## Changes in Decommissioning / Dismantling / Site Restoration Provisions
### Background
When a PPE item requires future decommissioning or site restoration, the estimated present value of that cost is:
- Added to the cost of the asset at inception, AND
- A matching Provision for Decommissioning is created simultaneously
When this estimated provision changes subsequently, the treatment depends on the measurement model in use.
---
### Causes of Change in Provision
| Trigger | Example |
|---|---|
| Change in timing | Asset to be decommissioned earlier or later |
| Change in estimated amount | New environmental regulations increase restoration cost |
| Change in discount rate | Risk-free rate shift changes the present value of the obligation |
---
### Treatment Based on Measurement Model
#### Under Cost Model — Adjust Against Asset Cost
| Direction of Change | Journal Entry |
|---|---|
| Provision increases | PPE A/c Dr → To Provision for Decommissioning A/c |
| Provision decreases | Provision for Decommissioning A/c Dr → To PPE A/c |
#### Under Revaluation Model — Adjust Against Revaluation Gain/Loss
| Direction of Change | Journal Entry |
|---|---|
| Provision increases | Revaluation Loss A/c Dr → To Provision for Decommissioning A/c |
| Provision decreases | Provision for Decommissioning A/c Dr → To Revaluation Gain A/c |
---
### Why Not Through P&L?
The decommissioning provision was originally embedded in the asset's cost — changes to that estimate should adjust the same cost base (or its revaluation equivalent), not create immediate P&L volatility.
---
### Quick Reference Summary
| Model | Increase in Provision | Decrease in Provision |
|---|---|---|
| Cost | PPE ↑ | PPE ↓ |
| Revaluation | Revaluation Loss ↑ | Revaluation Gain ↑ |