Kavya Industries Ltd. is a listed company engaged in the manufacture of specialty chemicals. The company has been preparing its financial statements…

(c) As per Ind AS 101, a first-time adopter is required to prepare an opening Ind AS Balance Sheet at the date of transition to Ind AS. Under Ind AS, an obligation to dismantle an asset and restore the site is recognised when the relevant recognition criteria are met. However, Ind AS 101 provides a specific optional exemption to a first-time adopter in relation to certain decommissioning, restoration and similar liabilities. A first-time adopter may elect not to apply the relevant requirements retrospectively. Instead, the liability can be measured at the date of transition in accordance with the prescribed transition mechanism. Therefore, Kavya Industries Ltd. need not simply recognise ₹ 12 crore as a transition liability and debit the entire amount to retained earnings. Since the company has elected to use the Ind AS 101 exemption, the liability is measured at the transition date in accordance with the exemption. The corresponding amount is added to the cost of the related asset, subject to the requirements of the exemption. Accounting consequence At transition, decommissioning liability = ₹ 12 crore A corresponding amount is added to the carrying amount of the related asset, subject to the Ind AS 101 transition requirements. The resulting asset is depreciated over its remaining useful life. Since the remaining useful life is 8 years, annual depreciation attributable to the transition adjustment = ₹ 12 crore ÷ 8 years = ₹ 1.50 crore per year.