Question 3

Diamond Limited acquired a plant for N$1 000 000 on 1 January 2015. Depreciation is calculated using an estimated residual value of nil and the straight line method.

The company has a legal obligation to dismantle the plant at the end of its 4-year useful life. Estimated future costs of dismantling is N$40 000. The discount rate is 10%. The company uses the cost model to account for PPE.

REQUIRED:

Prepare journal entries assuming that dismantling costs increased to N$60 000 on 1 January 2016