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Hello Sir,
i’m having a lot of difficulties on this question, can u please help me ?
On 01.02.13 A commenced drilling for gas from an undersea gas field. the extraction of gas causes damage to the seabed involving costs of restoration of $12,000 per million cubic litres of gas extracted 200 million cubic litres of gas.
A is, in addition, required to dismantle the drilling equipment at the end of the ten year licence period. The estimated cost on 01.02.13 of dismanting on 31 January, 2023 is $30Million. A’s cost of capital is 8% and the value of $1 in ten years’ time is 46 cents.
what is the total provison that A would report in its sofp at 31.01.14 in respect of its gas extraction operations ?
30 million discounted for 9 years, plus
(now, here, your second paragraph is very confusing but I shall make the assumption that you meant that “during the year ended 31 January 2014 200 million cubic litres of gas were extracted at a cost to the company of $12,000 per million cubic litres)
200 x $12,000 = $2,400,000
giving a total provision of $30,000,000 discounted for 9 years plus $2,400,000
Does that agree with the printed solution?
the second paragraph : On 01.02.13 A commenced drilling for gas from an undersea gas field. the extraction of gas causes damage to the seabed involving costs of restoration of $12,000 per million cubic litres of gas extracted (ignore discounting) During the year ended 31 january A extracted 200 million cubic litres of gas.
No, the answer for it is : $ 17,304,000
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