Financial accounting

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Posted on February 22, 2022

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Project Desciption

Areva Resources Namibia Plc. undertook a project involving the construction of a 

seawater desalination plant at Wlotzkasbaken near Swakopmund. The project was 

completed on 01 January 2017 at a cost of N$10 000 000. The directors of Areva 

Resources believe their multi-million dollar project shall be able to supply all the 

water to be consumed at Trikkopje mine, some 40km into the dessert. After 5 years, 

the company has an obligation to dismantle and restore the environment in 

compliance with both the Ministry of Marine Resources & Fisheries and the Ministry 

of Environment & Tourism regulations. 

Management of Areva Resources has established that the cost of dismantling and 

restoration of the environment was N$4 000 000 on 1 January 2017. The year-on-

year inflation rate was 6% on 1 January 2017 and is unlikely to change. The company 

specific pre-tax risk adjusted discount rate is 10%. 

Required:

Prepare the relevant journal entries from 1 January 2017 to 31 December 2018 

arising from the transactions above. Assume that on 31 December 2019 there was 

an advance in technology which would save the final cost of the dismantling and 

restoration cost by N$500 000.

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