Question
On January 1, 2019, Camille Company purchased a gas detoxification facility for P9,000,000. The cost of cleaning up the routine contamination caused by the initial
On January 1, 2019, Camille Company purchased a gas detoxification facility for P9,000,000.
The cost of cleaning up the routine contamination caused by the initial location of gas on the property is estimated to be P1,500,000.
This cost will be incurred in 10 years when all of the existing stockpile of gas is detoxified and the facility is decommissioned.
Additional contamination may occur in succeeding years that the facility is in operation.
On January 1, 2021, additional contamination clean up cost is estimated at P200,000.
The appropriate discount rate is 6%.
The present value of 1 at 6% is 0.63 for 8 periods and 0.56 for 10 periods.
On December 31, 2028, the entity paid a contractor an amount of P2,000,000 for the decommissioning of the detoxification facility.
Required:
Prepare journal entries in 2021 in relation to the detoxification facility and decommissioning liability.
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