Question
In: Accounting
on 1 July 2004,Experimentor opened a chemical reprocessing plant. the plant was due to be active...
on
1 July 2004,Experimentor opened a chemical reprocessing plant. the
plant was due to be active for five years until 30 June 2009, when
it would be decommissioned. At 1 July, 2004, the costs of
decommissioning the plant were estimated to be $4million in 5 years
time. the company considers that a discount rate of 12% is
approprite for the calculation of a present value, and the discount
factor at 12% for year 5 is 0.567.
what is the total charge to the statement of profit or
loss(Depreciation and finncial charge) in respect of the
decommissioning for the year ended 30 June 2015?
Solutions
Expert Solution
The present value of decommissioning provision of the plant using the discounting factor of 12% = 0.567*$4 million = $2.268 million. Therefore, the total charge to the statement of profit or loss in respect of the decommissioning for the year ended 30 June 2005 would be $0.72576 million (0.27216+0.4536)
Finance charge = 12%*2.268 = 0.27216
Depreciation = 2.268/5 = 0.4536
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