Homework Answers
Entry for Recognising retirement obligation
Present value of estimated amount of dismantling charges are recognised now and each year interest expense is added to that amount so that at end of 7 years entity can pay the estimated amount.
Present value of retirement obligation = $ 1,000,000 * PVF ( 9% , 7 years )
= $ 1,000,000 * 0.5470
= $ 547,000
Journal Entries
| Dr | Cr | |
| Asset A/c | $ 547,000 | |
| To Asset Retirement Obligation | $ 547,000 | |
| ( Being asset retirement obigation recognised on Jan 1st 2020 ) | ||
| Interest Expense A/c | $ 49,230 | |
| To Asset Retirement Obligation | $ 49,230 | |
| ( Being Interest recognised at Dec 31st 2020 ) | ||
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