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Hi, can anyone tell me where I’ve gone wrong regarding this question? Q4 of the September 2016 past paper, relevant extract below:
‘Spiko Co began operating a new mine in January 20×3 under a five-year agreement licence which required Spiko Co to landscape the area after mining ceased at an estimated cost of $100,000.
In accordance with IAS 37, which of the following statement is correct in respect of Spiko Co’s financial statements for the year ended 31 December 20X4?”
The answer sheet says the correct answer is A, and a provision is required.
However my understanding of landscaping costs is that they are capitalised immediately upon purchase, as the landscaping costs is a present obligation (contractual obligation) that is probable and reliably estimated (figure is given) to settle it. It is also very similar to the example given under decommissioning/abandonmnent costs the BPP textbook specifically says is to be capitalised under IAS 37.
Please help? Thanks in advance
The landscaping is a future cost to be incurred at the end of the mining period (i.e 5 yrs time) the amount to be capitalized would be the discounted value PV and a provision to be set up accordinly + unwinding of discount to b included in the SFP NCL.
So yes a provision is required
Hope this helps!
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