Future obligated costs through discounting down methoad

200 * (1/1.10)^3 = $150.26 OK? Total capitalised asset is $1,150.26

MikeLittle, why the legal fees ($500) and the admin costs ($100) are not accounted for to compute the cost of the asset?

Because they are period related - not to be capitalised

Dear Mike , Please elaborate the formula of future dismentaling cost

Dear Mike , Admin cost for negotiating for asset is $100 is period realated but Legal Fee $500 should be included in cost of capital You have calculated Future dismentaling cost accurate 150 Answer is Total cost of capital $1650

The technique of discounting future cash flows is fully covered in the video lectures for F5. May I ask that you watch those videos and then, should you still not understand, post again

Hello Mike, Could you please explain( with workings) the subsequent effects regarding the capitalised dismantling cost and the corresponding provision? Would the asset be depreciated (I.e 150/3=50' new cv 100, double book entry: db CoS 50 cr asset 50) and the provision unwinded (150x0,1= 15; cr ADmin C 15 db 0rovison 15)? What will be the SFP and the IS look like one year later? Thanks A

Which question? Please give me a reference

I am referring to the example above (dismantling 200 in 3y time and 10%)

So, take the today's estimated costs of dismantling, discount by three years at the company's cost of capital, and make a provision for that amount. Dr asset, Cr Provision today by the value of that obligation As each year rolls by, unroll the discount Dr finance costs, Cr provision Meanwhile you are depreciating the "inflated" value of the asset over its expected useful life including the capitalised cost of dismantling At the end of the period, you should have the cost of dismantling in the provision account (as adjusted annually for revisions of that estimate) Then credit cash ( with the dismantling cost) and Dr the Provision account Does that help?

Hello Mike, Thanks. That will effect, that I have 2 effects in the income statement for subsequent periods: 1. Depreciation of the capitalized dismantling asset (db CoS cr Asset) 2. Unwinding the provision (db Admin cost cr provision) Correct? Thanks A

Correct