In early 2020, the city issued WWF Promotions, (WWF) a permit to install 3 large open air
Question:
In early 2020, the city issued WWF Promotions, (WWF) a permit to install 3 large open air arenas to provide for public entertainment. During the winter season, these arenas could provide facilities for ice skating and ice hockey. Similarly, during the summer season, these could offer opportunities for music and dancing, soccer, cycling, jogging, etc. The permit was issued to operate the arenas initially for eight years, beginning January 1, 2021. Thereafter, the city reserved the option to either renew the permit or to cancel it. WWF had to assume the legal and financial obligation under the city’s removal and restoration laws, to dismantle and remove all constructed structures and to restore the sites to their original state in the event the permit was cancelled.
The three arenas were to be developed at a cost of $800,000 each which would be amortized on a straight line basis over their eight-year life. Under this plan, the company set up the three arenas and capitalized their cost in its books as Property, Plant and Equipment-Recreational Sites. They also recorded the present value of the future obligation to restore the sites. Thereafter, on December 31, 2021, the company has correctly recorded an amount of $14,000 as the interest accruing on the amount of the recorded obligation. The company’s estimated its cost of capital to be 5%.
Required:
Prepare all appropriate entries (under IFRS unless specifically mentioned otherwise), to record the following:
a] The amount of the obligation associated with the cost of the site restoration which was recorded on January 1, 2021 upon the construction of the sites and the journal entry that would have been made.
b] The amount of the future obligation to be paid in eight years, ie: on January 1, 2029.
c] Now assume the company is applying ASPE. The finance costs on the outstanding liability for the year ended December 31, 2022. Provide the required journal entry for these costs.
d] Assume the company estimates that an additional future restoration cost (ie: at time of dismantle/removal) of $32,000 occuring as a result of activities during 2021. This cost is associated with the use of the equipment installed at all the sites and is to be recorded at the end of 2021. Record this transaction under
✯ IFRS.
✯ ASPE.
e] The annual depreciation expense and journal entry to be recorded on December 31, 2022 following the transaction in [d] above under
✯ IFRS.
✯ ASPE.
Expert Answer:
