Question
Question 14 to 22 relates to the following Charlie Limited is a manufacturing company with a 31 December year-end. The companys manufacturing plant releases toxic
Question 14 to 22 relates to the following
Charlie Limited is a manufacturing company with a 31 December year-end. The companys manufacturing plant releases toxic substances that will contaminate the land surrounding it unless it is collected and stored safely. The local authorities approved the erection of the plant provided that company undertakes to build safe storage tanks for the toxic substances and remove these and to restore the environment to its original condition after 5 years.
The plant was commissioned on 1 January 2021 at a cost of N$1 500 000. Installation costs of N$250 000 were incurred on the same date. The plant was in a condition necessary to be capable of operating in the manner intended by management on 1 January 2021.
The plant has an estimated useful life of five years with no residual value. In terms of the agreement, Charlie Limited is obliged to dismantle the plant and restore the area at the end of its useful life. Future decommissioning costs are expected to be N$160 000 as determined on 1 January 2021. The company uses a discount rate of 10% to calculate the present value of the decommissioning costs.
The financial accountant prepared the following schedule reflecting the unwinding of the discounted decommissioning costs to its present values:
Date | Years to decommissioning date | 10% discount factor |
01/01/2021 | 5 | 0.621 |
31/12/2021 | 4 | 0.683 |
31/12/2022 | 3 | 0.751 |
31/12/2023 | 2 | 0.826 |
31/12/2024 | 1 | 0.909 |
31/12/2025 | 0 | 1.000 |
Calculate the Present value of the decommissioning cost as at 1 January 2021 using the discount factors provided?
Calculate the Depreciation to be accounted for on the Plant as at 31 December 2021?
a.
N$350 000.
b.
N$369 872.
c.
N$369 869.
d.
N$300 000.
Calculate the Present value of the decommissioning cost as at 31 December 2022 using the discount factors provided?
a.
N$160 000.
b.
N$120 160.
c.
What is the journal entry to be recorded by Charlie Ltd to account for the decommissioning costs as at 1 January 2021?
a.
Dr plant; Cr provision for decommissioning costs
b.
Dr decommissioning costs; Cr provision for decommissioning costs.
c.
Dr decommissioning costs; Cr bank.
d.
Dr decommissioning costs; Cr plant
N$120 210.
d.
N$39 840.
alculate the Finance charges to be recogised by Charlie Ltd as at 31 December 2022?
a.
N$12 021.
b.
N$10 928.
c.
N$12 016.
d.
N$10 880
Calculate the cost to be capitalised to the plant as at 1 January 2021? O a. N$1 750 000. O b. N$1 849 347. 0 c. N1 849 360 0 d. N1 500 000. Calculate the Present value of the decommissioning cost as at 1 January 2021 using the discount factors provided? a. N$99 360 O b. N$160 000. OC. N$60 640. 0 d. N$99 347. Calculate the Present value of the decommissioning cost as at 31 December 2021 using the discount factors provided? a. N$109 280. O b. N$50 720 OC. N$109 282 0 d. N$160 000. Calculate the Finance charges to be recogised by Charlie Ltd as at 31 December 2021? O a N$9 920. O b. N$9 936. 0 C. N$10 928. Od N$9 935 Calculate the cost to be capitalised to the plant as at 1 January 2021? O a. N$1 750 000. O b. N$1 849 347. 0 c. N1 849 360 0 d. N1 500 000. Calculate the Present value of the decommissioning cost as at 1 January 2021 using the discount factors provided? a. N$99 360 O b. N$160 000. OC. N$60 640. 0 d. N$99 347. Calculate the Present value of the decommissioning cost as at 31 December 2021 using the discount factors provided? a. N$109 280. O b. N$50 720 OC. N$109 282 0 d. N$160 000. Calculate the Finance charges to be recogised by Charlie Ltd as at 31 December 2021? O a N$9 920. O b. N$9 936. 0 C. N$10 928. Od N$9 935Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started