- 20 Marks
FRPA – APRIL 2024 – L3 – Q1B – AFEN Ltd Mine Accounting Treatment
Explain the accounting treatment for the license, development costs, reclamation provision, and earthquake damage for AFEN Ltd.
Question
AFEN Ltd. obtained a license, free of charge from the government, to dig and operate a gold mine. AFEN Ltd. spent GH$6 million digging and preparing the mine for operation and erecting buildings on the site. The mine commenced operations on 1 September 2022. The license requires that at the end of the mine’s useful life of 20 years, the site must be reclaimed, all buildings and equipment must be removed and the site landscaped. At 31 August 2023, AFEN Ltd. estimated that the cost in 19 years’ time of the removal and landscaping will be GH$5 million and its present value is GH$3 million.
On 31 October 2023, there was a massive earthquake in the area and AFEN Ltd’s mine shaft was badly damaged.It is estimated that the mine will be closed for at least six (6) months and will cost GH$1 million to repair.
You are required to:
Explain the accounting treatment for the license, the development costs, the reclamation provision, and the earthquake damage in the financial statements for the year ended 31 August 2023.
Find Related Questions by Tags, levels, etc.
- Tags: IAS 10, IAS 16, IAS 36, IAS 37, Impairment, PPE Capitalisation, Provision for Reclamation, Subsequent Events
- Level: Level 3
- Topic: Fair Value Accounting
- Series: APR 2024
