On 2 January 20X8, Keen Mining Ltd commenced a mining operation. Keen is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in 10 years' time. This means that a provision for decommissioning must be recorded Keen estimates that decommissioning will cost $560,000 in 10 years. A reasonable market interest rate is 6% (PV of $1. PVA of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1 Calculate the present value of the decommissioning obligation on January 2, 20X8 (Round time value factor to 5 decimal places and final answer to the nearest dollar amount.) Present value 2. Prepare a table that shows the balance of the obligation for three years (only) (Round your final answers to the nearest dollar amount.) Year 1 Year 2 Year 3 Opening Net Liability Interest Expense Market Rate Interest expense New present value Adjustment to asset and obligation Closing Net Liability 3. Assume that in 20X10, Keen estimates that the cost of remediation will be $651,000, and that interest rates are now in the range of 8% Calculate the interest expense for 20X10, the new present value, and the adjustment to the obligation for the change in estimates (Round time value factor to 5 decimal places and final answers to the nearest dollar amount.)
On 2 January 20X8, Keen Mining Ltd commenced a mining operation. Keen is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in 10 years' time. This means that a provision for decommissioning must be recorded Keen estimates that decommissioning will cost $560,000 in 10 years. A reasonable market interest rate is 6% (PV of $1. PVA of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1 Calculate the present value of the decommissioning obligation on January 2, 20X8 (Round time value factor to 5 decimal places and final answer to the nearest dollar amount.) Present value 2. Prepare a table that shows the balance of the obligation for three years (only) (Round your final answers to the nearest dollar amount.) Year 1 Year 2 Year 3 Opening Net Liability Interest Expense Market Rate Interest expense New present value Adjustment to asset and obligation Closing Net Liability 3. Assume that in 20X10, Keen estimates that the cost of remediation will be $651,000, and that interest rates are now in the range of 8% Calculate the interest expense for 20X10, the new present value, and the adjustment to the obligation for the change in estimates (Round time value factor to 5 decimal places and final answers to the nearest dollar amount.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On 2 January 20X8, Keen Mining Ltd commenced a mining operation. Keen is required by the terms of provincial legislation to
remediate the mine site when mining is completed, likely in 10 years' time. This means that a provision for decommissioning must be
recorded Keen estimates that decommissioning will cost $560,000 in 10 years. A reasonable market interest rate is 6% (PV of $1. PVA
of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1 Calculate the present value of the decommissioning obligation on January 2, 20X8 (Round time value factor to 5 decimal places
and final answer to the nearest dollar amount.)
Present value
2. Prepare a table that shows the balance of the obligation for three years (only) (Round your final answers to the nearest dollar
amount.)
Year 1
Year 2
Year 3
Opening Net
Liability
Interest Expense
Market Rate
Interest expense
New present value
Adjustment to asset and obligation
Closing Net
Liability
3 Assume that in 20X10, Keen estimates that the cost of remediation will be $651,000, and that interest rates are now in the range of
8% Calculate the interest expense for 20X10, the new present value, and the adjustment to the obligation for the change in estimates
(Round time value factor to 5 decimal places and final answers to the nearest dollar amount.)
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