Deductibility of the costs of restoration

Assignment Help Project Management

Reference no: EM13991668

The controller of Newform Oil Company has come to you for advice. Newform recently cleared a forested area and began drilling an oil well on the site. The well is a gusher, and Newform's geologists estimate that it will produce for at least 10 years. Environmental restoration laws will require Newform to completely reforest and restore the oil well site when the well is taken out of production. An engineering firm hired by Newform estimates that the cost of complying with the environmental requirements will be $8,000,000. For financial accounting purposes, Newform intends to amortize the estimated cost over the 10-year expected life. In addition, it plans to put $500,000 per year into an account that should provide the $8,000,000 necessary to perform the restoration.

The controller would like your advice on the deductibility of the costs of restoration. That is, when can Newform deduct the costs and how much can it deduct? Based on the concepts discussed in this chapter, explain what you think is the proper treat- ment of the restoration costs for tax purposes.

Reference no: EM13991668

Questions Cloud

Hershey aligns training with strategy : In 200 words, Review the case study titled "Hershey Aligns Training with Strategy" in the textbook on pages 24-27. How should HRD be involved in shaping strategy in the Hershey case? Textbook - Effective training: Systems, strategies, and practices A..

Use the construct of forgiving to benefit society : Discuss specific examples of how Christians can use the construct of “forgiving” to benefit society? This is a psychology question but, since there is no psychology section anymore to post on I need someone in this section to answer this question for..

What is the velocity of the cart when position : A 0.500 kg cart connected to a light spring for which the force constant is 20.0N/m oscillates on a frictionless horizontal air track. Calculate the maximum speed of the cart if the amplitude of the motion is 3.00 cm.

Data analysis tools : Excel provides many different ways in which to analyze data. Discuss the different methods by which you can analyze data in your spreadsheet. That is, try an Internet search for "data analysis with excel" or use some of the methods you learned in thi..

Deductibility of the costs of restoration : The controller would like your advice on the deductibility of the costs of restoration. That is, when can Newform deduct the costs and how much can it deduct? Based on the concepts discussed in this chapter, explain what you think is the proper tr..

What is the required cycle time for the process : The regional government office that deals with passport applications is designing a process that will check applications and issue the documents. The number of applications to be processed is 1,600 per week and the time available to process the appli..

Develop and communicate the impact of their green actions : In an article entitled "The Ocean as Carbon Sink: A Double Edged Sword", Elizabeth Klusinske of WorldGreen.org, "a unique online sustainable community created to help social entrepreneurs on all levels develop and communicate the impact of their ..

For the passport office-make up the total task of checking : For the passport office, described above, the total work content of all the activities that make up the total task of checking, processing and issuing a passport is, on average, 30 minutes. How many people will be needed to meet demand?

Details regarding salary and withholdings : Kimberly Cerny is a graduate student. She is 22 years old and works part-time as a grad- uate assistant in the biology department. In the summer, Kimberly was an intern at Neutrobio, Inc. Details regarding her salary and withholdings from her empl..

User Account

All Pages