On 1 October 2015, Promoil acquired a newly constructed oil platform at a cost of $30 million with the right to extract oil from an offshore oilfield under a government licence. The terms of the licence state that Promoil has to remove the platform (which will then have no value) and restore the seabed to an environmentally satisfactory condition in 10 years' time when the oil reserves are exhausted. The estimated cost of this on 30 September 2025 is $15 million. The present value of $1 receivable in 10 years' time at the appropriate discount rate of 8% for Promoil is $0.46.

Explain and quantify how the oil platform should be treated in the financial statements of Promoil for the year ended 30 September 2016.

Answer rating: 100% (QA)

For the year ended 30 September 2016 Promoil should treat the oil platform as a longterm asset on its financial statements Specifically the oil platfo... View the full answer