Question

During 2017, JL copper mine built the infrastructure for an open pit copper mine in a remote area in Northern British Columbia at a total cost of $20 million , paid in cash. The mine is expected to produce 800,000 tonnes of copper over its estimated useful life of 10 years. The BC government's approval granted to JL was conditional upon the company remediating the site and establishing a wildlife reserve . The estimated cost of remediation is $5 million . An appropriate interest rate for this obligation  is 5%. Assume that JL has grouped the $20 million construction costs and the remediation asset in an account called "Mine assets" and that is uses the units-of-production method to depreciate this asset. JL began mining operations in January ,2018 and during the year it mined 60,000 tonnes of copper . In 2019, it increased its production to 90,000 tonnes of copper. While JL is a private company , it elects to report its financial results in accordance with IFRS. its year end is December 31.

a) Prepare a journal entry to record the site restoration obligation and a summary journal entry to record the cost of construction . Date all entries as December 31 , 2017 for this part?

b) Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year-ended December 31, 2018?

c) Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year ended December 31,2019?

Answer 1

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