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?
    A ₹200 crore as cost and ₹7 crore as provision Correct Answer Incorrect Answer
    B ₹230 crore as cost of asset Correct Answer Incorrect Answer
    C ₹200 crore as cost; ₹30 crore as contingent liability Correct Answer Incorrect Answer
    D ₹207 crore as cost of asset with corresponding liability Correct Answer Incorrect Answer
    E ₹200 crore only, dismantling cost ignored Correct Answer Incorrect Answer

    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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