Question
On January 1, 2014, Offshore Corporation erected a drilling platform at a cost of $5,420,142. Offshore is legally required to dismantle and remove the platform
On January 1, 2014, Offshore Corporation erected a drilling platform at a cost of $5,420,142. Offshore is legally required to dismantle and remove the platform at the end of its 6 year useful life, at an estimated cost of $943,065. Offshore estimates that 70% of the cost of dismantling and removing the platform is caused by acquiring the asset itself, and that the remaining 30% of the cost is caused by using the platform in production. The present value of the increase in asset retirement obligation related to the production of oil in 2014 and 2015 was $32,092 and $34,659, respectively. The estimated residual value of the drilling platform is zero, and Offshore uses straight-line depreciation. Offshore prepares financial statements in accordance with IFRS.
Prepare the journal entries to record the acquisition of the drilling platform, and the asset retirement obligation for the platform, on January 1, 2014. An appropriate interest or discount rate is 8%.
Prepare any journal entries required for the platform and the asset retirement obligation at December 31, 2014.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started