Question 3a

On 1 December 20X6, Fill purchased an open cast coal mine in the UK and incurred borrowing costs on the acquisition of a coal mining licence. It also acquired equipment which will be used for the construction of various mines throughout the UK. Fill wishes to capitalise the borrowing costs on the acquisition of the licence and the equipment.

However, during the last six months of the year ended 30 November 20X8, there has been a significant decline in the spot price of coal and it is expected that future reductions in selling prices may occur. Currently, the forward contracts being signed over the next two years by Fill indicate a reduction in the price of coal. At 30 November 20X8, the mine has a useful remaining life of four years. As a result of the decline in the price of coal, Fill has decided to sell the mine and has approached several potential buyers.

Required:
Advise the directors of Fill on how to treat the above events under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. (8 marks)