During the year ending 31 December 2019, Hydro Ltd constructed an electricity plant. The cost of the
Question:
During the year ending 31 December 2019, Hydro Ltd constructed an electricity plant. The cost of the plant and associated technology amounted to $5 million.
Other costs associated with the construction amounted to
| $ |
Cost of building an access road to the site | 2,500,000 |
Engineers’ fees | 1,000,000 |
Government license to produce electricity | 500,000 |
Opening ceremony | 100,000 |
Total | 4,100,000 |
At the end of the plant’s 10-year useful life, the government requires the company to dismantle the plant, remove it and return the site to its original condition. After consulting its own engineers and environmentalists, the company estimates these costs to be
| $ |
Dismantling the plant | 650,000 |
Environmental remediation costs | 1,250,000 |
Replacement of flora and fauna | 100,000 |
Total | 2,000,000 |
Hydro Ltd uses a discount rate of 12 % (Use this to calculate the present value of restoration costs).
Calculate the cost of the plant on 31 December 2019
Applying International Financial Reporting Standards
ISBN: 978-0730302124
3rd edition
Authors: Keith Alfredson, Ken Leo, Ruth Picker, Paul Pacter, Jennie Radford Victoria Wise