Question 1

**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?

Accepted Answer

Recall IFRIC 1 rules for changes in decommissioning liabilities. If the asset uses the cost model, changes in the liability adjust the asset's carrying amount.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Assuming that because the unwinding of the discount goes to P&L (finance cost), a change in the discount rate also goes directly to P&L.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 2

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