1. Tamarisk’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 $2,200,000 to
clean up the site.
The company’s discount rate is 6% 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 |
|||
List of Accounts
Question Part Score
--/3
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 |
|||
List of Accounts
1]What adjusting journal entry should MSI make to initially recognize the ARO under IFRS?
The MSI should pass the following entry to initially recognize the Asset Retirement Obligation under IFRS (as per IAS 37) ---
Date | Particulars | Post Ref | Dr. $ | Cr. $ |
1 Nov 2018 |
Land Improvements A/c To Asset Retirement Obligation [For recognising cleanup cost at its present value] |
? ? |
917983.14 |
917983.14 |
Working Note :MSI will incur $ 22,00,000 after 15 years as cleaning cost. Discount rate is 6% . Hence the Present Worth of it will be PW= 22,00,000/ (1.06)^15=$ 917983.14 approx. |
2] What are the journal entries to record at year-end?
The MSI will pass two entries , first to recognise the interest cost for two months and second to transfer it to P & L as per given below ---
Date | Particulars | Post Ref | Dr. $ | Cr. $ |
31 Dec 2018 |
Interest Expense A/c To Asset Retirement Obligation [Interest for two months at 6% p.a] |
9179.83 |
9179.83 | |
Working Note :- Finance cost on917983.14 at 6% for two months will be (917983.14x1.06*2/12=9179.83) | ` | |||
31 Dec 2018 |
Profit & Loss A/c To Interest Expense [Interest transferred ] |
9179.83 |
9179.83 | |
1. Tamarisk’s Steelers Inc. (MSI) is a steel manufacturing company located in Ontario. On November 1,...
Tamarisk’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...
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