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Accounting for Restoration Obligations (ARO)

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Accounting for Restoration Obligations (ARO)

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Questions and Answers

What is the primary purpose of the policy outlined in the document?

To ensure that all companies within the Group correctly account for the costs associated with decommissioning and restoring assets

When should a provision be recorded for the future restoration costs of assets?

On a reporting period date (interim and year end reporting)

What type of assets should be considered when estimating the future restoration costs?

Both owned and leased assets

What is the term used to describe the estimated period until the restoration cost will be incurred?

The 'ARO period' Signup and view all the answers

What happens when there is a revision to the estimates of the ARO provision?

The impact of the revision on the provision is calculated, and the provision is adjusted accordingly Signup and view all the answers

What are the three criteria that must be met for a provision to be made in relation to an asset?

A lease or other agreement contains a restoration clause, or local regulations require restoration, or historical experience indicates that these costs will be incurred; modification to the related asset has already occurred that would result in an economic outflow to return the asset to its original condition; and an economic outflow in respect of restoration costs is considered probable. Signup and view all the answers

When should a restoration provision be recorded, even if the cash outflow to restore an asset is expected to be incurred in the future?

When the above criteria are met, regardless of the timing of the expected cash outflow. Signup and view all the answers

What type of assets may require restoration costs?

Network infrastructure sites, leased estate assets, and owned assets that require dismantling and disposal at the end of their operational life. Signup and view all the answers

How should the best estimate of restoration costs be adjusted for large portfolios of similar assets?

By multiplying the average restoration costs by the number of assets for which the Group has a restoration obligation, and adjusting for present value (considering discounting and future inflation) where the AROs are expected to be incurred in future periods. Signup and view all the answers

What should restoration provisions capture, and what should they exclude?

Restoration provisions should capture only expected restoration costs and should not include other future costs, such as lease payments when a site is no longer in use. Signup and view all the answers