Provision questions (IMPORTANT)

Question 1

Calculate the provision at each reporting date

Answer 1

Discount the removal costs to PV using discount factor table E.g. £200k discounted at 8% for 5 years is 0.681 ,’, £136,117

Create a table, starting with those PV removal costs
1 - Original cost:
2nd - Unwinding of discount (at their cost of capital). We add this to the starting provision for the year
3rd: Less settlement payment per year. This is fixed and the same for each year

Question 2

Splitting the calculated provision into current and non-current balances

Answer 2

Create table, year on top
Current:
Non current:

In current you discount the yearly removal cost payment by one year at the firms cost of capital, then keep it fixed for all years
In non current just add the remaining amount as the balancing figure to match the end of year totals from your previously created provision table (should decrease each year)