Instructions: a) All projects must be submitted with a cover sheet that states the course details, your
Question:
Instructions:
a) All projects must be submitted with a cover sheet that states the course details, your names, and the instructor’s name.
b) All answers must show your workings – you cannot just put a number on a page without showing how you arrived at it. will be deducted for each question where the workings are missing..
Project details:
World Oil and Gas Corporation constructed an oil treatment facility in three (3) phases. The first phase was completed and in service on December 31, 2017. The second phase was completed and in service on December 31, 2018. The third phase was completed and in service on December 31, 2019. World Oil and Gas Corporation is legally required to decommission the plant at the end of its useful life which is estimated to be 14 years from the date the first phase went into service. The following schedule reflects the undiscounted expected cash flows and respective credit-adjusted risk-free rates used to measure each portion of the liability through to December 31, 2019. (The undiscounted cash flows below have already been adjusted for market risk premium, inflation, and already incorporate labor costs, overhead, and a profit margin. They have not been discounted).
Date | Undiscounted Expected Cash Flows | Credit-Adjusted Risk-Free Rate |
12/31/2017 | $150,000 | 8% |
12/31/2018 | $130,000 | 6% |
12/31/2019 | $90,000 | 4% |
On December 31, 2019, the entity increases by 3% its estimate of undiscounted expected cash flows that were used to measure those portions of the liability recognized on December 31, 2017 and December 31, 2018.
Required and marking schema: (Please round your answers up to even numbers)
a) Submitted on time (0.5 marks) and with a correct cover sheet (0.5 marks).
a) Calculate the initial measurement of the ARO liability for 31/12/2017, 31/12/2018, and 31/12/2019. (1 mark)
b) Calculate the measurement of the revision in expected cash flows on 31/10/2019. (1.5 marks)
c) Calculate the carrying amount of liability incurred in 2017 (1.5 marks)
d) Calculate the carrying amount of liability incurred in 2018 (1.5 marks)
e) Calculate the carrying amount of liability AND the effect of the change in estimated cash flows in 2019 (1.5 marks)
f) Calculate the carrying amount of the total liability for all three years.
Modern Database Management
ISBN: 978-0133544619
12th edition
Authors: Jeff Hoffer, Ramesh Venkataraman, Heikki Topi