Reference no: EM132739002
Question - On January 1, 2017, MEGA Company purchased an oil tanker depot at a cost of P6,000,000. The entity is expected to operate the depot for 5 years after which it is legally required to dismantle the depot and remove the underground storage tanks. The oil tanker depot is depreciated using straight line with no residual value.
It is reliably estimated that the cost of decommissioning the depot will amount to P1,500,000. The appropriate discount rate is 10%. The present value of 1 at 10% for 5 periods is 0.62.
On December 31, 2021, after 5 years of operating the depot, the entity paid a demolition entity to dismantle the depot at a price of P1,700,000.
Required -
a) Prepare the journal entries from 2017 to 2021.
b) Prepare the journal entry for the dismantling of the depot, assuming that the payment to the demolition entity is P1,400,000.
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