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Calculate the inflation-adjusted cost of restoration

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Question - During the reporting period ending 30 June 2015, Johnson Limited erected an oil rig in Yara River. The cost of the rig and associated technology amounted to $99 500 000.

The oil rig commenced production on 1 July 2015. At the end of the rig's useful life, which is expected to be five (5) years, Johnson Limited is required by its resource consent to dismantle the oil rig, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists, Johnson Limited estimates that if such work was required to be done at the present time it would cost $13 999 995.

Anticipating that inflation will average 2 per cent annually over the next 5 years, calculate the inflation-adjusted cost of restoration expected in 5 years' time?

Reference no: EM133003447

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