Prepare journal entry to record site restoration obligation

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Reference no: EM132835202

Problem - Copper Mine Inc. (CMI) is a privately-owned mining company operating in a remote area of Northern British Columbia. CMI has a December 31 year-end and has elected to report its financial results in accordance with IFRS. In 2020, CMI built the infrastructure for an open-pit copper mine at a total cost of $18 million paid in cash. The mine is expected to produce 800,000 tonnes of copper over its estimated useful life of 10 years. Approval was granted to CMI to build and operate the mine on the condition that the company remediate the site and establish a wildlife reserve at the end of the mine's useful life. The estimated cost of remediation is $2 million. An appropriate interest rate for this obligation is 4%. Assume that CMI has grouped the $18 million construction costs and the remediation asset in an account called "Mine assets" and that it uses the units-of-production method to depreciate this asset. CMI began mining operations on January 1, 2021 and during the year it mined 58,000 tonnes of copper. In 2022, it increased its production to 92,000 tonnes of copper.

Required -

a. Prepare journal entry to record the site restoration obligation and a summary journal entry to record the cost of construction. Date both entries December 31, 2020.

b. Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year ended December 31, 2021.

c. Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year ended December 31, 2022.

d. What will the carrying value of the site restoration obligation be on December 31, 2030?

Reference no: EM132835202

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