Dish plc has a year end of 31 December 2021. It was given permission on 1...

 

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Dish plc has a year end of 31 December 2021. It was given permission on 1 January 2021 to mine for minerals it uses as raw materials, for a period of 5 years. Decommissioning costs at the end of the five years will be £7 million. Of this, 20% relates to the removal of plant and equipment required to carry out the mining, and the remainder is to rectify damage caused by mining. The plant and equipment was specifically constructed for the project, at a cost of £20 million. Due to delays, extraction had not started at 31 December 2021, although the plant and machinery had been set up on site. The licensing agreement was granted to Dish on condition that the plant be removed at the end of operations. Dish uses a risk-adjusted discount rate of 5% to account for the effect of the time value of money (see table, right). 5% Discount Factor: Year: 0.952 0.907 0.864 0.823 4. 5. 0.784 Required: Explain how the decommissioning costs (both removal of plant and damage rectification) should be accounted for and disclosed in the financial statements of Dish for the year ended 31 December 2021. (20 marks) Dish plc has a year end of 31 December 2021. It was given permission on 1 January 2021 to mine for minerals it uses as raw materials, for a period of 5 years. Decommissioning costs at the end of the five years will be £7 million. Of this, 20% relates to the removal of plant and equipment required to carry out the mining, and the remainder is to rectify damage caused by mining. The plant and equipment was specifically constructed for the project, at a cost of £20 million. Due to delays, extraction had not started at 31 December 2021, although the plant and machinery had been set up on site. The licensing agreement was granted to Dish on condition that the plant be removed at the end of operations. Dish uses a risk-adjusted discount rate of 5% to account for the effect of the time value of money (see table, right). 5% Discount Factor: Year: 0.952 0.907 0.864 0.823 4. 5. 0.784 Required: Explain how the decommissioning costs (both removal of plant and damage rectification) should be accounted for and disclosed in the financial statements of Dish for the year ended 31 December 2021. (20 marks)

Answer rating: 100% (QA)

Answer Explanation Decommissioning cost as on 31st december 2021 is 5488000 Year ... View the full answer