Last update 07/08/2019
An amount used as a surrogate for cost or depreciated cost at a given date. Subsequent depreciation or amortisation assumes that the entity had initially recognised the asset or liability at the given date and that its cost was equal to the deemed cost.
To put it short – the introduction of deemed cost is a practical simplification to smoothen the first-time adoption of International Financial Reporting Standards.
But IFRS 1 BC 41 says:
Some measurements in accordance with IFRSs are based on the accumulation of past costs or other transaction data. If an entity has not previously collected the necessary information, collecting or estimating it retrospectively may be costly. To avoid excessive cost, ED 1 proposed that an entity could use the fair value of an item of property, plant and equipment at the date of the transition to IFRSs as its deemed costs at that date if determining a cost-based measurement in accordance with IFRSs would involve undue cost or effort.
BC 41… the Board noted that reconstructed cost data might be less relevant to users, and less reliable, than current fair value data.
And more of such arguments were made.
As a result IFRS 1 includes the following ways to used deemed cost in the first-time adoption of IFRS:
IFRS 1 30 If an entity uses fair value in its opening IFRS statement of financial position as deemed cost for an item of property, plant and equipment, an investment property, an intangible asset or a right-of-use asset (see paragraphs D5 and D7), the entity’s first IFRS financial statements shall disclose, for each line item in the opening IFRS statement of financial position:
- the aggregate of those fair values; and
- the aggregate adjustment to the carrying amounts reported under previous GAAP.
IFRS 1 31 Similarly, if an entity uses a deemed cost in its opening IFRS statement of financial position for an investment in a subsidiary, joint venture or associate in its separate financial statements (see paragraph D15), the entity’s first IFRS separate financial statements shall disclose:
- the aggregate deemed cost of those investments for which deemed cost is their previous GAAP carrying amount;
- the aggregate deemed cost of those investments for which deemed cost is fair value; and
- the aggregate adjustment to the carrying amounts reported under previous GAAP.
IFRS 1 31A Use of deemed cost for oil and gas assets
IFRS 1 31B Use of deemed cost for operations subject to rate regulation
IFRS 1 31C Use of deemed cost after severe hyperinflation
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