Start from the existing provision and related asset
For a restoration liability recognised under Ind AS 37 and included in the cost of related property, plant and equipment measured using the cost model, use Ind AS 16 Appendix A to account for a subsequent change. A revised estimate generally changes the asset while it is within its useful life. A downward adjustment cannot reduce the asset below zero; excess goes immediately to profit or loss. Recognise the periodic unwinding of the discount as a finance cost in profit or loss.
Read the applicable text: ICAI Ind AS 16, Appendix A, paragraphs 2–8.
Separate the provision movements before posting
Roll forward the liability from its opening amount through settlement, discount unwinding, and changes in estimated outflows, settlement timing or the discount rate. Under Ind AS 37, discount where the time value of money is material. Use a pre-tax rate reflecting current market assessments and liability-specific risks, without counting risks already reflected in the cash flows. Appendix A paragraphs 4 and 5 deal with estimate changes. Paragraph 8 puts periodic unwinding in profit or loss as a finance cost and excludes capitalisation under Ind AS 23. An increase caused solely by time therefore does not raise the cost of the related asset: debit finance cost and credit the provision.
Post cost model increases and decreases
For an increase due to a revised estimate, debit the related asset cost and credit the provision while the asset is within its useful life. Consider whether the increase indicates that the revised carrying amount might be unrecoverable and test under Ind AS 36 when it does. For a decrease, debit the provision and credit the asset to the extent of its carrying amount. Credit any excess to profit or loss immediately.
Refresh depreciation at the measurement date
After the adjustment, update depreciation using the revised depreciable amount over the remaining useful life. Determine carrying amount at the adjustment date and record any depreciation to that date in the normal way. Do not reconstruct depreciation for closed periods solely because a current estimate changed. Under paragraph 7, when the asset has reached the end of its useful life, subsequent changes in the liability go to profit or loss.
Keep the closing evidence tied to the asset
Link the legal or constructive obligation, engineering assumptions, discount calculation and liability movement to the specific fixed asset record. Reconcile the approved journal to provision, PPE, impairment and finance cost balances separately. This guide illustrates the cost model for PPE. Apply paragraph 6 separately to revalued assets. Appendix A also covers qualifying liabilities included in the cost of a right-of-use asset under Ind AS 116; this guide’s journals illustrate PPE only. Assess initial recognition, inventory-related obligations and fund interests on their own facts.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Increase and prospective depreciation
At the start of a year a machine has carrying amount ₹42,00,000, nil residual value and six remaining years. An estimate increase of ₹6,00,000 takes the carrying amount to ₹48,00,000. If recoverable and assumptions are otherwise unchanged, annual straight-line depreciation is ₹8,00,000, up from ₹7,00,000.
Illustrative example 2: Decrease below carrying amount
A plant has carrying amount ₹18,00,000 and a provision of ₹22,00,000 before remeasurement. Revised liability is ₹17,00,000. Debit the provision and credit the asset by ₹5,00,000. Revised asset carrying amount is ₹13,00,000.
Illustrative example 3: Decrease beyond asset floor
A related asset has carrying amount ₹4,00,000 and the provision falls by ₹7,00,000. Debit the provision by ₹7,00,000, credit the asset by ₹4,00,000 and recognise a ₹3,00,000 gain in profit or loss. Asset carrying amount becomes nil.
Illustrative example 4: Separate unwind and estimate change
An opening ₹20,00,000 provision grows by a stipulated 6% for the year's time passage and is then remeasured to ₹24,00,000. Unwinding is ₹1,20,000 in finance cost; the separate upward estimate change is ₹2,80,000, added to the asset if the paragraph 5 facts apply.
Illustrative example 5: End of useful life
The asset has reached the end of its useful life. The measured obligation rises from ₹11,50,000 to ₹13,00,000 from a change in estimated cleanup scope, apart from any unwind. The ₹1,50,000 change goes to profit or loss; the asset receives no adjustment.
Illustrative example 6: Impairment test after addition
An asset carried at ₹30,00,000 receives a ₹9,00,000 increase from remeasurement. There is an impairment indication and the stipulated recoverable amount under Ind AS 36 is ₹34,00,000. Assume the asset can be tested individually. The ₹39,00,000 revised carrying amount produces a ₹5,00,000 impairment loss in profit or loss, leaving ₹34,00,000. Use that post-impairment carrying amount when updating depreciation.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Verify the existing obligation and asset link | Provision memo and PPE identifier. |
| 2 | Confirm cost model classification | Fixed asset policy and class records. |
| 3 | Reconcile opening provision and settlements | Prior close and approved payment evidence. |
| 4 | Isolate discount unwinding | Time-passage calculation and finance cost journal. |
| 5 | Recalculate the revised provision | Cash flows, timing and discount assumption approval. |
| 6 | Identify the asset carrying amount at adjustment date | Register and depreciation cut-off. |
| 7 | Test floor and useful-life status | Asset carrying amount and expected service period. |
| 8 | Assess recoverability after cost increase | Impairment indicators and test where required. |
| 9 | Update the depreciation schedule | Revised depreciable amount and remaining life. |
| 10 | Reconcile the signed close file | Provision, PPE, profit or loss and journal references. |
Sixteen practitioner FAQs
1. Does Appendix A set up the initial provision?
It deals with subsequent changes to an existing qualifying liability. Initial recognition and measurement are separate.
2. Which changes are estimate movements?
Changes to expected amount, settlement timing or the applicable discount rate.
3. Is discount unwinding also a change in discount rate?
No. Unwinding is the effect of the passage of time at the applicable rate.
4. Can the unwind be included in borrowing costs capitalised under Ind AS 23?
No. Appendix A paragraph 8 expressly excludes capitalisation.
5. What does an estimate increase usually debit?
The related cost-model asset within its useful life, subject to the applicable impairment review.
6. Can a downward change make the asset negative?
No. Credit profit or loss for the decrease exceeding its carrying amount.
7. Which carrying amount should I use for the cap?
Use the related asset's carrying amount at the adjustment date before the reduction.
8. Does any increase mean an automatic impairment loss?
No. Consider the indication and test recoverability when indicated.
9. Do I adjust prior years of depreciation?
A current remeasurement normally changes the remaining depreciation prospectively.
10. What if the residual value is not zero?
Deduct the applicable residual value in determining the revised depreciable amount.
11. What if the asset has reached the end of its useful life?
Subsequent changes in the liability go to profit or loss under paragraph 7.
12. Is a payment to a contractor an estimate change?
An actual settlement is a separate movement; identify any remaining revision separately.
13. Can I use the cost model journal for a revalued asset?
Apply paragraph 6 for the revaluation model.
14. Is a fund reimbursement netted into the liability before this calculation?
Where the entity remains liable for the full obligation, measure that liability separately. Apply the relevant reimbursement or fund accounting requirements to any separate asset; do not reduce the provision by a fund balance.
15. Can one journal cover many sites without a schedule?
Maintain a site-to-asset mapping so reviewers can check each adjustment and the carrying amount cap.
16. What evidence should support a revised scope?
Current obligation terms, engineering estimates, forecast settlement timing, and approved measurement assumptions.
Official sources
ICAI Ind AS 36, impairment and revised depreciation; ICAI Ind AS 37, discounting and reimbursements; ICAI Ind AS 16, Appendix A, paragraphs 2–8