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QUESTION 3 (IMPAIRMENT OF ASSETS) A company that extracts natural gas and oil has a...

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Accounting

QUESTION 3 (IMPAIRMENT OF ASSETS)

A company that extracts natural gas and oil has a drilling platform in the Caspain Sea. It is required by legislation of the country concerned to remove and dismantle the platform at the end of its useful life. Accordingly, the company has included an amount in its accounts for removal and dismantling costs, and is depreciating this amount over the platforms expected life.

The company is carrying out an exercise to establish whether there has been an impairment of the platform. Its carrying amount in the statement of financial position is GH3m. The company has received an offer of GH2.8m for the platform from another oil company. The bidder would take over the responsibility (and loss for dismantling and removing the platform at the end of its life).

The present value of the estimated cash flows from the platforms continued use is GH3.3m. The carrying amount in the statement of financial position for the provision for dismantling and removal is currently GH0.6m

You are required to

What should be the value of the drilling platform in the statement of financial position, and what, if anything, is the impairment loss?

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