Question
Assume Big Popi Oil uses the FC method and performs the ceiling test at the end of second quarter using a price of $40/bbl. As
Assume Big Popi Oil uses the FC method and performs the ceiling test at the end of second quarter using a price of $40/bbl. As a result of the test, BP books a ceiling test write-down of $20 million. By the end of the year, the price has increased to $80/bbl. Using the year-end pricing, no write-down would be required. What action should BP take to "correct" the previously recorded write-down?
a. they should reverse the $20 million write-down.
b. adjust the accumulated DD&A account and restore the $20 million write-down.
c. nothing can be done
d. the previous write-down can be reversed if doing so does not significantly impact the company's DD&A rate.
e. none of these apply
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