At 1.1.20X0, Peterlee acquired an iron ore mine at a cost of $20 million. In addition, when
Question:
At 1.1.20X0, Peterlee acquired an iron ore mine at a cost of $20 million. In addition, when all the ore has been extracted (estimated ten years' time) the company will face estimated costs for landscaping the area affected by the mining that have a present value of $2.5 million. These costs would still have to be incurred even if no further ore was extracted. Cost of capital 8%. Useful life of the asset is 10 years.
Required:
i, Explain, with journals, the accounting treatment for the transactions above for the financial statement ended 31.12.20X0 ?
ii, Prepare extract financial statement for year ended 31.12.20X0?
iii, Explain why the landscaping provision in the case should be classified as non-current liability in statement of financial position as at 31 December 20X0?
Financial accounting
ISBN: 978-0132751124
9th edition
Authors: Walter T. Harrison Jr., Charles T. Horngren, C. William Thom