A mining company builds and places into service a mining infrastructure on 1/1/1

Question

A mining company builds and places into service a mining infrastructure on 1/1/17, at a cost of $25,000,000. State statutes require that the company dismantle and remove the infrastructure at the end of its useful life in 27 years. Management estimates that is will cost $2,300,000 at the end of its useful life. Management also estimates that the fair value, calculated as the present value of the future costs, of the dismantle and removed costs to be $1,200,000.

Pre pare the entries to recognize:

a. The construction and placing into service the mining infrastructure

b. The asset retirement obligation

Explanation / Answer

a)

Journal Entry for the construction and placing into service the mining infrastructure:

Mining Infrastructure Asset DR 25000000

Construction in Progress CR 25000000

b)

Journal Entry for asset retirement obligation:

Mining Infrastructure Asset DR 1200000

Asset retirement obligation CR  1200000

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