The following two issues relate to Digger Co’s mining activities:
Issue 1: Digger Co began operating a new mine in January 2020 under a ten-year government licence which required Digger Co to landscape the area after mining ceased at an estimated cost of $150,000.
Issue 2: During 2021, Digger Co’s mining activities caused environmental pollution on an adjoining piece of government land. There is no legislation which requires Digger Co to rectify this damage, however, Digger Co does have a published environmental policy which includes assurances that it will do so. The estimated cost of the rectification is $1,500,000.
In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following statements is correct in respect of Digger Co’s financial statements for the year ended 31 December 2021?
A provision is required for the cost of both issues 1 and 2
Both issues 1 and 2 require disclosure only
A provision is required for the cost of issue 1 but issue 2 requires disclosure only
Issue 1 requires disclosure only and issue 2 should be ignored