Pante, Manley R.

BSAIS III

Geneva Company

1. Prepare journal entries in 2020 to record the purchase of the mining site and the recognition of
decommissioning liability.

To prepare the journal entries in 2020 to record the purchase of the mining site and recognition of
decommissioning liability, we need to calculate the present value of the decommissioning liability using
the given discount rate.

Given:

Mining site cost: P8,000,000

Restoration cost: P2,000,000

Discount rate: 8%

Present value factor for 10 periods at 8%: 0.4632

Date Particulars Debit Credit

Jan. 1 2020 Mining Site 8,000,000

Cash or Accounts Payable 8,000,000

(To record purchase of mining site)

Decommissioning Liability (2,000,000 × 0.4632) 926,400

Decommissioning Cost 926,400

(To record the recognition of decommissioning liability)

Dec. 31, 2020 Interest Expense 74,112

Decommisioning liability (926,400 x 8%) 74,112

This entry reflects the initial recognition of the decommissioning liability based on the present value of
the estimated restoration cost.

2. Prepare journal entry to record the settlement of the decommissioning disability on December 31,
2029.
 No. Particulars Debit Credit

Dec. 31, 2029 Decommissioning Liability 2,000,000

Cash or Accounts Payable 1,800,000

Gain on settlement of decommissioning liability 200,000

This entry records the settlement of the decommissioning liability upon payment of P1,500,000 in
accordance with the contract for restoration of the mining site.