IFRIC 1

[samuel3818]

My client is an oil and gas company that is in a production sharing contract (PSC).

Due to the nature of the operations of my client, there is a legal obligation to decommission its producing assets at the end of their lives.

Recently, there was a renewal of the lease period of its producing licence, which led to a revision of the end of field life of the assets. A revision was done to the decommissioning liability at the end of the year 2022. The extension of the end of field life has led to a reduction in the ARO liability at the end of the period.

In line with the requirements of IFRIC 1 - Changes in existing decommissioning, restoration and similar liabilities, the change in the end of field life has been treated as a change in the estimated timing of the outflow of economic resources. My client uses the cost model for its PPE, and as required by IFRIC 1, the reduction in the liability has been deducted from the cost of the asset. However, the NBV of the related assets is below the total deduction required, implying that the excess needs to be recognised in profit or loss.

As IFRIC 1 is silent on which line in profit or loss to post the excess to, we would like to find out where the excess should be recognised in profit or loss

[JRSB]

Often IFRS doesn't mandate the P&L line items to use so you just need to say in the accounting policy where it goes (and why)