Question
An oil company constructs a drilling platform at a cost of ₹200 crore. It estimates a dismantling cost of ₹30 crore at the end of 25 years. The present value of this dismantling cost is ₹7 crore. How should this be accounted for initially?
Solution
The present value of dismantling costs (₹7 crore) is added to the initial cost of the asset, making the capitalised cost ₹207 crore, and a provision is recognised for the same amount.
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