Depletion of Natural Resource Version B: Himalaya Inc purchased the rights to a salt mine on Oct 1^st 2021. The rights to the salt mine cost $25 million and was paid for using cash. The salt mine is expected to yield 5,000 million tons of salt over 10 years. The asset retirement obligation associated with this salt mine is as follows:

Outcome	Probability	ARO outflow
A	0.5	10,000,000
B	0.3	5,000,000
C	0.2	2,000,000
D	0.05	1,000,000
E	0.05	20,000,000

The asset retirement obligation outflow is expected to occur 20 years in the future. The market rate for Himalaya Inc. is 5%. The mine produces 15 million tons of salt in 2021.

Provide the transactional journal entries for the purchase on Oct 1^st 2021.

Provide the adjusting entries for the mine on Dec 31^st 2021.

Answer rating: 100% (QA)

Calculation of Asset Value Asset retirement cost to be recognised Cas... View the full answer