IAS 16 Generation assets for Power and Utilities

Generation assets for Power and Utilities

– are often large and complex installations. They are expensive to construct, tend to be exposed to harsh operating conditions and require periodic replacement or repair. This environment leads to specific accounting issues.

1 Fixed assets and components

IFRS has a specific requirement for ‘component’ depreciation, as described in IAS 16 Property, Plant and Equipment. Each significant part of an item of property, plant and equipment is depreciated separately. Significant parts of an asset that have similar useful lives and patterns of consumption can be grouped together. This requirement can create complications for utility entities, because many assets include components with a shorter useful life than the asset as a whole.

Identifying components of an asset

Generation assets might comprise a significant number of components, many of which will have differing useful lives. The significant components of these types of assets must be separately identified. This can be a complex process, particularly on transition to IFRS, because the detailed record-keeping needed for componentisation might not have been required in order to comply with national generally accepted accounting principles (GAAP). This can particularly be an issue for older power plants. However, some regulators require detailed asset records, which can be useful for IFRS component identification purposes.

An entity might look to its operating data if the necessary information for components is not readily identified by the accounting records. Some components can be identified by considering the routine shutdown or overhaul schedules for power stations and the associated replacement and maintenance routines. Consideration should also be given to those components that are prone to technological obsolescence, corrosion or wear and tear that is more severe than that of the other portions of the larger asset.

First-time IFRS adopters can benefit from an exemption under IFRS 1 First-time Adoption of International Financial Reporting Standards. This exemption allows entities to use a value that is not depreciated cost in accordance with IAS 16, and IAS 23 Borrowing Costs as deemed cost on transition to IFRS. It is not necessary to apply the exemption to all assets or to a group of assets.

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Natural disasters Decommissioning obligations

Natural disasters Decommissioning obligations arise when an entity is required to dismantle or remove an asset at the end of its useful life and to restore the site on which it has been located, for example, when an oil rig or nuclear power station reaches the end of its economic life. Natural disasters Decommissioning obligations

Natural disasters Decommissioning obligations

Rather than allowing an entity to build up a provision for the required costs over the life of the facility, IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that the liability is recognised as soon as the obligation arises, which will normally be at commencement of operations. Similarly, IAS 16 Property, plant and equipment requires the initial cost of an item of property, plant … Read more

Natural disasters Financial impact overview

Natural disasters Financial impact overview comprises a discussion of items to quantify in table in combination with qualifications to provide a clear as possible picture (without photo shopping the disaster off course). As communities begin the process of recovering from the tragedy of a natural disaster, entities operating in those locations, or providing goods and services in them, raise questions about the related financial reporting effects. This narrative provides a reminder of the existing accounting requirements that should be considered when addressing the financial effects of natural disasters, including:

  • Asset impairments– If an entity determines that the events resulting from a natural disaster have triggered impairment indicators, an impairment test must be performed in accordance with IAS 36
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