Start with the asset-specific revaluation history
For an existing decommissioning or restoration liability initially included in the cost of the related PPE and recognised as a liability under Ind AS 37, where that PPE is measured under the revaluation model, Ind AS 16 Appendix A paragraph 6 determines where a change in estimated timing, amount or discount rate is recognised. Do not apply the cost-model journal mechanically. Identify the related asset and keep its revaluation history and hypothetical cost-model carrying amount available.
Read the applicable text: MCA Ind AS 16 Appendix A, paragraphs 4–8.
An increase can consume an existing surplus
Recognise a liability increase in profit or loss except to the extent of the existing credit balance in revaluation surplus for that asset, which is reduced through other comprehensive income (OCI). Do not use a surplus belonging to another asset merely because it is in the same asset class. Reconcile the balance after any necessary revaluation required by paragraph 6(c).
A decrease is subject to two profit-or-loss tests
A decrease generally increases the related surplus through OCI, except to the extent it reverses a revaluation deficit on that asset previously recognised in profit or loss. Additionally, paragraph 6(b) requires immediate profit or loss recognition of any excess over the carrying amount that would have been recognised under the cost model. Maintain a separate benchmark rather than use the current revalued carrying amount. When both tests matter, document the split so the total gain is recognised once.
Review whether the whole class needs revaluation
A liability change can indicate that carrying amount may differ materially from fair value. If revaluation is necessary, revalue the entire class; take that revaluation into account in the profit or loss and OCI split. Identify and disclose the liability-related movement in revaluation surplus separately in the statement of profit and loss as a component of OCI.
Distinguish remeasurement from finance cost
Periodic discount unwinding goes to profit or loss as finance cost under paragraph 8 and is not capitalised under Ind AS 23. Under paragraph 7, subsequent liability changes after the related asset reaches the end of its useful life go to profit or loss. Reconcile the liability movement and any adjusted depreciable amount, preserving the reason for each journal.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Increase with insufficient surplus
The liability increases ₹14 lakh and the related asset has a ₹9 lakh credit in revaluation surplus. Assume no class revaluation is needed. Reduce OCI surplus by ₹9 lakh and recognise a ₹5 lakh loss in profit or loss.
Illustrative example 2: Do not borrow another asset's surplus
An ₹8 lakh liability increase relates to an asset with ₹2 lakh surplus. A different asset has ₹12 lakh surplus. The applicable OCI reduction is ₹2 lakh and the profit or loss charge ₹6 lakh.
Illustrative example 3: Decrease reversing a prior deficit
The liability falls ₹11 lakh, including ₹4 lakh reversing a prior deficit in profit or loss. The cost-model benchmark is ₹20 lakh, so the excess rule does not apply. Credit profit or loss ₹4 lakh and OCI ₹7 lakh.
Illustrative example 4: Decrease above the benchmark
The liability decreases ₹18 lakh and the hypothetical cost-model carrying amount is ₹13 lakh. Assume no prior deficit or required revaluation. Recognise the ₹5 lakh excess in profit or loss and the remaining ₹13 lakh in OCI.
Illustrative example 5: Separate unwinding from a revised estimate
Opening liability is ₹40 lakh, periodic unwinding ₹2 lakh and a separate estimate increase ₹5 lakh. Closing liability is ₹47 lakh before settlement. The ₹2 lakh is finance cost; if asset surplus is ₹3 lakh, the remeasurement splits ₹3 lakh to OCI and ₹2 lakh to profit or loss.
Illustrative example 6: Asset has reached the end of its life
The asset's useful life has ended and the liability falls from ₹22 lakh to ₹17 lakh due to new estimates. Recognise a ₹5 lakh gain in profit or loss under paragraph 7, separate from any unwinding.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the related PPE | Asset ID and restoration obligation link |
| 2 | Confirm the subsequent measurement model | Accounting policy and ledger |
| 3 | Recompute liability before and after change | Cash flows, dates and rates |
| 4 | Separate unwinding from remeasurement | Provision roll-forward |
| 5 | Reconcile asset-specific surplus and deficit | Equity and profit history |
| 6 | Build the hypothetical cost-model amount | Historical cost and depreciation working |
| 7 | Assess need for class revaluation | Fair-value evidence and class register |
| 8 | Calculate the OCI and profit split | Paragraph 6 and 7 working |
| 9 | Review depreciation and reporting | Asset schedule and OCI disclosure |
| 10 | Tie journals and closing liability | Signed balance reconciliation |
Sixteen practitioner FAQs
1. Does this apply to a cost-model asset?
No. Paragraph 5 provides the separate cost-model treatment.
2. Which liability changes are covered?
Changes in expected amount, timing or discount rate for the existing obligation.
3. Can all liability increases be charged to OCI?
Only to the extent of the related asset's credit revaluation surplus.
4. Can another machine's surplus be used?
No. Trace the credit balance to the relevant asset.
5. When can a decrease affect profit or loss?
For reversal of the relevant prior profit or loss deficit, the benchmark excess and other applicable paragraph 7 circumstances.
6. Is the benchmark current fair value?
No. It is the carrying amount the cost model would have produced.
7. Why retain the prior deficit ledger?
To establish the portion of a decrease that reverses a deficit previously recognised in profit or loss.
8. Does a liability change always require revaluation?
It is an indicator; assess whether carrying amount may differ materially from fair value.
9. Can only the affected machine be revalued if revaluation is necessary?
Revalue the entire class under paragraph 6(c).
10. Should revaluation and liability journals be reviewed together?
Yes. Any necessary revaluation affects the split under paragraph 6(a).
11. Is discount unwinding part of the remeasurement?
No. It is recognised as finance cost.
12. Can unwinding be capitalised under Ind AS 23?
Appendix A paragraph 8 expressly prevents that.
13. Where do changes go after useful life ends?
Profit or loss as they occur under paragraph 7.
14. Can all OCI movements be bundled in the working?
Identify the liability-related surplus movement separately.
15. Does a liability decrease mean an equivalent cash inflow?
No. It is a change in measurement, not proof of cash movement.
16. What evidence best supports the journal?
Asset-level reserve history, benchmark, liability calculation and any class revaluation.