Accounting guidance notes
Accounting guidance notes are intended for use by Australian Government reporting entities covered by:
S49 of the Financial Management and Accountability Act 1997; or
Clause 2 of Schedule 1, of the Commonwealth Authorities and Companies Act 1997.
The aim of the accounting guidance notes is to provide non-mandatory explanation and examples relating to the interpretation and application of Australian Accounting Standards and the Finance Minister’s Orders to the above entities.
Accounting for Decommissioning, Restoration and Similar Provisions (‘Make Good’)
Purpose
To provide guidance on the accounting and disclosure requirements for initial recognition of make good provisions and subsequent changes made to them.
Target audience
This guidance note applies to Australian Government entities which have obligations to dismantle, remove and restore items of property, plant and equipment.
Applicable accounting pronouncements
AASB 116 Property, Plant and Equipment;
AASB 137 Provisions, Contingent Liabilities and Contingent Assets; and
AASB Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities.
Legislative requirements
Divisions 33 Valuation of Non-Financial Assets and 42 Provisions of the Finance Minister’s Orders (FMOs).
Definitions used
A list of relevant definitions is located at Appendix 2.
Key points
1. Many agencies have obligations to dismantle, remove and restore items of property, plant and equipment (often referred to as ‘make good’). For example, agencies which lease premises may be required to restore the premises to its original condition at the conclusion of the lease.
2. Accounting standards require these obligations to be recorded as liabilities in certain circumstances, as set out in this note. They are also required to be recorded as liabilities for budget purposes (see budget implications) although funding would not normally be provided to agencies until such time as payments are required to be made.
Initial recognition and measurement of provision
3. AASB 116 requires the cost of an item of property, plant and equipment to include an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period (AASB 116.16(c)).
Cost of an item of property, plant and equipment includes (AASB 116.16):
Purchase price
(inc. duties & taxes)
Directly attributable costs
(see AASB 116.17)
Initial estimate of costs of make good
Practical Guidance
→ The following journal illustrates the initial recognition of an asset and the associated provision for make good.
Dr. Property, Plant and Equipment XX
Cr. Cash XX
Cr. Provision for make good XX
Cr. Expense (directly attributable costs) XX
→ Even though the above journal entry does not separate the make good proportion of the asset, entities may find it useful to show the make good proportion of the asset separately in the asset register/ledger. This will assist entities when applying revaluations and impairment requirements on the separate assets.
4. AASB 137 sets out how the resulting provision for decommissioning and restoration needs to be recognised and measured. An entity will be required to establish a provision for restoration costs only when the following recognition criteria is satisfied:
a. an entity has a present obligation (legal or constructive) as a result of a past event;
b. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
c. a reliable estimate can be made of the amount of the obligation.
If these conditions are not met no provision should be recognised (AASB 137.14).
5. The amount of the provision will be the best estimate of the expenditure required to settle the present obligation at reporting date (AASB 137.36). The provision will be discounted to reflect the present value of the expenditures where the time value of money is material (AASB 137.45).
→ A common method of estimating the expenditure required to settle the obligation is to obtain a reasonable estimate of the expenditure required to make good the asset in the present day (i.e. through quotes/based on past experience in similar situations) and then adjusting this using inflationary measures such as the Consumer Price Index (CPI) or Building Price Indices to obtain the expenditure required in a future reporting period. Where the time value of money is material the provision will be discounted to reflect the present value of the expenditures (i.e. using the government bond rate).
→ Illustrative Example 1 demonstrates the estimation of expenditure required to settle the present obligation at reporting date.
6. The provision shall be reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed (AASB 137.59).
Changes in the measurement of an existing provision
Unwinding of the discount
7. The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs; it cannot be capitalised (Interpretation 1.8). The unwinding of the provision should be recognised before revising the provision at year end.
$31,046
$34,151
$50,000
$41,322
$37,566
$45,455
Practical Guidance
→ Consider a situation where you are required to pay ABC $50,000 in 5 years time and a 10% discount rate applies. The present value of the $50,000 in today’s terms would only be worth $31,046 (i.e. if you were to invest at a rate of 10%, the $31,046 would be worth $50,000 in 5 years time).
The unwinding of the discount effectively increases the provision each year to reflect the passage of time. As in the above example, after one year has passed the entity must recognise that the $31,046 would no longer be sufficient to settle the $50,000 liability in 4 years time. The value of the $50,000 after one year would be worth $34,151 (i.e. if you were to invest at a rate of 10%, the $34,151 would be worth $50,000 in 4 years time).
Therefore the entity must increase the provision by $3,105 (the difference between $34,151 and $31,046).
→ Also see Illustrative examples 1 & 2.
Change in provision resulting from other changes
8. Other changes in the measurement of an existing decommissioning, restoration and similar liability result from changes in:
a. the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation; or
b. the discount rate. (Interpretation 1.4)
9. Accounting for changes in the measurement of the existing provision is dependent on the measurement of the related asset subsequent to initial recognition (cost model or revaluation model).
10. Except otherwise required the FMOs require not-for-profit entities to measure property, plant and equipment using the revaluation model (with the exception of specialist military equipment), while for-profit entities and universities may apply either the cost or revaluation model (FMOs section 33.7).
Cost Model
11. Under the cost model, an asset is initially measured at cost and subsequently carried at cost less accumulated depreciation and impairment losses. A subsequent increase (decrease) in the associated make good provision is added to (deducted from) the cost of the related asset in the current period.
Cost Model – increase in provision
12. Similar to the initial recognition of the make good provision, an increase in the provision leads to an increase in the cost of the related asset, as demonstrated below.
Practical Guidance
→ Dr. Property, Plant and Equipment XX
Cr. Provision for make good XX
13. The increase in the cost of the asset may be an indicator that the asset may not be fully recoverable. If it is such an indication, the entity would be required to test for impairment in accordance with AASB 136 Impairment of Assets.
Practical Guidance
→ An asset is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount of the asset is the higher of its fair value less costs to sell and its value in use. For more information on impairment please see AASB 136 Impairment of Assets.
Cost Model – decrease in provision
14. A decrease in the provision leads to a reduction in the cost of the related asset. The amount of the reduction is not permitted to exceed the carrying amount of the asset. Any excess over the carrying value is taken immediately to profit or loss.
Practical Guidance
→ The following journal illustrates a decrease in the provision for make good:
Dr. Provision for make good XX
Cr. Property, Plant and Equipment XX
The deduction is not allowed to exceed the carrying amount of the asset. Take for example an entity which has revised its initial estimate of make good provision downwards by $75,000. The related asset cost $600,000 on initial recognition and as it is nearing its useful life, has accumulated depreciation of $550,000. As the amount of the deduction ($75,000) would exceed the carrying amount of the asset ($50,000), the entity will deduct $50,000 from the asset, and the excess $25,000 would be recognised in profit or loss.
→ Also see AASB Interpretation 1 - Illustrative Example 1, which illustrates a decrease in a decommissioning provision under the cost model.
Revaluation Model
15. Under the revaluation model, an asset is initially measured at cost and subsequently carried at fair value less any subsequent accumulated depreciation and impairment losses.
Practical Guidance
→ When revaluing assets for which there is a related make good provision it is important to understand whether the asset is valued on a ‘gross’ or ‘net’ basis.
If the asset is valued on a ‘gross’ basis, this means that the value of the asset has been determined without deducting any allowance for decommissioning costs. Where the asset is valued on a ‘net’ basis the value of the asset will be determined after deducting an allowance for decommissioning costs.
→ For more information see AASB Interpretation 1 Illustrative example 2.
16. Not-for-profit entities apply revaluations to a class of asset. Revaluation increases and decreases relating to individual assets within a class are allowed to be offset against one another within that class (i.e. net revaluation increase/decrease), but should not be offset by revaluations in different classes.
Practical Guidance
→ Take for example, two motor vehicles (A and B) owned by an entity under the PPE class of ‘motor vehicles’. At the end of the reporting period vehicle A is revalued downwards by $2,000, while vehicle B is revalued upwards by $3,000. As these items are in the same class of asset these revaluations can be offset, resulting in a net revaluation increase of $1,000 ($3,000-$2,000).
17. To understand changes in make good provisions under the revaluation model, it is first important to understand the treatment of previous asset revaluations, and the balance of the asset revaluation reserve. These are discussed below.
18. An increase in the carrying amount of an asset due to a revaluation must be taken to the asset revaluation reserve unless the increase reverses a previous decrease of the same asset that was previously recognised in profit or loss.
Practical Guidance
→ The following journal illustrates an increase in the carrying amount of an asset where there have been no previous revaluation decrements recognised in profit or loss:
Dr. Property Plant and Equipment XX
Cr. Asset Revaluation Reserve XX
→ The journal below illustrates an increase in the carrying amount of an asset where there has been a previous revaluation decrease recognised in profit or loss.
Dr. Property Plant and Equipment XX
Cr. Revaluation Expense XX
Cr. Asset Revaluation Reserve (excess, if any) XX
For example, an entity owns an item of PPE with an initial carrying amount of $200,000. In the previous year the asset was subject to a downwards revaluation of $20,000, which was recognised in profit or loss in that period. The entity now revalues the asset upwards by $35,000. The entity is therefore required to ‘reverse’ the previous decrement recognised in profit or loss and any excess above that amount in the revaluation reserve:
Dr. Property Plant and Equipment 35,000
Cr. Revaluation Expense 20,000
Cr. Asset Revaluation Reserve (excess) 15,000
19. A decrease in the carrying amount of an asset will be recognised in profit or loss. The decrease will be debited directly to the revaluation reserve to the extent of any credit balance existing in the respect of that asset.
→Practical Guidance
The following journal illustrates a decrease in the carrying amount of an asset where there is no existing balance in the asset revaluation reserve.
Dr. Revaluation Expense XX
Cr. Property Plant and Equipment XX
→ The journal below illustrates a decrease in the carrying amount of an asset where there is an existing balance in the asset revaluation reserve relating to that asset:.
Dr. Asset Revaluation Reserve XX
Dr. Revaluation Expense (excess, if any) XX
Cr. Property Plant and Equipment XX
Revaluation Model – Changes in the provision
20. Changes in make good provisions under the revaluation model are the reverse of revaluations of the related asset, the only difference being the account affected (asset or provision).
21. An increase in the provision for make good (similar to a revaluation decrease of the related asset) is recognised in profit or loss, except that it should be debited directly to the revaluation reserve to the extent of any credit balance existing in respect of the related asset.
→Practical Guidance
The following journal illustrates an increase in the provision for make good where there is no existing balance in the asset revaluation reserve in respect of the related asset.
Dr. Revaluation Expense XX
Cr. Provision for make good XX
→ The journal below illustrates an increase in the provision for make good where there is an existing balance in the asset revaluation reserve in respect of the related asset.
Dr. Asset Revaluation Reserve XX
Dr. Revaluation Expense (excess, if any) XX
Cr. Provision for make good XX
22. A decrease in the provision for make good (similar to a revaluation increase of the related asset) is taken to the asset revaluation reserve unless the decrease reverses a previous revaluation decrease of the related asset that was previously recognised in profit or loss. This is subject to paragraph 23 below.
→ The following journal illustrates a decrease in the provision for make good where there have been no previous revaluation decrements of the related asset recognised in profit or loss:
Dr. Provision for make good XX
Cr. Asset Revaluation Reserve XX
→ The journal below illustrates an decrease in the provision for make good where there has been a previous revaluation decrease in the related asset recognised in profit or loss.
Dr. Provision for make good XX
Cr. Reversal of previous asset write down (income: gain) XX
Cr. Asset Revaluation Reserve (excess, if any) XX
23. If the decreases in the provision exceeds the amount that the asset would have been carried under the cost model (i.e. its depreciated cost), the excess is taken to profit or loss. This means that the maximum an asset can be reduced is the same under the cost model and the revaluation model.
24. As with the cost model, changes in the provision may be an indication that the asset (both the related asset and make good asset) may need to be revalued to ensure its carrying amount does not differ materially from its fair value at the reporting date (Interpretation 1.6c).
25. Consistent with the revaluation model requirements (para. 18-19), not-for-profit entities shall account for increases and decreases in make good provisions in relation to the class of asset and are permitted to offset these changes within the class (Interpretation 1 Aus6.1).
Accounting guidance notes are intended for use by Australian Government reporting entities covered by:
S49 of the Financial Management and Accountability Act 1997; or
Clause 2 of Schedule 1, of the Commonwealth Authorities and Companies Act 1997.
The aim of the accounting guidance notes is to provide non-mandatory explanation and examples relating to the interpretation and application of Australian Accounting Standards and the Finance Minister’s Orders to the above entities.
Accounting for Decommissioning, Restoration and Similar Provisions (‘Make Good’)
Purpose
To provide guidance on the accounting and disclosure requirements for initial recognition of make good provisions and subsequent changes made to them.
Target audience
This guidance note applies to Australian Government entities which have obligations to dismantle, remove and restore items of property, plant and equipment.
Applicable accounting pronouncements
AASB 116 Property, Plant and Equipment;
AASB 137 Provisions, Contingent Liabilities and Contingent Assets; and
AASB Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities.
Legislative requirements
Divisions 33 Valuation of Non-Financial Assets and 42 Provisions of the Finance Minister’s Orders (FMOs).
Definitions used
A list of relevant definitions is located at Appendix 2.
Key points
1. Many agencies have obligations to dismantle, remove and restore items of property, plant and equipment (often referred to as ‘make good’). For example, agencies which lease premises may be required to restore the premises to its original condition at the conclusion of the lease.
2. Accounting standards require these obligations to be recorded as liabilities in certain circumstances, as set out in this note. They are also required to be recorded as liabilities for budget purposes (see budget implications) although funding would not normally be provided to agencies until such time as payments are required to be made.
Initial recognition and measurement of provision
3. AASB 116 requires the cost of an item of property, plant and equipment to include an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period (AASB 116.16(c)).
Cost of an item of property, plant and equipment includes (AASB 116.16):
Purchase price
(inc. duties & taxes)
Directly attributable costs
(see AASB 116.17)
Initial estimate of costs of make good
Practical Guidance
→ The following journal illustrates the initial recognition of an asset and the associated provision for make good.
Dr. Property, Plant and Equipment XX
Cr. Cash XX
Cr. Provision for make good XX
Cr. Expense (directly attributable costs) XX
→ Even though the above journal entry does not separate the make good proportion of the asset, entities may find it useful to show the make good proportion of the asset separately in the asset register/ledger. This will assist entities when applying revaluations and impairment requirements on the separate assets.
4. AASB 137 sets out how the resulting provision for decommissioning and restoration needs to be recognised and measured. An entity will be required to establish a provision for restoration costs only when the following recognition criteria is satisfied:
a. an entity has a present obligation (legal or constructive) as a result of a past event;
b. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
c. a reliable estimate can be made of the amount of the obligation.
If these conditions are not met no provision should be recognised (AASB 137.14).
5. The amount of the provision will be the best estimate of the expenditure required to settle the present obligation at reporting date (AASB 137.36). The provision will be discounted to reflect the present value of the expenditures where the time value of money is material (AASB 137.45).
→ A common method of estimating the expenditure required to settle the obligation is to obtain a reasonable estimate of the expenditure required to make good the asset in the present day (i.e. through quotes/based on past experience in similar situations) and then adjusting this using inflationary measures such as the Consumer Price Index (CPI) or Building Price Indices to obtain the expenditure required in a future reporting period. Where the time value of money is material the provision will be discounted to reflect the present value of the expenditures (i.e. using the government bond rate).
→ Illustrative Example 1 demonstrates the estimation of expenditure required to settle the present obligation at reporting date.
6. The provision shall be reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed (AASB 137.59).
Changes in the measurement of an existing provision
Unwinding of the discount
7. The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs; it cannot be capitalised (Interpretation 1.8). The unwinding of the provision should be recognised before revising the provision at year end.
$31,046
$34,151
$50,000
$41,322
$37,566
$45,455
Practical Guidance
→ Consider a situation where you are required to pay ABC $50,000 in 5 years time and a 10% discount rate applies. The present value of the $50,000 in today’s terms would only be worth $31,046 (i.e. if you were to invest at a rate of 10%, the $31,046 would be worth $50,000 in 5 years time).
The unwinding of the discount effectively increases the provision each year to reflect the passage of time. As in the above example, after one year has passed the entity must recognise that the $31,046 would no longer be sufficient to settle the $50,000 liability in 4 years time. The value of the $50,000 after one year would be worth $34,151 (i.e. if you were to invest at a rate of 10%, the $34,151 would be worth $50,000 in 4 years time).
Therefore the entity must increase the provision by $3,105 (the difference between $34,151 and $31,046).
→ Also see Illustrative examples 1 & 2.
Change in provision resulting from other changes
8. Other changes in the measurement of an existing decommissioning, restoration and similar liability result from changes in:
a. the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation; or
b. the discount rate. (Interpretation 1.4)
9. Accounting for changes in the measurement of the existing provision is dependent on the measurement of the related asset subsequent to initial recognition (cost model or revaluation model).
10. Except otherwise required the FMOs require not-for-profit entities to measure property, plant and equipment using the revaluation model (with the exception of specialist military equipment), while for-profit entities and universities may apply either the cost or revaluation model (FMOs section 33.7).
Cost Model
11. Under the cost model, an asset is initially measured at cost and subsequently carried at cost less accumulated depreciation and impairment losses. A subsequent increase (decrease) in the associated make good provision is added to (deducted from) the cost of the related asset in the current period.
Cost Model – increase in provision
12. Similar to the initial recognition of the make good provision, an increase in the provision leads to an increase in the cost of the related asset, as demonstrated below.
Practical Guidance
→ Dr. Property, Plant and Equipment XX
Cr. Provision for make good XX
13. The increase in the cost of the asset may be an indicator that the asset may not be fully recoverable. If it is such an indication, the entity would be required to test for impairment in accordance with AASB 136 Impairment of Assets.
Practical Guidance
→ An asset is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount of the asset is the higher of its fair value less costs to sell and its value in use. For more information on impairment please see AASB 136 Impairment of Assets.
Cost Model – decrease in provision
14. A decrease in the provision leads to a reduction in the cost of the related asset. The amount of the reduction is not permitted to exceed the carrying amount of the asset. Any excess over the carrying value is taken immediately to profit or loss.
Practical Guidance
→ The following journal illustrates a decrease in the provision for make good:
Dr. Provision for make good XX
Cr. Property, Plant and Equipment XX
The deduction is not allowed to exceed the carrying amount of the asset. Take for example an entity which has revised its initial estimate of make good provision downwards by $75,000. The related asset cost $600,000 on initial recognition and as it is nearing its useful life, has accumulated depreciation of $550,000. As the amount of the deduction ($75,000) would exceed the carrying amount of the asset ($50,000), the entity will deduct $50,000 from the asset, and the excess $25,000 would be recognised in profit or loss.
→ Also see AASB Interpretation 1 - Illustrative Example 1, which illustrates a decrease in a decommissioning provision under the cost model.
Revaluation Model
15. Under the revaluation model, an asset is initially measured at cost and subsequently carried at fair value less any subsequent accumulated depreciation and impairment losses.
Practical Guidance
→ When revaluing assets for which there is a related make good provision it is important to understand whether the asset is valued on a ‘gross’ or ‘net’ basis.
If the asset is valued on a ‘gross’ basis, this means that the value of the asset has been determined without deducting any allowance for decommissioning costs. Where the asset is valued on a ‘net’ basis the value of the asset will be determined after deducting an allowance for decommissioning costs.
→ For more information see AASB Interpretation 1 Illustrative example 2.
16. Not-for-profit entities apply revaluations to a class of asset. Revaluation increases and decreases relating to individual assets within a class are allowed to be offset against one another within that class (i.e. net revaluation increase/decrease), but should not be offset by revaluations in different classes.
Practical Guidance
→ Take for example, two motor vehicles (A and B) owned by an entity under the PPE class of ‘motor vehicles’. At the end of the reporting period vehicle A is revalued downwards by $2,000, while vehicle B is revalued upwards by $3,000. As these items are in the same class of asset these revaluations can be offset, resulting in a net revaluation increase of $1,000 ($3,000-$2,000).
17. To understand changes in make good provisions under the revaluation model, it is first important to understand the treatment of previous asset revaluations, and the balance of the asset revaluation reserve. These are discussed below.
18. An increase in the carrying amount of an asset due to a revaluation must be taken to the asset revaluation reserve unless the increase reverses a previous decrease of the same asset that was previously recognised in profit or loss.
Practical Guidance
→ The following journal illustrates an increase in the carrying amount of an asset where there have been no previous revaluation decrements recognised in profit or loss:
Dr. Property Plant and Equipment XX
Cr. Asset Revaluation Reserve XX
→ The journal below illustrates an increase in the carrying amount of an asset where there has been a previous revaluation decrease recognised in profit or loss.
Dr. Property Plant and Equipment XX
Cr. Revaluation Expense XX
Cr. Asset Revaluation Reserve (excess, if any) XX
For example, an entity owns an item of PPE with an initial carrying amount of $200,000. In the previous year the asset was subject to a downwards revaluation of $20,000, which was recognised in profit or loss in that period. The entity now revalues the asset upwards by $35,000. The entity is therefore required to ‘reverse’ the previous decrement recognised in profit or loss and any excess above that amount in the revaluation reserve:
Dr. Property Plant and Equipment 35,000
Cr. Revaluation Expense 20,000
Cr. Asset Revaluation Reserve (excess) 15,000
19. A decrease in the carrying amount of an asset will be recognised in profit or loss. The decrease will be debited directly to the revaluation reserve to the extent of any credit balance existing in the respect of that asset.
→Practical Guidance
The following journal illustrates a decrease in the carrying amount of an asset where there is no existing balance in the asset revaluation reserve.
Dr. Revaluation Expense XX
Cr. Property Plant and Equipment XX
→ The journal below illustrates a decrease in the carrying amount of an asset where there is an existing balance in the asset revaluation reserve relating to that asset:.
Dr. Asset Revaluation Reserve XX
Dr. Revaluation Expense (excess, if any) XX
Cr. Property Plant and Equipment XX
Revaluation Model – Changes in the provision
20. Changes in make good provisions under the revaluation model are the reverse of revaluations of the related asset, the only difference being the account affected (asset or provision).
21. An increase in the provision for make good (similar to a revaluation decrease of the related asset) is recognised in profit or loss, except that it should be debited directly to the revaluation reserve to the extent of any credit balance existing in respect of the related asset.
→Practical Guidance
The following journal illustrates an increase in the provision for make good where there is no existing balance in the asset revaluation reserve in respect of the related asset.
Dr. Revaluation Expense XX
Cr. Provision for make good XX
→ The journal below illustrates an increase in the provision for make good where there is an existing balance in the asset revaluation reserve in respect of the related asset.
Dr. Asset Revaluation Reserve XX
Dr. Revaluation Expense (excess, if any) XX
Cr. Provision for make good XX
22. A decrease in the provision for make good (similar to a revaluation increase of the related asset) is taken to the asset revaluation reserve unless the decrease reverses a previous revaluation decrease of the related asset that was previously recognised in profit or loss. This is subject to paragraph 23 below.
→ The following journal illustrates a decrease in the provision for make good where there have been no previous revaluation decrements of the related asset recognised in profit or loss:
Dr. Provision for make good XX
Cr. Asset Revaluation Reserve XX
→ The journal below illustrates an decrease in the provision for make good where there has been a previous revaluation decrease in the related asset recognised in profit or loss.
Dr. Provision for make good XX
Cr. Reversal of previous asset write down (income: gain) XX
Cr. Asset Revaluation Reserve (excess, if any) XX
23. If the decreases in the provision exceeds the amount that the asset would have been carried under the cost model (i.e. its depreciated cost), the excess is taken to profit or loss. This means that the maximum an asset can be reduced is the same under the cost model and the revaluation model.
24. As with the cost model, changes in the provision may be an indication that the asset (both the related asset and make good asset) may need to be revalued to ensure its carrying amount does not differ materially from its fair value at the reporting date (Interpretation 1.6c).
25. Consistent with the revaluation model requirements (para. 18-19), not-for-profit entities shall account for increases and decreases in make good provisions in relation to the class of asset and are permitted to offset these changes within the class (Interpretation 1 Aus6.1).
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