Question
Brunswick Metals Ltd operates a production facility in the Sydney suburb of Marion where it manufactures a wide variety of metal products for both residential
Brunswick Metals Ltd operates a production facility in the Sydney suburb of Marion where it manufactures a wide variety of metal products for both residential and commercial use. In January 2018, Brunswick Metals Ltd conducted an environmental audit which revealed that the company had, during November and December 2017, accidentally discharged highly toxic waste into the adjacent Harris Canal which empties into the Parramatta River. This toxic waste caused serious damage to the Harris Canal water ecosystem.
Brunswick Metals Ltd is legally required to restore the water ecosystem to the condition it was in prior to being damaged by the toxic waste discharge. After consulting with several environmental organisations, Brunswick Metals Ltd developed a plan to undertake the restoration of the water ecosystem in two years time. As at 30 June 2018, Brunswick Metals Ltd estimates the cost of restoring the water ecosystem as follows:
Cost Probability
$800,000 60%
900,000 30%
600,000 10%
On 30 June 2018, the risk-free discount rate, based on two-year government bonds, is 4%. However, Brunswick Metals Ltd believes that a discount rate of 3% is appropriate to adjust for the risks specific to this liability.
Required
Determine the amount that, in your judgement, Brunswick Metals Ltd should recognise as a provision as at 30 June 2018. Justify the approach that you used to calculate the amount. (6 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started