Reference no: EM132716843
Question: On January 2, 2020, Packers Inc., a public company following IFRS, purchased the mining rights to a new gold mine in Northern Nunavut for $18,400,000. Packers is required by federal and local laws to restore the site to its previous condition once the mining operations are completed. The company estimates that the mine will be depleted in six years and that the restoration will cost $ 5,000,000 and may takes up to one year to complete. Packers also expects the revenue generated from this gold mine will distributed evenly over the six-year period, they use straight-line depreciation and follows the calendar year as its fiscal year. Discount rate is 8%.
At the end of 2026, Packers spends about $5,600,000 to restore the gold mine and considers themselves to have fully complied with the ARO requirement stipulated by the Territorial Government of Nunavut. However, the Territory of Nunavut sues Packers for breach of contract and seeks damage of $3,000,000. On January 28, 2029, the Federal Supreme Court renders judgment against Packers for $2,000,000. The company claims that the language in the contract was misleading regarding the restoration of the mine shafts. It plans to appeal the judgment and expects the ruling to reduce to anywhere between $300,000 and $600,000, with $500,000 being the possible amount. Packers has not yet released its 2029 financial statements.
Instruction: Round all figures to the nearest dollar:
a) Calculation the present value of the asset restoration obligation. (2 marks)
b) Provide all necessary journal entries to record the transaction on January 2, 2020. (2 marks)
c) Provide all necessary year-end journal entries regarding the subject gold mine for the year ended December 31, 2020. (2 marks)
d) With proper format, show the amounts and accounts to be reported on the classified statement of financial position at December 31, 2020;
e) You, as an independent consultant, discuss how Packers should report this unsettled court cases on its financial statements for the year ended December 31, 2029.
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