We operate a power plant and we recognized a provision related to its decommissioning at the end of its useful life.

We remeasure the amount of the provision annually based on updated discount rate and estimated cost report. We apply cost model to our power plant and we recognize a change in the provision in the cost of a powerplant (Debit PPE-power plant / Credit Provision).

This year, however, the discount rate ended up being high which caused a huge decrease in the provision.

As a result, the carrying amount of the power plant became negative, because the decrease of the provision was greater that the carrying amount of the plant.

Should we show the negative net book value in our PPE related to the power plant?


The interpretation IFRIC 1 deals with this issue.

You should never decrease the carrying amount of the asset below zero as a result of a huge decrease in provision.

You can reduce that to zero and than excess should be recognized in profit or loss.

Let’s say your provision decreased by CU 10 000, but the carrying amount of the related power plant is CU 8 000. Your journal entry would be:

  • Debit Provision for decommissioning: CU 10 000

  • Credit PPE – Power plant: CU 8 000

  • Credit Profit or loss: CU 2 000