Reference no: EM133148037

Question - RT Global has received approval from the government to construct a manufacturing plant. One of the conditions for the approval is that RT Global would need to dismantle the plant and restored it to the original condition when the project ceases in 5 years.

The construction cost of the plant is estimated to be $5 million. However, due to an error made by the architect, the company ended up incurring a total construction cost of $5.5 million. Meanwhile, the estimated cost of restoration cost in 5 years would be $1.2 million. Besides the restoration costs, the company also estimated that they will incur another $2 million in environmental costs as a result of the damages done to the environment from their manufacturing activities.

Required - Determine the cost of the manufacturing plant capitalized assuming that a discount rate of 10% applies (10% discount rate for year 5 is 0.621). Show the financial statement extract for the first year.