Question

On January 1, 2018, ABC Inc. purchased a copper mine for $400,000. The company is required by provincial law to restore the land on which the mine is located to its initial condition at the end of the mine's ten-year useful life. Restoration costs are estimated to be $35,000. ABC is subject to an interest rate of 5%. Prepare the journal entries required on January 1 and December 31, 2018. Round all entries to the nearest dollar.

Answer 1

IFRS recquires the present value of future restoration to be recognised in the cost of land at initial recognistion.

Present value factor for 10th year = 1 / (1+r)ⁿ = 1 / (1+ 5%)^10yrs

= 1 / (1 + 0.05)^{10 [ given, r= 5% and n= 10years]}

= 0.6139

Present value of restoration cost = $35,000 x 0.6139 = $21,487

Therefore, Annual Depreciation = ( Cost price - Present value of restoration cost) / Estimated Life

= $ ( 400,000 - 21,487) / 10years

= $ 37,851.3 ~= $37,852

Journal Entriy On 1st Jan, 2018

Copper Mine's account ---------- Dr. $400,000

To Bank A/C $400,000

( Being Copper mine Purchased)

Journal Entry on 31st Dec, 2018

Depriciation account --------------Dr. $37,852

To Copper Mine's A/C $37,852

( Being the Copper mine depriciated)