Problem 1

On December 31, 20x0, an entity purchased a mineral manufacturing plant at a cost of $29,000,000. The useful life of the plant is 35 years after which it will have to be decommissioned at an expected cost of $5,000,000. The discount rate is 5% and the company uses the straight-line method of depreciation.

Required

Write all journal entries related to the plant at December 31, 20x0, 20x1 and 20x2.

Prepare an amortization schedule for the asset retirement obligation for the full 35

years.

In 20x12, the estimate of decommissioning costs is reassessed at $9,000,000 and

the discount rate has decreased to 4%. Write the journal entries for 20x12.

In 20x32, due to advances in technology, the decommissioning costs are re-

assessed downwards at $1,000,000. The discount rate has decreased to 3.5%.

Write the journal entries for 20x32.

In 20x36, the actual costs of decommissioning the plant are $1,200,000. Write the

journal entry for 20x36.