Question 1

SECTION A

EcoMine Co operates a copper mine. Under local legislation, EcoMine is required to restore the site at the end of its 10-year useful life. The present value of the estimated restoration costs at the commencement of mining operations on 1 January 20X1 was $5,000,000. The discount rate is 8%.

What is the total charge to the statement of profit or loss for the year ended 31 December 20X2 in respect of this environmental provision?

Accepted Answer

Identify the two P&L components: 1. Depreciation of the capitalized restoration asset. 2. Unwinding of the discount (finance cost) on the provision. Remember to calculate the provision balance at the start of Year 2 to find the Year 2 finance cost.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating the Year 1 finance cost instead of Year 2, or forgetting to include the depreciation of the capitalized asset.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 1

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