Solution-Prepare the journal entry to record the settlement

Prepare the journal entry to record the settlement of asset

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Reference no: EM132548837

On January 1, 2020, Pina Colada Corporation erected a drilling platform at a cost of $5,350,800. Pina Colada is legally required to dismantle and remove the platform at the end of its 6 year useful life, at an estimated cost of $931,000. Pina Colada estimates that 70% of the cost of dismantling and removing the platform is caused by acquiring the asset itself, and that the remaining 30% of the cost is caused by using the platform in production. The present value of the increase in asset retirement obligation related to the production of oil in 2020 and 2021 was $31,681 and $34,216, respectively. The estimated residual value of the drilling platform is zero, and Pina Colada uses straight-line depreciation. Pina Colada prepares financial statements in accordance with IFRS.

Question 1: Assume that on December 31, 2025, Pina Colada dismantles and removes the platform at a cost of $903,560. Prepare the journal entry to record the settlement of the asset retirement obligation. Also assume its carrying amount at that time is $931,000

Reference no: EM132548837

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Prepare the journal entry to record the settlement of asset

Reference no: EM132548837

Reference no: EM132548837

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