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During the year Pan Co acquired an iron ore mine at a cost of $12 million. In addition, when all the ore has been extracted (estimated ten years’ time) the company will face estimated costs for landscaping the area affected by the mining that have a present value of $4 million. These costs would still have to be incurred even if no further ore was extracted.
How should this $4 million future cost be recognised in the financial statements?
It would be recognised as a provision at present value with the amount being capitalised as part of PPE.
The amount capitalised is then depreciated and the provision unwound.
Thanks.
But why will this amount be capitalised as part of PPE. Which concept is being applied here if you could through some light on that sir.,
thanks.
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