The best estimate of the expenditure required is U100 at the end of year 6. The obligation increases by CU 16.67 Le C0100 divided by 6 years), discounted to a current value each year and the initial discount rate is 6%. Subsequently, as a result of a reassessment of prevailing market rates at the beginning of year 4 the discount rate changes to 4%. 

The expense recognized each period in profit or loss will be as follows: 

 At the beginning of year 4, the discount rate has changed to 4%. The obligation at the end of year 3 was CU41.98. The unwinding of the discount would be the increase in the prior year obligation arising from the passage of time, so an amount of CU1.68 (CU41.98 x 4%) would be charged as a finance cost and the additional amount of CU17.98 (being the net present value of the additional 1/6 of the CU 100 provision for the year plus the increase in the provision resulting from the fall in discount rate from 6% to 4%) would increase the provision as an operating item

Transcribed Image Text:

Year 3. 4. Total Estmated cost of resurfacing 100 100 100 100 100 100 Estimated discount rate 6 0% 6.0% 6.0% 4,0% 4.0% 4.0% Opening provision 12.45 26.40 41.98 61.64 80.13 Obligation arising in year foperating cost) 12 45 13.20 13.99 17.98 16.03 16.67 90.32 Increase in prior year provision arsing from passage of teme (finarce cos) 0 00 075 158 1.68 2.47 3.21 9.68 12 45 26.40 41.98 61.64 80.13 100.00 100.00 Used in yeat (100.00) Closing provision 12.45 26.40 41.98 61.64 80 13 0.00 Year 3. 4. Total Estmated cost of resurfacing 100 100 100 100 100 100 Estimated discount rate 6 0% 6.0% 6.0% 4,0% 4.0% 4.0% Opening provision 12.45 26.40 41.98 61.64 80.13 Obligation arising in year foperating cost) 12 45 13.20 13.99 17.98 16.03 16.67 90.32 Increase in prior year provision arsing from passage of teme (finarce cos) 0 00 075 158 1.68 2.47 3.21 9.68 12 45 26.40 41.98 61.64 80.13 100.00 100.00 Used in yeat (100.00) Closing provision 12.45 26.40 41.98 61.64 80 13 0.00

Answer rating: 100% (QA)

that time voive PAS 37 TAS 37 xequises Esfoot of the of money material the camount of should be the ... View the full answer