Tomaco Corporation is a fast growing mining company. The company developed a zinc mine in northern Quebec on January 1, 2010, at a cost of $1,000,000. Tomaco was legally required to clean up the site and restore the environment to its original, pristine conditions at the end of the mine’s 12-year useful life, at an estimated cost of $200,000. Tomaco estimated that 60% of the cost of environment cleanup was caused by acquiring the mine, and that the remaining 40% of the cost would be caused by extracting minerals from the mine. Mining operations in 2010 and 2011 increased the cost of site cleanup at the end of the mine’s useful life by $13,800 and $15,800, respectively. The estimated residual value of the mine is $10,000, and Tomaco used straight-line depreciation. Tomaco prepared financial statements in accordance with IFRS.

1. Prepare journal entries to record the acquisition of the mine, and the asset retirement obligation for the zinc mine, on January 1, 2010. Use 6% as the discount rate.

2. Prepare all journal entries required for the mine and the asset retirement obligation at December 31, 2010. 

3. Prepare all journal entries required for the mine and the asset retirement obligation at December 31, 2011. 

Answer rating: 100% (QA)

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