Lovely A.

Cabug-os BSA-2A

Assignment #9 Decommissioning Liability

On January 1, 2020, Stanford Company purchased a mining site that will have to be restored to certain specifications
cost of the mining site is P8,000,000 and the restoration cost is expected to be P2,000,000.
It is estimated that the mine will continue in operation for 10 years.
The appropriate discount rate is 8%. The present value of 1 at 8% for 10 periods is 0.4632.
December 31, 2029, the entity contracted with another entity for the restoration of the mining site in accordance with

Required:
1. Prepare journal entries in 2020 to record the purchase of the mining site and the recognition of the decommissionin
2 . Prepare journal entry to record the settlement of the decommissioning liability on December 31, 2029.

Requirement 1:
2020
Jan 1. Mining site 8,000,000.00
Cash
Mining site 926,400.00
Decommisioning liability
(2,000,000 x .4632)
Dec. 31 Interest Expense 74,112.00
Decommisioning liability
(926,400 x 8%)
Requirement 2:
2029
Dec, 31 Decommisioning liability 2,000,000.00
Cash
Gain on settlement of decommissioning liability
tored to certain specifications when the mining production ceases.

mining site in accordance with specifications at a cost P1,800,000.

gnition of the decommissioning liability.

ecember 31, 2029.

8,000,000.00

926,400.00

74,112.00

1,800,000.00
200,000.00