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Manufacturing Incorporated (MI) purchased land on January 1, 2020, which it started to operate as a gravel pit. The gravel pit will be operating for
Manufacturing Incorporated (MI) purchased land on January 1, 2020, which it started to operate as a gravel pit. The gravel pit will be operating for the next 5 years. At the end of the 5 years, MI will be required to incur an estimated cost of $5 million to restore the land. This is required by government legislation. The interest rate that reflects the risks to MI is 8%.
- At what amount should the asset restoration cost liability be recorded on January 1, 2020? (2 marks).
- What is the interest expense associated with the liability for the year 2020? (1 mark)
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