During the reporting period ending 30 June 2014, Sara Limited erected an oil rig in Noosa River. The cost of the rig and associated technology amounted to $99 000 000. The oil rig commenced production on 1 July 2014. At the end of the rig’s useful life, which is expected to be five (5) years, Sara Limited is required by its resource consent to dismantle the oil rig, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists, Sara Limited estimates that if such work was required to be done at the present time it would cost $14 999 995. If we accept that the rate on 5-year government bonds reflects the relevant time value of money, and if the rate is 4 per cent annually, calculate the present value of the restoration provision which would be today.
During the reporting period ending 30 June 2014, Sara Limited erected an oil rig in Noosa River. The cost of the rig and associated technology amounted to $99 000 000.
The oil rig commenced production on 1 July 2014. At the end of the rig’s useful life, which is expected to be five (5) years, Sara Limited is required by its resource consent to dismantle the oil rig, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists, Sara Limited estimates that if such work was required to be done at the present time it would cost $14 999 995.
If we accept that the rate on 5-year government bonds reflects the relevant time value of money, and if the rate is 4 per cent annually, calculate the present value of the restoration provision which would be today.
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