Unwinding of discount

Not quite - it's like we have in consolidations - it's deferred consideration In this question, the true cost of dismantling at "today's rates" was $1,763,194 It was. Believe me, but don't ask me to tell you how I know because you don't need to know Today, we say to ourselves, to dismantle this gas exploration site, if we had to do it today, would cost us $1,763,194 Ok, let's put that figure 5 year's into the future and then discount it to see what the equivalent is in today's money of that $1,763,194 $1,763,194 x 1/1.08 = $1,632,587 if we discount for just 1 year $1,632,587 x 1/1.08 = $1,511,654 if we discount for 2 years $1,511,654 x 1/1.08 = $1,399,680 if we discount for 3 years $1,399,680 x 1/1.08 = $1,296,000 if we discount for 4 years $1,296,000 x 1/1.08 = $1,200,000 if we discount for 5 years So the present value of $1,793,194 payable in 5 years' time is $1,200,000 and that's the figure that we will .... Dr Gas Exploration Site, Cr Provision After 1 year, we are only 4 years away from having to dismantle so that provision should now be $1,296,000 and we need therefore to .... Dr Finance Costs, Cr Provision with $96,000 and the Provision now stands at $1,296,000 After the second year, the unrolling involves $1,296,000 x 8% and that's $103,680 Instead of setting it out one year at a time, BPP have applied 8% to $1,296,000 but have shown $1,296,000 as $1,200,000 x 1.08% Hence their line of ($1,200,000 x 1.08%) x 8% I'm sure that's way over the top as an explanation but others may benefit from the detailed explanation OK?

Thank you so much Mike! Very clear and helpful as per :)

You're welcome

Whatever it is that you're on, you could make a fortune selling it! We're looking at F7 here. Where do you think that you could bring into an F7 answer "Credit risk is incorporated in ECL (EAD*LGD*PD*CCF),… – if an entity uses IRB approach for allowances"? The F7 examiner even tells you to ignore the time value of money in questions such as those that involve the accounting for construction contracts - there's little or no chance that you're going to get the opportunity to impress with this until you're facing P2 and even then it's unlikely