Question

Question 3 Blue Spruce Corp. erected and placed into service an offshore oil platform on January 1, 2020, at a cost of $9 million. Blue Spruce is legally required to dismantle and remove the platform at the end of its 9 year useful life. Blue Spruce estimates that it will cost $0.9 million to dismantle and remove the platform at the end of its useful life and that the discount rate to use should be 6%. Assume that the increase in the asset retirement obligation in 2020 related to the production of oil in 2020 was $66,605. v (a) Your answer is partially correct. Try again. Prepare any necessary entries to record the increase in the asset retirement obligation at December 31, 2020, assuming that Blue Spruce follows IFRS. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31, 2020 TT Drilling Platform 532710 Asset Retirement Obligation 532710

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Answer 1

Asset Retirement Cost: It is a cost which will be incurred when the asset is retired. The liability for the assets retirement cost should be recognised when the asset is acquired and it should be added the carrying value of the asset. It should be accounted at the present value of the obligation which will be incurred at the end of the life of assets and at each year interest expense will incurred every year and it will be added to the Asset Retirement Obligation account Account Title Dec 31,2020 Interest Expense Debit Credit Date $66,605 Asset Retirement Obligation (To record interest expense on the obligation) $66,605