AASB 137 - Provisions, Contingent Liabilities and Contingent Assets - July 2004
Example 11B Refurbishment Costs — LegislExample 11B Refurbishment Costs — Legislative Requirement
Start here
Get a plain-English read of Example 11B Refurbishment Costs — Legisl
Turn the raw legal text into a practical explanation grounded in AASB 137 - Provisions, Contingent Liabilities and Contingent Assets - July 2004.
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, that is, an amount equivalent to the expected maintenance costs is depreciated over three years.