Question

AAA minerals operates a mine. On January 1, Year 1, AAA acquired rights to use the mine site for $15,000,000. This represents use of the site for 5 years. After the 5 years, AAA must cease mining and remediate the site. They estimate this will cost $2,000,000.

During Year 6, AAA remediated the mine site at a cost of $2,253,696.

AAA has chosen a discount rate of 8% to calculate the value of the obligation. They will use straight-line depreciation. AAA has a December 31 year end and uses IFRS.

Instructions (Round all values to the nearest dollar.)

a.    Prepare the journal entries to be recorded on January 1, Year 1, and December 31, Year 1.

b.    Prepare the journal entries to be recorded on December 31, Year 5.

d.    Prepare the journal entries to be recorded during Year 6. Use June 30 as the date.

Answer 1