During the year Peterlee Co acquired an ore mine at a cost of £6 million. In addition,

when all the ore has been extracted (estimated 10 years’ time) the company will face estimated costs of landscaping the area affected by the mining that have a present

value of £2 million. These costs would still have to be incurred even if no further ore was extracted.

11. How should this £2 million future cost be recognized in the financial statements?

A. Provision £2 million and £2 million capitalized as part of cost of mine.

B. Should not be recognized as no cost has yet arisen.

C. Accrual £200,000 per annum for next 5 years.

D. Provision £2 million and £2 million charged to operating costs.

 

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The detailed answer for the above question is provided below The correct answer is A Provision 2 mil... View the full answer