Missing information about long-term property at IFRS adoption – what to do?

Question

We are a state-owned company and we are in the process of adopting IFRS. IFRS 1 First-time Adoption of International Financial Reporting Standards requires applying IAS 16 to our fixed asset as if it has always been applied.

This is impossible, because we own a lot of assets (buildings and machines) that were either given to us in the past and most of old accounting records are not available anymore.

What shall we do?
 

Answer

No worries, you don’t have to search your junk-room and look for the ancient papers. IFRS 1 permits a few exemptions and this is one of them.

Instead of recalculating a carrying amount of your property using non-existent data, you can use so-called “deemed cost”. It is NOT true IFRS compliant, but still OK as a surrogate.

You can use fair value or revaluation at the date of transition as your deemed cost. Now, you cannot use the fair value or revaluation for all assets, just for the following:

• Property, plant and equipment;
• Investment property where cost model is used;
• Right-of-use assets under IFRS 16 Leases and
• Intangible assets if they meet recognition criteria and criteria for revaluation (existence of an active market).

You can apply this exemption on asset-by-asset basis, no need to apply for the entire class of assets.

I recommend selecting the items for using fair value as your deemed cost carefully and then trying to set their fair value in accordance with IFRS 13 Fair Value Measurement. You can hire an external valuator, just as an example. Please see IFRS 1 D5, D6 for more info.