Section B - Case 1: Nimbus Renewables
Scenario: On 1 January 20X4, Nimbus Renewables began constructing an offshore wind farm. The following costs were incurred:
By law, Nimbus must decommission the wind farm at the end of its 20-year useful life. The estimated future cost of decommissioning is $4,000,000. Nimbus uses a discount rate of 5%. The present value of $1 payable in 20 years at 5% is 0.377.
Nimbus also leased specialized maintenance vessels on 1 January 20X4 for 5 years. The annual lease payment is $2,000,000 payable in arrears on 31 December. The interest rate implicit in the lease is 6%. The present value of an ordinary annuity of $1 for 5 years at 6% is 4.212.
Question: What is the initial cost of the wind farm recognized in Property, Plant and Equipment on 1 January 20X4?
ACCA · Question 18 · Provisions and Contingencies
Section B - Case 1: Nimbus Renewables
Scenario: On 1 January 20X4, Nimbus Renewables began constructing an offshore wind farm. The following costs were incurred:
By law, Nimbus must decommission the wind farm at the end of its 20-year useful life. The estimated future cost of decommissioning is $4,000,000. Nimbus uses a discount rate of 5%. The present value of $1 payable in 20 years at 5% is 0.377.
Nimbus also leased specialized maintenance vessels on 1 January 20X4 for 5 years. The annual lease payment is $2,000,000 payable in arrears on 31 December. The interest rate implicit in the lease is 6%. The present value of an ordinary annuity of $1 for 5 years at 6% is 4.212.
Question: What amount should be charged to finance costs in the statement of profit or loss for the year ended 31 December 20X4 regarding the decommissioning provision?
Answer options:
$75,400
$200,000
$865,400
$0
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