Question

Kingbird’s Steelers Inc. (MSI) is a steel manufacturing company located in Ontario. On November 1, 2018, MSI acquired land on which it constructed a facility for steel manufacturing purposes. Since its manufacturing process produces excessive waste, the government of Ontario has imposed a requirement for MSI to clean up property. As part of its agreement with the province of Ontario, MSI is allowed to operate on this site for only 15 years after which time MSI estimates it will need to incur $2,400,000 to clean up the site.

The company’s discount rate is 8% and MSI reports under IFRS with a December 31 year-end.

What adjusting journal entry should MSI make to initially recognize the ARO under IFRS? (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
November 1, 2018

What are the journal entries to record at year-end? (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2018
December 31, 2018

Answer 1

		Present value of Discommissioning cost for MSI @8%	2,400,000/(1.08)^15
			$756,580
	Date	Account titles and explanation	Debit	Credit
	1-Nov-18	Land A/c (Property, plant and equipment)	$756,580
		To, Provision for dicommission cost		$756,580
		(Dico. Cost recognised)
	31-Dec-18	Finance Cost A/c Dr.( 756,580 * 8%)*2/12	$10,088
		To, Provision for dicommissioning cost		$10,088
		(interest unwind)
	31-Dec-18	Income statement A/c Dr.	$10,088
		To, finance cost		$10,088
		(finance cost transferred to income statement)