Retirement, Accounting Standards

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2. Now assume that you have been asked how to account for the destroyed drilling operation in the Gulf of Mexico in terms of the destroyed rig and lost natural resources. For the purpose of this scenario, assume that BP owned this rig and it had an original cost of $225 million, which had been depreciated down to a current book value of $160 million. Also assume that oil rights had been purchased for $4 billion and had been 35% depleted. Provide a rationale, based on accounting standards, for how this operation should be retired.

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