Question
Natural resource A Depletion of Natural Resource Version A: Himalaya Inc purchased the rights to a salt mine on Oct 1 st 2021. The rights
Natural resource A
Depletion of Natural Resource Version A: Himalaya Inc purchased the rights to a salt mine on Oct 1st 2021. The rights to the salt mine cost $25 million and was paid for using cash. The salt mine is expected to yield 5,000 million tons of salt over a period of 20 years. The asset retirement obligation associated with this salt mine is as follows:
Outcome | Probability | ARO cash outflow |
A | 0.5 | 10,000,000 |
B | 0.3 | 5,000,000 |
C | 0.2 | 2,000,000 |
D | 0.05 | 1,000,000 |
E | 0.05 | 20,000,000 |
The asset retirement obligation outflow is expected to occur 20 years in the future. The market rate for Himalaya Inc. is 5%. The mine produces 15 million tons of salt in 2021.
Provide the transactional journal entries for the purchase on Oct 1st 2021.
Provide the adjusting entries associated with depletion for the mine on Dec 31st 2021.
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