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Hi chris quick question
At the date of acquisition, the fair values of Latree Co’s assets were equal to their carrying amounts. However,
Latree Co operates a mine which requires to be decommissioned in five years’ time. No provision has been made
for these decommissioning costs by Latree Co. The present value (discounted at 8%) of the decommissioning is
estimated at $4m and will be paid five years from the date of acquisition (the end of the mine’s life).How do you calculate depreciation of 200? The answer say NCA +4000 -200 dprct
legit dont understand how to get 200
so cost of decom is capitilised.. Shouldnt it be divided by 5yrs. giving 4/5yr = 0.8 of depreciation?When they give you this sort of question you actually need to find:
unwinding fo dscount – to be added in FC
Depreciation – added to cos and in this SOFP deducted from NCA
cost capitalised to asset
what more actually?Hi,
The annual depreciation is definitely the 0.8, but you need to check the dates in the question as I’ve a feeling that the acquisition may have taken place 3 months prior to the reporting date. This would then give 0.2, being the 0.8 x 3/12.
Your final points are correct too, in that you unwind the discount by charging the 8% on the outstanding provision value, and taking it to finance costs. You then need to charge the depreciation on the amounts capitalised, and then that’s it, there’s nothing else more.
Thanks
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