seaside medical center is starting an endowment fund to pay for the expenses of a co 613235

Executory and contractual obligations to maintain and restore the infrastructure

The operator under a water supply service concession is required as part of the overall contractual arrangement to replace four water pumps as soon as their performance drops below certain quality levels. The operator expects this to be the case after 15 years of service. The expected cost of replacing the pumps is CU 1,000. The operator’s best estimate is that the service potential of the pumps is consumed evenly over time and provision for the costs is made on this basis from inception of the service concession arrangement until the date of expected replacement. The provision is measured at the net present value of the amounts expected to be paid, using the operator’s discount rate of 5%. The amount provided in the first year can be calculated as CU 33.67. Assuming no changes to estimates, in 15 years CU 1,000 would have been provided and would be utilised in replacing the pumps. The provision would be adjusted on a cumulative basis to take account of changes in estimates to the cost of replacement pumps, the manner in which they are wearing out or changes to the operator’s discount rate.