Calculate the interest expense

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Question - On 2 January 20X8, Keen Mining Ltd. commenced a mining operation. Keen is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in 10 years' time. This means that a provision for decommissioning must be recorded. Keen estimates that decommissioning will cost $580,000 in 10 years. A reasonable market interest rate is 6%.

Required -

1. Calculate the present value of the decommissioning obligation on January 2, 20X8.

2. Prepare table that shows the balance of the obligation for three years (only).

3. Assume that in 20X0, Keen estimates that the cost of remediation will be $674,000, and that interest rates are now in the range of 8%. Calculate the interest expense for 20X0, the new present value, and the adjustment to the obligation for the change in estimates.

Reference no: EM132623998

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