EZ Mining Ltd, a mining company in Fictional Country (Fictional)


EZ Mining Ltd, a mining company in Fictional Country (Fictional) owns an iron ore mine. When EZ Mining first purchased the mine in 2010, they paid $10 million. At that time, EZ Mining entered into an agreement with the government to allow it to extract and export the iron ore. This agreement cost the company $20,000 per annum. This year (2020), an earthquake occurred in the region of the iron ore mine. EZ Mining is unsure about whether they will be able to continue operating the mine. They have not been able to find a purchaser for the mine as the area is still not fully accessible. As the situation improved over the last few weeks, EZ mining has acquired some analysis that indicates there is a 30% probability that EZ Mining will resume operations. You have been asked to prepare EZ Mining’s financial statements and you are not sure how to value the mine. You have recently completed your degree and you remember that the Conceptual Framework can be relied on to help you with this problem. Required 

a) Does the mine represent an asset, liability or equity according to the definitions provided in the Conceptual Framework? Justify your choice using the elements of the chosen definition. (10 marks)

b) Using the recognition criteria provided in the Conceptual Framework, would the mine appear on your financial statements? (5 marks) 

c) What would you need to take into consideration when deciding on measuring a value for the mine? What value would you place on it? (5 marks) Total – 20 marks

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