On 2 January 20X8, Keen Mining Ltd. commenced a mining operation. Keen is required by the terms
Question:
On 2 January 20X8, Keen Mining Ltd. commenced a mining operation. Keen is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in 10 years’ time. This means that a provision for decommissioning must be recorded. Keen estimates that decommissioning will cost $420,000 in 10 years. A reasonable market interest rate is 6%.
Required:
1. Calculate the present value of the decommissioning obligation on January 2, 20X8.
2. Prepare a table that shows the balance of the obligation for three years (only).
3. Assume that at the end of 20X10, Keen estimates that the cost of remediation will be $490,000, and that interest rates are now in the range of 8%. Calculate the interest expense for 20X10, the new present value, and the adjustment to the obligation for the change in estimates.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel