Question

In January 2011 Brooklyn Inc. constructed a temporary production facility. Management expects the facility to have a life of 10 years, at which time it will incur cleanup and site restoration costs, as required by environmental legislation of $3.9 million. In addition, management expects the facility to incur about $250,000 per year in additional cleanup costs due to producing inventory. The appropriate discount rate is 5%.

Required: Account for Brooklyn’s decommissioning costs according to IFRS.

BELOW IS THE SOLUTION, PLEASE EXPLAIN HOW THEY GOT $2,394,249.00

	Liability on Jan 1	Accretion	Liability on Dec. 31
2011	$2,394,249.00	$119,712.45	$2,513,961.45
2012	2,513,961.45	125,698.07	2,639,659.52
2013	2,639,659.52	131,982.98	2,771,642.50
2014	2,771,642.50	138,582.12	2,910,224.62
2015	2,910,224.62	145,511.23	3,055,735.85
2016	3,055,735.85	152,786.79	3,208,522.65
2017	3,208,522.65	160,426.13	3,368,948.78
2018	3,368,948.78	168,447.44	3,537,396.22
2019	3,537,396.22	176,869.81	3,714,266.03
2020	3,714,266.03	185,713.30	3,900,000.00

Answer 1

You need to Refer the Present Value table and Refer 5% Rate and Period 10 Years which is 0.61391

= 3,900,000 x 0.61391 = 2,394,249