Appendix to Ind AS 37

Appendix A

Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

  • The purpose of decommissioning, restoration and environmental rehabilitation funds, hereafter referred to as ‘decommissioning funds’ or ‘funds’, is to segregate assets to fund some or all of the costs of decommissioning plant (such as a nuclear plant) or certain equipment (such as cars), or in undertaking environmental rehabilitation (such as rectifying pollution of water or restoring mined land), together referred to as ‘decommissioning’
  • Contributions to these funds may be voluntary or required by regulation or law
  • It provides guidance on
  • how a contributor accounts for its interest in a fund and
  • when a contributor has an obligation to make additional contributions (for example, in the event of the bankruptcy of another contributor)
  • The Appendix prescribes that the contributor shall recognize its obligation to pay decommissioning costs as a liability and recognize its interest in the fund separately unless the contributor is not liable to pay decommissioning costs even if the fund fails to pay.

  • When a contributor has an obligation to make potential additional contributions, this obligation is a contingent liability that is within the scope of Ind AS 37
  • The contributor shall recognize a liability only if it is probable that additional contributions will be made

Appendix B:

Liabilities arising from Participating in a Specific Market— Waste Electrical and Electronic Equipment

  • It provides guidance on the recognition, in the financial statements of producers, of liabilities for waste management under the European Union’s Directive on Waste Electrical and Electronic Equipment (WE&EE), in respect of sales of historical household equipment
  • This Appendix addresses neither new waste nor historical waste from sources other than private households
  • The European Union’s Directive on Waste Electrical and Electronic Equipment (WE&EE), which regulates the collection, treatment, recovery and environmentally sound disposal of waste equipment, has given rise to questions about when the liability for the decommissioning of WE&EE should be recognised
  • The Directive distinguishes between ‘new’ and ‘historical’ waste and between waste from private households and waste from sources other than private households. New waste relates to products sold after 13 August 2005
  • All household equipment sold before that date is deemed to give rise to historical waste for the purposes of the Directive
  • The Directive states that the cost of waste management for historical household equipment should be borne by producers of that type of equipment that are in the market during a period to be specified in the applicable legislation of each Member State (the measurement period)
  • The Directive states that each Member State shall establish a mechanism to have producers contribute to costs proportionately ‘e.g. in proportion to their respective share of the market by type of equipment

Accounting Principle

  • Participation in the market during the measurement period is the obligating event in accordance with paragraph 14(a) of Ind AS 37
  • As a consequence, a liability for waste management costs for historical household equipment does not arise as the products are manufactured or sold
  • Because the obligation for historical household equipment is linked to participation in the market during the measurement period, rather than to production or sale of the items to be disposed of, there is no obligation unless and until a market share exists during the measurement period
  • The timing of the obligating event may also be independent of the particular period in which the activities to perform the waste management are undertaken and the related costs incurred

Appendix C: Levies

  • It addresses the accounting for a liability to pay a levy if that liability is within the scope of Ind AS 37
  • It also addresses the accounting for a liability to pay a levy whose timing and amount is certain
  • It prescribes that obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation
  • For example, if the activity that triggers the payment of the levy is the generation of revenue in the current period and the calculation of that levy is based on the revenue that was generated in a previous period, the obligating event for that levy is the generation of revenue in the current period
  • If the levy is subject to a minimum threshold, recognition of a levy liability occurs only at the point the minimum threshold is reached, and not before
  • This Appendix does not address the accounting for the costs that arise from recognizing a liability to pay a levy
  • Entities should apply other Standards to decide whether the recognition of a liability to pay a levy gives rise to an asset or an expense
  • An entity shall apply the same recognition principles in the interim financial report that it applies in the annual financial statements
  • As a result, in the interim financial report, a liability to pay a levy
  • shall not be recognized if there is no present obligation to pay the levy at the end of the interim reporting period; and
  • shall be recognized if a present obligation to pay the levy exists at the end of the interim reporting period

Example:

An entity with a calendar year end generates revenues in a specific market in 2018. The amount of the levy is determined by reference to revenues generated by the entity in the market in 2017 although the levy is only payable when revenues are generated in 2018.

The entity generated revenues in the market in 2017 and starts to generate revenues in the market in 2018 on 3 January 2018. In this example, the liability is recognized in full on 3 January 2018 because the obligating event, as identified by the legislation, is the first generation of revenues in 2018.

The generation of revenues in 2017 is necessary, but not sufficient, to create a present obligation to pay a levy. Before 3 January 2018, the entity has no obligation.

In other words, the activity that triggers the payment of the levy as identified by the legislation is the first generation of revenues at a point in time in 2018. The generation of revenues in 2017 is not the activity that triggers the payment of the levy. The amount of revenues generated in 2017 only affects the measurement of the liability.

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