Nickel Strike Mines is a nickel mining company with mines

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Nickel Strike Mines is a nickel mining company with mines

Nickel Strike Mines is a nickel mining company with mines in northern Ontario, Colombia, and
Australia. It is a publicly traded company and follows IFRS, and has historically followed industry
practice and used unit of production as its depreciation policy for all of its mines. During 2017,
the price of nickel declined significantly, even below the costs of production for the Ontario
mines. Consequently, the company has had the Ontario mines closed since early January 2017.
It has continued to produce in its Colombian and Australian mines. It is now December 2017
and the controller is trying to decide what accounting issues there are related to the Ontario
mines. Since it was a very bad year for the company, and investors are expecting the worst, the
controller is considering switching to the declining-balance method of depreciation for the
Ontario mines only. This would create a significant depreciation charge for 2017, but in the
future, the depreciation costs related to the mines would decrease, resulting in higher net
income. In addition, since there were no units produced in the Ontario mines for the year, no
depreciation is taken. The controller believes that this is wrong, and that some amount of
depreciation should be recorded.

Additionally, the controller is also considering taking as large an impairment loss as possible on
all the mines. The controller will do this by assuming a very low nickel price, which will cause the
recoverable amounts to be below carrying values for all mines. This impairment loss will likely
reverse in the following years, since nickel prices are expected to climb dramatically over the
next year, as supplies diminish and as demand from Asian countries increases. With the
reversal of the impairment in 2018, this would show a significant improvement in the company's
net income.

Instructions

You are a Nickel Strike Mines board member and have just heard the controller's comments on
these issues. Comment on the controller's suggestions. Include in your discussion how the
impairment test would be completed and the assumptions required. Also discuss the note
disclosure that would be required related to all of these issues and any ethical issues that may
arise.

Nickel Strike Mines is a nickel mining company with mines

ANSWER
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