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IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and

Environmental Funds

References

IAS 8 Accounting Policies Changes in Accounting Estimates and Errors

IAS 27 Consolidated and Separate Financial Statements

IAS 28 Investments in Associates

IAS 31 Interests In Joint Ventures

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IAS 39 Financial Instruments: Recognition and Measurement

SIC 12 Consolidation Special Purpose Entities

History

IFRIC D4 Decommissioning, Restoration and Environmental Rehabilitation 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

Consolidated and Separate Financial Statements, SIC 12 Consolidation 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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