Question
Liberty Ltd owns a chemical plant. The plant was completed on January 1, 2029, at a construction cost of 20 million, and it is expected
Liberty Ltd owns a chemical plant. The plant was completed on January 1, 2029, at a construction cost of 20 million, and it is expected to have a useful life of 20 years. The asset is depreciation on a straight-line basis. Management estimates Liberty to dismantle the plant and clean up the site at the end of its useful life. The estimated cost of this dismantling and clean-up in 20 years is $ 5 million. Liberty uses an interest rate of 7% to discount the obligation which is appropriate for this type of obligation.
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