On 2 January 20X8, Keen Mining Ltd. commenced a mining operation. Keen is required by the terms
Question:
On 2 January 20X8, Keen Mining Ltd. commenced a mining operation. Keen is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in 10 years’ time. This means that a provision for decommissioning must be recorded. Keen estimates that decommissioning will cost $620,000 in 10 years. A reasonable market interest rate is 6%. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)
Required:
1. Calculate the present value of the decommissioning obligation on January 2, 20X8. (Round time value factor to 5 decimal places and final answer to the nearest dollar amount.)
2. Prepare a table that shows the balance of the obligation for three years (only). (Round your final answers to the nearest dollar amount.)
3. Assume that in 20X0, Keen estimates that the cost of remediation will be $639,500, and that interest rates are now in the range of 8%. Calculate the interest expense for 20X0, the new present value, and the adjustment to the obligation for the change in estimates. (Round time value factor to 5 decimal places and final answers to the nearest dollar amount.)
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott