Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Provision question help needed
- This topic has 3 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
- AuthorPosts
- February 21, 2017 at 11:30 pm #373573
In five years’ time Rainbird will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird has a cost of capital of 8%.
What is the amount of the provision that should be carried forward at 31 December 20X1 for the dismantling of the factory?A $2,630,000
B $2,419,600
C $2,435,185
D $2,840,400February 22, 2017 at 6:37 am #373588Are you testing me?
What answer did you select? – let’s see if it agrees with my choice
February 22, 2017 at 10:59 am #373646Sir! With all due respect how can i dare to test you ? 🙂
I know the right answer ,this question is taken from BPP exam kit.
But i don,t know how the examiner arrived at that answer.
So please explain it.
ThanksFebruary 22, 2017 at 2:26 pm #373677It’s $2.630,000 with one year’s discount unrolled
So $2,630,000 + 8% x $2,630,000 and that comes to $2,840,400
Easier than calculating 85 of $2.620,000 is simply to multiply $2,630,000 by 1.08 (that’s 1 plus the cost of capital expressed as a percentage … so $2,630,000 x 1.08)
OK?
- AuthorPosts
- The topic ‘Provision question help needed’ is closed to new replies.