MC Question 5

On 1 October 20X4, Kalatra Co commenced drilling for oil from an undersea oilfield.

Kalatra Co is required to dismantle the drilling equipment at the end of its five-year licence.

This has an estimated cost of $30m on 30 September 20X9.

Kalatra Co’s cost of capital is 8% per annum and $1 in five years’ time has a present value of 68 cents.

What is the provision which Kalatra Co would report in its statement of financial position as at 30 September 20X5 in respect of its oil operations?

A     $32,400,000
B     $22,032,000
C     $20,400,000
D     $1,632,000

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