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On 1 January 20X1, Shine purchased a new item of machinery for $2 million. This
item of machinery contains hazardous chemicals whose use and disposal is strictly
controlled by legislation. The plant will be used for 10 years, at which point Shine is
legally obliged to dismantle the asset and have it safely disposed of. These
dismantling costs are estimated to be $500,000. A discount rate of 10% should be
used.Don’t even know where to start with this? Is it a provision that is needed?
I am asked comment on how this should be accounted for as at December X1!
the 2 million should be capitalised.
the 500,000 should also be capitalised because if the asset is forever going to be used, the 500,000 should be incurred. it should be discounted as it relates to the future so discount 500,0000 for 10 years and add to the 2 million.Jigsaw, although this particular answer is correct, we can’t always guarantee it. Students write on the page called “Ask ACCA Tutor” and that (for P2) means me. And it specifically excludes you! If students want to ask a question and don’t care whether it’s me or anyone else at answers it, they can post in the general forum
Thanks for your involvement but please restrict it to the general forum
Cheers
🙂
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