Question

Ore Body Corp. (OBC) runs an open-pit copper mine on land leased from the provincial government. OBC constructed several outbuildings on the mine site at a total cost of $15 million, all of which were ready for use on January 1, 20X3. Pertinent details of OBC’s operation follow:  When OBC is finished mining, a term of the lease requires OBC to remove all buildings and remediate the land by creating a nature park. The estimated cost of removal and remediation is $8 million.  OBC reports its net assets in accordance with IFRS. Its year end is December 31.  OBC depreciates the buildings on a straight-line basis over the 10-year useful life of the mine. Their expected residual value is nil.  OBC uses a discount rate of 6%, which is an appropriate rate for this type of obligation. What is the amount that OBC will report as an outbuilding asset, net, on its statement of financial position as at December 31, 20X3? a) $17,279,216 b) $17,520,442 c) $19,020,442 d) $19,467,158

Answer 1

Cost of the outbuilding	$15000000
Add: PV of cost of removal and remediation = 8000000/1.06^10 =	$4467158
Total cost of the outbuilding	$19467158
Less: Depreciation for the year at 10% (100%/10)	$1946716
Outbuilding asset, net, as at December 31, 20X3 =	$17520442
Answer: Option [b] $17,520,442