Wawood Limited purchased the rights, under a government licence to mine on government land. The agreement which was signed on 1 January 2020, includes a clause that obligates Wawood Limited to restore the land back to a satisfactory condition at the conclusion of their mining operation when the right expires in four years’ time. The costs of the restoration in four years’ time will be R 2 050 000. The appropriate discount rate to present value the restoration costs is 13%. (17) Required: Prepare the journal entries to record the initial recognition of the provision on 1 January 2020 and the change in the value of the provision as at 31 December 2020. Round off the present value factor to 4 decimal places and the present value of the provision to the nearest rand. All answers must comply with the requirements of International Financial Reporting Standards (IFRS), in particular IAS37 ‐ Provisions, contingent liabilities and contingent assets. All calculations must be shown as marks will be allocated. Round all amounts to the nearest rand.

Question

Wawood Limited purchased the rights, under a government licence to mine
on government land. The agreement which was signed on 1 January 2020,
includes a clause that obligates Wawood Limited to restore the land back to
a satisfactory condition at the conclusion of their mining operation when the
right expires in four years’ time. The costs of the restoration in four years’
time will be R 2 050 000. The appropriate discount rate to present value the
restoration costs is 13%.
(17)
Required:
Prepare the journal entries to record the initial recognition of the provision
on 1 January 2020 and the change in the value of the provision as at
31 December 2020. Round off the present value factor to 4 decimal places
and the present value of the provision to the nearest rand.
All answers must comply with the requirements of International Financial
Reporting Standards (IFRS), in particular IAS37 ‐ Provisions, contingent
liabilities and contingent assets.
All calculations must be shown as marks will be allocated.
Round all amounts to the nearest rand.

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