Question
Question 3: During the reporting period ending 30 June 2018, Midnight Boil Ltd constructed a nuclear power generator just outside of Melbourne. The cost of
Question 3:
During the reporting period ending 30 June 2018, Midnight Boil Ltd constructed a nuclear power generator just outside of Melbourne. The cost of the power generator and associated technology amounted to $12 550 000. Other costs associated with the construction amounted to:
Costs incurred in obtaining access to the site
Power permits Engineers' fees
$
2 500 500
400 500
1 100 500 4 001 500
The plant was ready to start generating power on 1 July 2018, with actual generation starting on 1 October 2018. At the end of the power plant's useful life, which is expected to be 10 years, Midnight Boil Ltd is required by the government to dismantle the plant, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists, Midnight Boil Ltd estimates these costs to be:
Dismantling the plant
Environmental remediation costs Replacement of flora and fauna
Midnight Boil Ltd uses a discount rate of 10 per cent
Required
$
750 500
1 249 500
100 000 2 100 000
Prepare the journal entries necessary to account for the power plant for the years
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