Copper Products Limited leases property on which copper

has been #2089

Copper Products Limited leases property on which copper has been discovered. The lease
provides for an immediate payment of $472,000 to the lessor before drilling has begun and an
annual rental of $55,000. In addition, the Jessee is responsible for cleaning up the waste and
debris from drilling and for the costs associated with reconditioning the land for farming when
the mine is abandoned. It is estimated that the legal obligation related to cleanup and
reconditioning has a present value of $46,000. Copper Products has publicly pledged an
additional $30,000 (present value) to reclaim the area surrounding the mine. Copper Products
prepares financial statements in accordance with IFRS.Instructions(a) Determine the amount
that should be capitalized in the Mineral Resources asset account as a result of the lease
agreement.(b) Would the amount provided in part (a) differ if Copper Products prepares
financial statements in accordance with ASPE?(c) Prior to entering into the lease agreement,
assume that Copper Products had total debt of $580,000 and total assets of $1,000,000. Also
assume that the immediate payment of$472,000 was paid upfront in cash. From the perspective
of a creditor, discuss the effect of the lease agreement on Copper Products' debt to total assets
ratio. Assume that Copper Products follows IFRS.View Solution:
Copper Products Limited leases property on which copper has been

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