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Peppel Corporation acquired a newly constructed oil platform as well as the licence to extract oilfrom an offshore oilfield in the Gulf of Mexico for 10 years. The cost of the platform and the licence cost $50m. Under the licence, the company has to remove the platform at the end of 10 years and restore thesea bed to an environmentally satisfactorily condition. The estimated cost of this is $20m. Thepresent value of $1 receivable in 10 years at the appropriate discount rate of 9% for PeppelCorporation is 0.42.
Required:
i) Explain how the offshore oil platform should be treated in the financial statements of Peppel Corporation for the year ended 31 December 2012.
ii) Show extracts of the following for Peppel Corporation:- statement of financial position as at 31 Dec 2012- statement of comprehensive income for the year ended 31 Dec 2012.
iii) Suppose Peppel is not legally required to cleanup the environment at the end of 10 years.How should the offshore oil platform be treated in the financial statements? Showextracts of the financial statements for the year ending 31 Dec 2012.
iv) Assuming that there is no legal requirement to clean up the environment but Peppel isenvironmentally conscious and has always in practice, cleanup the environment in whichit operates and restore it to a satisfactory condition.How should the offshore oil platform be treated in the financial statements?
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