Question

Tin Mines International Ltd. discovered a new iron ore deposit, the Grouse Mine, and began production on January 1, 2020. The province requires mining companies to return the land to its natural state at the end of mining activity. Tin Mines International estimates that it will operate the mine for 25 years, at which time it will cost $ 25,000,000 for the land restoration project. Tin Mines International uses an 8% discount rate.

Instructions

a)         Record any obligation for land restoration at January 1, 2020.

b)         Record any entry required related to this obligation at December 31, 2020 (follows ASPE)

c)         Record any entry required related to this obligation at December 31, 2020 (follows IFRS)

Answer 1

		Present value factor @ 8% for 25 Years	0.14602	(1/1.08^25)
		Present value of asset retirement obligation	$3,650,500
	Date	Account titles and explanation	Debit	Credit
(a)	01-Jan-20	Mines account (asset)	$3,650,500
		Asset retirement obligation		$3,650,500
		(asset retirement obligation recognised)
		ASPE
		Accretion expense	$292,040
		Asset retirement obligation		$292,040
		(interest unwinded 3,650,500*8%)
		IFRS
(c )	31-Dec-20	Interest expense	$292,040
		Asset retirement obligation		$292,040
		(interest unwinded 3,650,500*8%)