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Question 3 Tanjung Power Berhad (TPB) constructed an ecological-efficient power station at a cost of RM1,000 million and began production on 1 January 2017. The
Question 3 Tanjung Power Berhad (TPB) constructed an ecological-efficient power station at a cost of RM1,000 million and began production on 1 January 2017. The power station's economic life is 20 years. The power station has to be dismantled and the site to be restored to its original condition at the end of its economic life. Ryan, the financial director, estimated on 31 December 2017 that the present value of the dismantling cost will be RM150 million (using a discount rate of 5%). 95% of these costs relate to the removal of the power station and 5% relates to damage caused through generating energy. TPB also purchased an oil company, Anis Oil & Gas Sdn Bhd (AOGSB), during the year. As part of the sale agreement, oil has to be supplied to the AOGSB's former holding company at an uneconomic rate for five years. The loss estimated to be sustained over the five years is RM150 million. At the same time, AOGSB is exposed to environmental liabilities arising out of its past obligations mainly due to soil erosion though currently there is no legal obligation to carry out any restoration work. TPB has a reputation for ensuring the preservation of the environment and has estimated and decided to provide for RM50 million in respect of the environmental liability. Required: a) As per MFRS137, state the conditions that an entity need to fulfill before recognizing provision for a liability. [3 marks] b) Advice Ryan, on the accounting treatment (accounting entries and presentation) that the company need to recognize in their financial statement with respect to the power station and the dismantling cost of the power station. [13 marks] Advice Ryan, on the accounting treatment (accounting entries and presentation) that the company need to recognize in their financial statement with regard to the sale agreement with AOGSB and the environmental liabilities. [9 marks] [Total: 25 marks]
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