Question 28 marks On January 2 20X8 Keen Mining Ltd commence

Question 2-8 marks On January 2, 20X8, Keen Mining Ltd. commenced a mining operation by acquiring a mine for $6,000,000. Keen is required by the terms of provincial legislation to remediate the m ine site when mining is completed, likely in 10 years\' time. This means that a provision for issioning must be recorded. Keen estimates that decommissioning will cost $420,000 in 10 years. A reasonable market interest rate is 6% Required: 1) Calculate the present value of the decommissioning obligation on January 2, 20X8. 2) Prepare a table that shows the balance of the obligation for the first three years only. 3) Assume that at the end of 20X10, Keen estimates that the cost of remediation will be $490,000, and that the interest rates are now closer to 8%. Calculate the interest expense for 20X10, the new present value, and the adjustment to the obligation for the change in estimates including any necessary journal entry

Solution

1.

2.

3.

Estimated asset retirement cost=	4,20,000
Present value of money:	=	FV/ (1+r) ^N
Future value	FV=	4,20,000
Rate of interest	r=	6%
Number of periods	N=	10
Present value	=	420000/ (1+0.06)^10
	=	2,34,525.81