Determine the carrying amount of extraction assets

Assignment Help Managerial Accounting

Reference no: EM133392173

ASSET RETIREMENT OBLIGATION (provide details of your calculation) Mr. Dupond, the accountant of Tdex group, an international firm, provide you with the following notes and require you to answer the questions related to ARO:

1. Leased land from Alberta government for a maximum period of 20 years. Installation of five oil wells at a total cost of $2,500,000 and capitalized to Extraction Assets. These are amortized over their expected productive life- 20 years on a straight-line basis.

2. Operations start on January 1, 2020.

3. Accountant recorded $498,312 as Asset Retirement Obligation on January 1, 2020.

4. Annual interest costs will be $14,949 at end 2020.

Mr. Dupond then states "I think the retirement costs are too high but this information came from the audit partner at our CPA firm so we will rely on it. Imagine we even have to pay interest on it during this economic downturn when we have to cut the budget!! " Assume Tdex follows IFRS unless stated. Required:

Part 1:

1. Determine the discount rate (round up for instance if you find 5.99% then consider 6%)?

2. Determine the carrying amount of Extraction assets (You are not required to made the journal entry to record ARO)

3. Determine the depreciation expense at end 2020

4. Determine Carrying value of ARO beginning of year 2021

5. Determine the interest expense and the balance of ARO at end 2021

6. Assume that at end useful life (on December 31, 2039), the company incurs an actual cost of $850,000 to safely retire the Extraction assets. Provide the journal entry required to record this transaction

Part 2

7. Now, assume $500,000 increase in dismantling costs due to first year oil production. Prepare the journal entry required under IFRS at end year 1. 8. Now assume Tdex group follows ASPE, Calculate depreciation expense for the second year.

8. Now assume Tdex group follows ASPE, Calculate depreciation expense for the second year.

Reference no: EM133392173

Questions Cloud

Explain the four-step process used to mark evidence : Explain the four-step process used to mark evidence and why the process is required before an item can be admitted into evidence.

What is the importance of baldos opinion about maria : Do you like Baldo? What typical reactions do sisters-in-law have in common, when they are first presented to their husbands' families?

What are some expectations for the stark law : Discuss some of the major regulationsAnd laws that govern Contracting for medical practices and What are some expectations for the Stark law

Definition and history of victimology : A definition and history of victimology. Protection from Lawsuits by not having a victim witness assistant position(S)

Determine the carrying amount of extraction assets : Determine the carrying amount of Extraction assets (You are not required to made the journal entry to record ARO) 3. Determine the depreciation expense

What do you think about sun yat-sens references to confucius : What do you think about Sun Yat-sen's references to Confucius? How might Confucius have reacted to Sun Yat-sen's arguments, if he were able to hear them?

Why does the government consider jerrys actions fraudulent : Why does the government consider Jerry's actions fraudulent and Name two ways that reducing costs on the civilian contracts would benefit the company

Think critically about the core tasks of therapy : Think critically about the core tasks of therapy, both as described in the readings, and what you believe to be the most essential functions of therapy to be.

What is the cost of goods sold : Assume that Finished Goods Beginning Inventory equals $5,000; The Cost of Goods Manufactured Equals $32,500; and Finished Goods Ending Inventory = $10,000

User Account

All Pages