As per IAS 37 there is a legal provision on Cee for damaging the environment
and the municipal land surrounding its factory. And have a reliable estimate to
make a payment of restoration of $2 million in the first phase, and the second
phase with the estimated cost of $3.5 million which will be commenced three
years later. And by all this it is probable that the outflow will be made. So
meeting all the three requirements Cee can record a provision. So the total cost
for the company will be after tax discount rate use to convert all the outflows
into the present value:
Year
Cashflow
10% discount rate
present value
20X9
2000000
0.909
1818000
20Y2
3500000
0.683
2390500
This restoration provision should not be recognized as a part of the factory
because it is incurred due to damage done by the factory so therefore it should
be recognized as a provision for the restoration in P&L