Document ID: chunk:federal_register_of_legislation:F2023C00419:body:0:p27
Version: federal_register_of_legislation:F2023C00419
Segment Type: other
Provision Reference: 
Character Range: 69056–71903

obligation as a result of a past obligating event – On the basis of the evidence available, there is a present obligation.
An outflow of resources embodying economic benefits in settlement – Probable.
Conclusion – A provision is recognised for the best estimate of the amount to settle the obligation (paragraphs 14–16).

Example 11  Repairs and maintenance
Some assets require, in addition to routine maintenance, substantial expenditure every few years for major refits or refurbishment and the replacement of major components. AASB 116 Property, Plant and Equipment gives guidance on allocating expenditure on an asset to its component parts where these components have different useful lives or provide benefits in a different pattern.

Example 11A  Refurbishment costs – no legislative requirement
A furnace has a lining that needs to be replaced every five years for technical reasons. At the end of the reporting period, the lining has been in use for three years.
Present obligation as a result of a past obligating event – There is no present obligation.
Conclusion – No provision is recognised (see paragraphs 14 and 17–19).
The cost of replacing the lining is not recognised because, at the end of the reporting period, no obligation to replace the lining exists independently of the company's future actions—even the intention to incur the expenditure depends on the company deciding to continue operating the furnace or to replace the lining. Instead of a provision being recognised, the depreciation of the lining takes account of its consumption, ie it is depreciated over five years. The re-lining costs then incurred are capitalised with the consumption of each new lining shown by depreciation over the subsequent five years.

Example 11B  Refurbishment costs – legislative requirement
An airline is required by law to overhaul its aircraft once every three years.
Present obligation as a result of a past obligating event – There is no present obligation.
Conclusion – No provision is recognised (see paragraphs 14 and 17–19).
The costs of overhauling aircraft are not recognised as a provision for the same reasons as the cost of replacing the lining is not recognised as a provision in example 11A. Even a legal requirement to overhaul does not make the costs of overhaul a liability, because no obligation exists to overhaul the aircraft independently of the entity's future actions—the entity could avoid the future expenditure by its future actions, for example by selling the aircraft. Instead of a provision being recognised, the depreciation of the aircraft takes account of the future incidence of maintenance costs, ie an amount equivalent to the expected maintenance costs is depreciated over three years.

D  Examples: disclosures
Two examples of the disclosures required by paragraph 85 are provided below.

Example