Question

1. XYZ Inc., a private company following ASPE developed a new gold mine during 2020, and is required by provincial law to restore the site to its previous condition once mining operations are completed. The company estimates that the mine will close in 20 years and that the land restoration will cost $ 5,000,000. XYZ uses a 6% discount rate.

Provide the necessary journal entries relating to the information above for 2020. Year end is December 31, 2020.

Answer 1

Year	Account Titles & Explanation	Debit $	Credit $
2020	Gold Mine	1,559,025
	Assets Retirement Obligation		1,559,025
	(5,000,000 x 1/1.06^20)
	or ( 5,000,000 x 0.311805 )
	( To record Land restoration liability )
December 31, 2020	Accretion Expense	93,542
	Assets Retirement Obligation		93,542
	(1,559,025 x 6% )
	( To annual accretion expense )