NZ IFRIC 1

1. The IFRS Foundation grants users of the English language version of IFRS Standards (Users) the permission to reproduce the IFRS Standards for

1. the User’s Professional Use, or

2. private study and education

Professional Use: means use of the English language version of the IFRS Standards in the User’s professional capacity in connection with the business of providing accounting services for the purpose of application of IFRS Standards for preparation of financial statements and/or financial statement analysis to the User’s clients or to the business in which the User is engaged as an accountant.

For the avoidance of doubt, the abovementioned usage does not include any kind of activities that make (commercial) use of the IFRS Standards other than direct or indirect application of IFRS Standards, such as but not limited to commercial seminars, conferences, commercial training or similar events.

2. For any application that falls outside Professional Use, Users shall be obliged to contact the IFRS Foundation for a separate individual licence under terms and conditions to be mutually agreed.

3. Except as otherwise expressly permitted in this notice, Users shall not, without prior written permission of the Foundation have the right to license, sublicense, transmit, transfer, sell, rent, or otherwise distribute any portion of the IFRS Standards to third parties in any form or by any means, whether electronic, mechanical or otherwise either currently known or yet to be invented.

4. Users are not permitted to modify or make alterations, additions or amendments to or create any derivative works, save as otherwise expressly permitted in this notice.

5. Commercial reproduction and use rights are strictly prohibited. For further information please contact the IFRS Foundation at permissions@ifrs.org.

The authoritative text of IFRS Standards is that issued by the International Accounting Standards Board in the English language. Copies may be obtained from the IFRS Foundation’s Publications Department.

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Disclaimer

The authoritative text of the IFRS Standards is reproduced and distributed by the External Reporting Board in respect of their application in New Zealand. The International Accounting Standards Board, the Foundation, the authors and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise.

New Zealand Equivalent to IFRIC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities (NZ IFRIC 1) is set out in paragraphs 1–10.

NZ IFRIC 1 should be read in the context of the IFRIC’s Basis for Conclusions on IFRIC 1 and the Illustrative Examples for IFRIC 1.

Any New Zealand additional material is shown with either “NZ” or “RDR” preceding the paragraph number.

Reduced Disclosure Regime

Tier 2 for-profit entities must comply with all the provisions in NZ IFRIC 1.

New Zealand Equivalent to IFRIC Interpretation 1

Changes in Existing Decommissioning, Restoration and Similar Liabilities

(NZ IFRIC 1)

References

• NZ IFRS 16 Leases
• NZ IAS 1 Presentation of Financial Statements (as revised in 2007)
• NZ IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• NZ IAS 16 Property, Plant and Equipment
• NZ IAS 23 Borrowing Costs
• NZ IAS 36 Impairment of Assets
• NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets

1 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 NZ 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. NZ IAS 37 contains requirements on how to measure decommissioning, restoration and similar liabilities. This Interpretation provides guidance on how to account for the effect of changes in the measurement of existing decommissioning, restoration and similar liabilities.

NZ1.1 This Interpretation applies to Tier 1 and Tier 2 for-profit entities.

2 This Interpretation applies to changes in the measurement of any existing decommissioning, restoration or similar liability that is both:

1. recognised as part of the cost of an item of property, plant and equipment in accordance with NZ IAS 16 or as part of the cost of a right-of-use asset in accordance with NZ IFRS 16; and

2. recognised as a liability in accordance with NZ IAS 37.

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

3 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:

1. a change in the estimated outflow of resources embodying economic benefits (eg cash flows) required to settle the obligation;

2. a change in the current market-based discount rate as defined in paragraph 47 of NZ IAS 37 (this includes changes in the time value of money and the risks specific to the liability); and

3. an increase that reflects the passage of time (also referred to as the unwinding of the discount).

4 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.

5 If the related asset is measured using the cost model:

1. subject to (b), changes in the liability shall be added to, or deducted from, the cost of the related asset in the current period.

2. 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.

3. 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. If it is such an indication, the entity shall test the asset for impairment by estimating its recoverable amount, and shall account for any impairment loss, in accordance with NZ IAS 36.

6 If the related asset is measured using the revaluation model:

1. changes in the liability alter the revaluation surplus or deficit previously recognised on that asset, so that:

   1. 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;

   2. 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.

2. 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.

3. 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.

4. NZ IAS 1 requires disclosure in the statement of comprehensive income of each component of other comprehensive income or expense. In complying with this requirement, the change in the revaluation surplus arising from a change in the liability shall be separately identified and disclosed as such.

7 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 and the revaluation model.

8 The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs. Capitalisation under NZ IAS 23 is not permitted.

9 This Interpretation becomes operative for an entity’s financial statements that cover annual accounting periods beginning on or after 1 January 2007. Early adoption of this Interpretation is permitted only when an entity complies with NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards for an annual accounting period beginning on or after 1 January 2005.

9A NZ IAS 1 (as revised in 2007) amended the terminology used throughout New Zealand equivalents to 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 NZ IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period.

NZ9A.1 Framework: Tier 1 and Tier 2 For-profit Entities, issued in November 2012, amended extant NZ IFRSs by deleting any public benefit entity paragraphs, deleting any differential reporting concessions, adding scope

paragraphs for Tier 1 and Tier 2 for-profit entities and adding disclosure concessions for Tier 2 entities. It made no changes to the requirements for Tier 1 entities. A Tier 2 entity may elect to apply the disclosure concessions for annual periods beginning on or after 1 December 2012. Early application is permitted.

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

10 [Paragraph 10 is not reproduced as the transitional provision of IFRIC 1 is not relevant to this Interpretation.]

BC1–BC33 [Paragraphs BC1–BC33 do not form part of NZ IFRIC 1.]