[Opinion] Ind AS 101 Deemed Cost Framework – Oil & Gas Assets and Special Exemptions

CA Bhawna Grover & CA Prajwal Jha – [2026] 187 taxmann.com 238 (Article)

1. Introduction

In the first part of this article, we examined the concept of deemed cost under Ind AS 101 and discussed the transition reliefs available for Property, Plant and Equipment, Right-of-use Assets, Intangible Assets, and Investment Property. However, the deemed cost framework under Ind AS 101 extends beyond these commonly encountered asset categories and also provides specific exemptions for certain specialised industries and circumstances.

In this second part, we explore the deemed cost options available for oil and gas assets and assets used in rate-regulated activities, along with the unique relief relating to event-driven fair value measurements. These exemptions are designed to address practical challenges that may arise during first-time adoption and enable entities to transition to Ind AS in a cost-effective and operationally efficient manner.

2. Deemed Cost of Oil and Gas Assets

Entities engaged in the oil and gas industry often maintain specialised accounting records that differ significantly from those applicable to other classes of non-financial assets. Exploration, evaluation, development, and production activities may span several years and involve substantial expenditure accumulated within large geographical cost centres. Consequently, retrospective application of Ind AS measurement principles to such assets can be particularly complex and operationally burdensome.

Recognising these industry-specific challenges, Ind AS 101 provides a separate deemed cost exemption for oil and gas assets, enabling first-time adopters to transition to Ind AS without reconstructing historical accounting records from inception.

2.1 Meaning of Oil and Gas Assets

For the purpose of this exemption, oil and gas assets include:

a) Exploration and Evaluation (E&E) Assets recognised in accordance with Ind AS 106; and

b) Assets used in the Development and Production Phase of oil and gas operations.

These assets typically arise from activities undertaken to identify, evaluate, develop, and extract mineral resources and are often accumulated within broader cost centres under previous GAAP.

2.2 Previous GAAP Carrying Amount as Deemed Cost

A first-time adopter may elect to use the carrying amount of oil and gas assets recognised under previous GAAP as on the date of transition as deemed cost for Ind AS purposes. However, the manner of applying this exemption differs depending on the nature of the asset.

2.3 Exploration and Evaluation Assets

For exploration and evaluation assets, the entity may continue with the carrying amount determined under previous GAAP as on the date of transition.

Before such carrying amount is adopted as deemed cost, it must be tested for impairment in accordance with Ind AS 106, Exploration for and Evaluation of Mineral Resources.

Any impairment loss identified through this assessment is adjusted against the previous GAAP carrying amount before establishing the deemed cost.

llustration – Exploration and Evaluation Asset

Suppose an oil exploration company has exploration and evaluation assets with a carrying amount of ₹150 crore under previous GAAP on the transition date. On performing an impairment assessment in accordance with Ind AS 106, the entity determines that an impairment loss of ₹20 crore is required. Accordingly, the deemed cost at the time of transition would be 130 crore (150-20).

The carrying amount of ₹130 crore would become the deemed cost of the exploration and evaluation asset in the Opening Ind AS Balance Sheet.