Question 4

Drilling Limited is a company involved in extracting oil from the sea bed. It purchased an oil drilling rig, the details of which are as follows:

Cash purchase price (1 January 2011}: N$2 000 000

Depreciation straight line to nil residual values: 5 years The rig must be dismantled after 5 years, details which are as follows:

Future decommissioning costs assessed at 1 January 2013: N1500 000

Discount rate: 10%

Drilling Limited uses the cost model to measure items of plant and has a financial year ended 31 December.

REQUIRED:

Provide journal entries relating to the rig for financial years ended 31 December 2011 until 2013, should Drilling Limited adjust its dismantling provision in 20x3 to N$ 1 500 000

Show all workings clearly