Refer to problem P12-45. At the beginning of 2028, SCMI determined that the appropriate market-based interest rate for this obligation was 4%. Management determined that the revised book value of the asset was fully recoverable; an impairment test was not conducted. During its six years of production to the end of 2027, the mine produced 600,000 tonnes of copper; 200,000 tonnes remained to be mined. During 2028, SCMI mined 50,000 tonnes of copper.

Problem P12-45

During 2021, Surinder’s Copper Mine Inc. (SCMI) built the infrastructure for an open pit copper mine in a remote area in Northern British Columbia at a total cost of $20 million, paid in cash. The mine is expected to produce 800,000 tonnes of copper over its estimated useful life of 10 years.
 The BC government’s approval granted to SCMI was conditional upon the company remediating the site and establishing a wildlife reserve. The estimated cost of remediation is $5 million. An appropriate interest rate for this obligation is 5%.

Assume that SCMI has grouped the $20 million construction costs and the remediation asset in an account called “Mine assets” and that it uses the units-of-production method to depreciate this asset. SCMI began mining operations in January 2022 and during the year it mined 60,000 tonnes of copper. In 2023, it increased its production to 90,000 tonnes of copper. While SCMI is a private company, it elects to report its financial results in accordance with IFRS. Its year-end is December 31.

Required:
a. Prepare a journal entry to record the change in the liability amount.
b. Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year ended December 31, 2028.