Question

case study: answer according to the format provided in the second photo

General Oil Limited (GOL) is in the oil and gas business and operates internationally. The company is public and is listed on the Toronto Stock Exchange (TSX). In the past two years, oil prices have been declining significantly. The company's Canadian operations are primarily located in Western Canada and consist of holdings in what are known as the "tar sands." Costs to extract the oil from these types of geological formations are fairly high. In some months in the past year, the cost to extract the oil has been higher than the market price. GOL is worried that oil prices will continue to decline and has therefore decided to write down its productive asset. To this end, the company needs to calculate the value in use and fair value less costs to sell. The higher value will be used to measure the impairment loss and to revalue the oil reserve. Security analysts that follow oil and gas companies understand that the lower oil and gas prices are negatively affecting share prices. The land otherwise has little market value. Adopt the role of GOL's Chief Accountant and discuss the options available for valuation, includig how to measure for purposes of recording an impairment loss and the write down (W/D) of the Canadian Operations. Make sure to give reasons for your eventual choice of measurement.

Answer 1

Answer:

Issue Identification:

• General oil Limited (GOI) confronting issue to its future productivity on oil extraction as there is a significant decrease in price of oil in the market. Then again there is increment in extraction cost of oil because of geographical disadvantage. So decided to impairment its profitable resources for show proper value in books of accounts

Environment :

• Need to discover the best approach to measure the impairment of the assets in such a circumstance.

Analysis of issue:

• To justify that impedance of loss is sensible or not - GOI should see its future cash flow from its profitable resources for its book value. Issue is sure as GOI views the cost decrease of oil in the market over increment in extraction of the oil.

Recommendation:

• To measure the Impairment Loss - GOI need to do the recoverability test to decide the future un-discounted cash flow to its book value and in the event that it is less, at that point the disability should be recorded in GOI books of account