Ask Question
5 March, 11:52

Sarasota Company purchases an oil tanker depot on January 1, 2020, at a cost of $575,800. Coronado expects to operate the depot for 10 years, at which time it is legally required to dismantle the depot and remove the underground storage tanks. It is estimated that it will cost $71,760 to dismantle the depot and remove the tanks at the end of the depot's useful life.

Required:

Prepare the journal entries to record the depot (considered a plant asset) and the asset retirement obligation for the depot on January 1, 2017. Based on an effective-interest rate of 6%, the present value of the asset retirement obligation on January 1, 2017, is $40,070.

+5
Answers (1)
  1. 5 March, 13:15
    0
    As per the IAS-16 the cost of dismantling the asset will be capitalized at present value and will be included in the cost of asset and provision for the dismantling future liability will be created at present vale of the liability i. e 40070.

    Entries

    Asset (575800+40070) 615870

    Bank 575800

    Provision for Dismantling cost 40070
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Sarasota Company purchases an oil tanker depot on January 1, 2020, at a cost of $575,800. Coronado expects to operate the depot for 10 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers