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You have started on a new job with the designation of VP - Special Assignments and Issues. Before you could even get comfortable in your
You have started on a new job with the designation of VPSpecial Assignments and Issues. Before you
could even get comfortable in your supersoft executive leather chair, in strides your boss, Ackque
Feegerz carrying a sheaf of papers. Ah nothing looks better than a busy accountant on a Monday
morning, then looked at his watch and added, you are already minutes behind schedule. We do not
pay for idle time and so from tomorrow, do come in at least an hour before office starts. Then he
deposited several files on your desk, remarked, Do please sort these out before : AM and begin
with File I. Dont bother me with petty questions. You are expected to take independent decisions, my
man. And then he was gone. His note pinned on the folder informed you that it was essential for you
to show sufficient details in your responses. And thus you started your day with this File I!
The company, AGI Communications, Inc., ACI began as a small startup firm in the late twentieth
century but in five years, it grew rapidly and expanded competitively into several areas of this industry.
It is currently operating internationally and its shares are listed on the NYSE.
You now begin with the file related to the obligations for asset retirement. On January ACI,
with great fanfare and publicity, opened an intergalactic satellite tracking station equipped with the latest
electronic equipment located somewhere in the Rocky mountains of Alberta. The company had obtained
a provincially issued permit to install large tracking antennae and two telescopes to provide users with
upto date telecommunication and weather data. The permit was issued to operate the equipment initially
for ten years, beginning January The company was required to assume the legal and financial
obligations under the provincial removal and restoration laws, to dismantle and remove all constructed
structures and to restore the site to its original state at the end of the contract.
You had noticed the remark in the note pinned on the ARO file by Mr Feegerz, Oh I didnt realize we
had to pay for closing down this circus in Alberta. Wasting good money on star gazing. Look into this
issue please. Under this plan, the company capitalized the cost in its books as Space Tracking
Equipment. They also recorded the present value of the estimated future obligation to restore the sites.
The cost would be amortized on a straight line basis over a tenyear life.
You reviewed some of the operating figures related to previous years. ACI had reported on its balance
sheet, dated December $ as the balance of the Asset Retirement Obligation. The
company had also recorded a depreciation expense of $ for the Space Tracking Equipment for
the year The companys estimated its cost of capital to be
Required:
Prepare all appropriate journal entries under IFRS unless specifically mentioned otherwise to record
the transactions listed below. Be sure to show your computation work in detail.
a The amount of the obligation associated with the cost of the site restoration which was recorded on
January upon the construction of the satellite tracking station.
b For Section b only, assume the company is applying ASPE. The finance costs on the
outstanding liability for the year ended December
c Determine the cost which ACI incurred to install the large tracking antennae and two telescopes
which were classified as Space Tracking Equipment.
d Now assume that it is time to dismantle the Space Tracking Equipment at the end of its year
life. ACI issued year bonds, par value $ to Environmental Engineers, Inc., a
restoration company to undertake and complete the required restoration work. The market rate on
that date was Prepare the required journal entry, in proper format, to record this transaction.
Assume for Sections e and f below, that the company estimates that an additional future
restoration cost of $ occurs as a result of activities during This additional cost is
associated with the use of the equipment installed at the tracking station and is to be recorded at
the end of
e Record this transaction under
p IFRS requirements.
p ASPE requirements.
f Determine the annual depreciation expense amount No Journal Entry Required to be reported on
December following the transaction in c above under
p IFRS requirements.
p ASPE requirements
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