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Example 4 - Measurement of Provision ▶ On 1 January 2018, SDN Limited acquired a newly constructed oil platform at a cost of $30 million together with the right to extract oil from an offshore oilfield under a government licence. ▶ The terms of the license are that SDN will have to remove the platform (which will then have no value) and restore the sea bed to an environmentally satisfactory condition in ten year's time when the oil reserves have been exhausted. Example 4 - Measurement of Provision ► According to experts' report, the estimated cost of this on 31 December 2027 will be $15 million. The present value of $1 receivable in ten years at the appropriate discount for SDN of 8% is $0.46. (a) Should SDN Limited recognize a provision? (b) Prepare the journal entries for the year ended 31 December 2018 Example 4 - Measurement of Provision (b) Prepare journal entries for Year 1 in ($'000) Date 1 Jan 2018 Oil Platform (30m (15m x 0.46)) Cash Environmental Provision (To record acquisition of oil platform) Finance Cost (6.9m x 8%) Environmental Provision Debit 36,900 Credit 30,000 6,900 552 552 (To recognize finance cost on environmental provision) Depreciation expense Acc. Depreciation 3,690 (To provide the depreciation for the oil platform) 3,690

Example 4 - Measurement of Provision ▶ On 1 January 2018, SDN Limited acquired a newly constructed oil platform at a cost of $30 million together with the right to extract oil from an offshore oilfield under a government licence. ▶ The terms of the license are that SDN will have to remove the platform (which will then have no value) and restore the sea bed to an environmentally satisfactory condition in ten year's time when the oil reserves have been exhausted. Example 4 - Measurement of Provision ► According to experts' report, the estimated cost of this on 31 December 2027 will be $15 million. The present value of $1 receivable in ten years at the appropriate discount for SDN of 8% is $0.46. (a) Should SDN Limited recognize a provision? (b) Prepare the journal entries for the year ended 31 December 2018 Example 4 - Measurement of Provision (b) Prepare journal entries for Year 1 in ($'000) Date 1 Jan 2018 Oil Platform (30m (15m x 0.46)) Cash Environmental Provision (To record acquisition of oil platform) Finance Cost (6.9m x 8%) Environmental Provision Debit 36,900 Credit 30,000 6,900 552 552 (To recognize finance cost on environmental provision) Depreciation expense Acc. Depreciation 3,690 (To provide the depreciation for the oil platform) 3,690

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 14RE: (Appendix 11.1) Auburn Company purchased an asset on January 1, Year 1, for 150,000. The asset has a...
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what is the 0.46 means? Why 15m need to times the 0.46? What is the answer means?

What is the 552 means? Why it need to times the 6.9m with 8%?

 

Example 4 - Measurement of Provision ▶ On 1 January 2018, SDN Limited acquired a newly constructed oil platform at a cost of $30 million together with the right to extract oil from an offshore oilfield under a government licence. ▶ The terms of the license are that SDN will have to remove the platform (which will then have no value) and restore the sea bed to an environmentally satisfactory condition in ten year's time when the oil reserves have been exhausted. Example 4 - Measurement of Provision ► According to experts' report, the estimated cost of this on 31 December 2027 will be $15 million. The present value of $1 receivable in ten years at the appropriate discount for SDN of 8% is $0.46. (a) Should SDN Limited recognize a provision? (b) Prepare the journal entries for the year ended 31 December 2018
Transcribed Image Text:Example 4 - Measurement of Provision ▶ On 1 January 2018, SDN Limited acquired a newly constructed oil platform at a cost of $30 million together with the right to extract oil from an offshore oilfield under a government licence. ▶ The terms of the license are that SDN will have to remove the platform (which will then have no value) and restore the sea bed to an environmentally satisfactory condition in ten year's time when the oil reserves have been exhausted. Example 4 - Measurement of Provision ► According to experts' report, the estimated cost of this on 31 December 2027 will be $15 million. The present value of $1 receivable in ten years at the appropriate discount for SDN of 8% is $0.46. (a) Should SDN Limited recognize a provision? (b) Prepare the journal entries for the year ended 31 December 2018
Example 4 - Measurement of Provision (b) Prepare journal entries for Year 1 in ($'000) Date 1 Jan 2018 Oil Platform (30m (15m x 0.46)) Cash Environmental Provision (To record acquisition of oil platform) Finance Cost (6.9m x 8%) Environmental Provision Debit 36,900 Credit 30,000 6,900 552 552 (To recognize finance cost on environmental provision) Depreciation expense Acc. Depreciation 3,690 (To provide the depreciation for the oil platform) 3,690
Transcribed Image Text:Example 4 - Measurement of Provision (b) Prepare journal entries for Year 1 in ($'000) Date 1 Jan 2018 Oil Platform (30m (15m x 0.46)) Cash Environmental Provision (To record acquisition of oil platform) Finance Cost (6.9m x 8%) Environmental Provision Debit 36,900 Credit 30,000 6,900 552 552 (To recognize finance cost on environmental provision) Depreciation expense Acc. Depreciation 3,690 (To provide the depreciation for the oil platform) 3,690
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