EF obtained a government licence, free of charge, to operate a silver mine in 20X7 and $5 million was spent on preparing the site. The mine commenced operation on 1 January 20X8. The licence requires that at the end of the mine's useful life of 20 years, the site above ground must be reinstated to its original position.
EF estimated that the cost in 20 years' time of this reinstatement will be $3 million, which has a present value of $1 million at 1 January 20X8.
Which THREE of the following describe how the cost of the reinstatement of the site should be treated in the financial statements of EF in the year ended 31 December 20X8?
- The cost of the mine will be increased by $1 million on 1 January 20X8.
- The cost of the mine will be increased by $3 million on 1 January 20X8.
- There will be a credit to finance costs for the unwinding of the discount on the reinstatement provision.
- There will be a debit to finance costs for the unwinding of the discount on the reinstatement provision.
- Only the cost of the site preparation will be depreciated over the mine's useful economic life.
- Depreciation will be charged over 20 years on the full cost of the mine including the reinstatement cost.