ICP has been conducting research into more advanced methods of manufacturing some of its chemical products. In 2018, they commenced with the construction of a plant located in Secunda. The plant became available for use on 1 January 2019. At this date, the expected future cost of restoring the environment to its natural state due to construction, as required by law, would be R10 million. This cost is expected to be incurred at the end of the plant’s life of 5 years. The waste caused in the process of manufacturing the chemicals in the plant must also be recycled at the end of 5 years. At the date the plant became available for use, this cost was reasonably estimated by an environmental specialist, who has many years of experience, to be N$ 5 million.

 The directors reflected a provision amounting to N$ 15 million with respect to the above in the financial statements on 31 December 2019. On 31 December 2020, the directors have revised their initial estimates of the above. The N$10 million is now revised to N$ 13 million, while the N$ 5 million is revised to N$ 7 million.

 The nominal market-related pre-tax interest rate is 12% per annum. Assume that time value of money is material for all periods more than three months.

 REQUIRED:

 Discuss the appropriate classification of the information relating to the chemical plant in the financial statements of ICP for the year ended 31 December 2020 in terms of IAS 8 Accounting policies, changes in accounting estimates and errors. 

Answer rating: 100% (QA)

Part A The provision for the expected cost of restoring the environment to its natural state due to ... View the full answer