ExpertACCA · Question 05 · Provisions, Contingent Liabilities and Contingent Assets
Section A
Oceanic Drillers, a cross-border multinational, has a decommissioning provision for an offshore rig. At 1 January 20X5, the provision was $800,000, based on a discount rate of 5%. During 20X5, the unwinding of the discount was recorded. On 31 December 20X5, due to rising interest rates, the appropriate discount rate increased to 7%, reducing the present value of the obligation by $60,000. How should this $60,000 decrease be accounted for, assuming the related asset is measured under the cost model?
Section A
Oceanic Drillers, a cross-border multinational, has a decommissioning provision for an offshore rig. At 1 January 20X5, the provision was $800,000, based on a discount rate of 5%. During 20X5, the unwinding of the discount was recorded. On 31 December 20X5, due to rising interest rates, the appropriate discount rate increased to 7%, reducing the present value of the obligation by $60,000. How should this $60,000 decrease be accounted for, assuming the related asset is measured under the cost model?
Answer options:
Recognized immediately in profit or loss as finance income
Recognized in other comprehensive income
Deducted from the cost of the related asset
Ignored until the decommissioning actually occurs
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