- 6 Marks
CR – Nov 2023 – L3 – Q2b – IAS 37: Provisions, Contingent Liabilities and Contingent Assets
Advice on the depreciation adjustment and decommissioning cost for a plant in the books of Odehyieba Plc, including financial statement impacts.
Question
entity has decided to reduce the remaining useful life of the plant by 5 years. For the current year ended 30 April 2023, no entry has been made for depreciation on the plant, neither has there been any adjustments to decommissioning cost.
| Item | Amount (GH¢) |
|---|---|
| Carrying value of the plant | 6,000,000 |
| Remaining useful life | 11 years |
| Revaluation surplus | 960,000 |
| Provision for decommissioning | 1,600,000 |
There is no change in the expected decommissioning cost except for the timing due to the change in useful life. The applicable discount rate is 11% per annum. Odehyieba Plc has a policy of transferring revaluation surplus to retained earnings only upon disposal.
Required:
Advise on the appropriate financial reporting treatment for the above in the books of Odehyieba Plc in the 2023 financial statements for the year ended 30 April 2023. (6 marks)
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