Canadian Provision For Asset Retirement Obligations (Doc ID 2940694.1)

Last updated on APRIL 06, 2023

Applies to:

Goal

The Canadian accounting standards have recently changed. There is now a new accounting policy that requires companies to take a provision for asset retirement obligation. For example, let's say that there is a hazardous material in a capitalized building and that the company plans to occupy the fully depreciated building for another 10 years as at time of writing. The cost of removing the hazardous material in 10 years prior to selling the building is estimated CAD 50,000.

The new policy requires the company to take a provision for that and slowly increase over the expected 10 years of occupancy until CAD 50,000 has been accrued in 10 years. The removal cost must also be shown in current value for reporting purposes throughout the time span.

Solution

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