbursement under IAS
37.
A right to reimbursement should be measured at the lower of (i) the amount of the
decommissioning obligation recognised and (ii) the contributor's share of the fair
value of the net assets of the fund. Changes in the carrying amount of this right
(other than contributions to and payments from the funds) should be recognised in
profit or loss.
When a contributor has an obligation to make potential additional contributions to the
fund, that obligation is a contingent liability within the scope of IAS 37. When it
becomes probable that the additional contributions will be made, a provision should
be recognised.
IFRIC 5 amends IAS 39 to exclude from its scope rights to reimbursement for expenditure
required to settle a liability recognised as a provision. Such rights will be accounted for in
accordance with IAS 37.
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