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QUESTION 1 Quarry Ltd . is a mining company with several locations throughout Europe. Since its inception, they have always abided by the regulations of
QUESTION
Quarry Ltd is a mining company with several locations throughout Europe. Since its
inception, they have always abided by the regulations of the various countries. With
the introduction of Sustainability reporting, the board is currently discussing what
should be included in their financial statements. They firmly believe that if they were
to include details on preservation policies such as zero tolerance for pollution,
conservation of wildlife, reforestation and recycling, their reputation would be
enhanced. This is very important to them since their activities cause significant
damage to the environment, including deforestation. They are eager to come to a
consensus especially since they have never embarked on such activities.
On January Quarry Ltd acquired the rights to mine a site at a cost of $
million. The site is expected to be decommissioned in years from the date of
acquisition. At the end of the years, there is no residual value and legislation
requires Quarry Ltd to decommission the site once mining operations are completed.
After year of site preparation, the mine became operational as of January
The mine is situated in a country where there is no environmental legislation obliging
companies to rectify environmental damage and it is very unlikely that any such
legislation will be enacted within years.
It has been estimated that the cost to decommission the mine is $ million. The cost
of restoring the site will be $ million. The companys cost of capital is and its year
end is December st
Quarry Ltd uses straight line depreciation for its noncurrent
assets.
Mining operations ended as scheduled and the costs to decommission and restore
the site in were $ million and $ million respectively.
Requirements:
a Explain if a provision should be made for:
i the decommissioning of the mine and
ii the cost of restoring the site.
b Prepare the necessary journal entries for the years ended December &
Show all workings.
c Prepare the journal entries for year ended December Show all
workings
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