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    Maynard: Financial Reporting, Chapter 13

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    Selva Bavani Selwadurai
    This document discusses the definition of a liability according to accounting standards and when provisions should be recognized. It provides a case study of an oil company, Promoil, that must recognize a liability for the future costs of removing its oil platform and restoring the seabed after 10 years of use, with the present value of those costs being recognized on the balance sheet.

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    Maynard: Financial Reporting, Chapter 13

    Uploaded by

    Selva Bavani Selwadurai
    26 views1 page
    This document discusses the definition of a liability according to accounting standards and when provisions should be recognized. It provides a case study of an oil company, Promoil, that must recognize a liability for the future costs of removing its oil platform and restoring the seabed after 10 years of use, with the present value of those costs being recognized on the balance sheet.

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    Maynard ACCA Ch13a

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    This document discusses the definition of a liability according to accounting standards and when provisions should be recognized. It provides a case study of an oil company, Promoil, that must recognize a liability for the future costs of removing its oil platform and restoring the seabed after 10 years of use, with the present value of those costs being recognized on the balance sheet.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    26 views1 page

    Maynard: Financial Reporting, Chapter 13

    Uploaded by

    Selva Bavani Selwadurai
    This document discusses the definition of a liability according to accounting standards and when provisions should be recognized. It provides a case study of an oil company, Promoil, that must recognize a liability for the future costs of removing its oil platform and restoring the seabed after 10 years of use, with the present value of those costs being recognized on the balance sheet.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Maynard: Financial Reporting, Chapter 13

    ACCA Qualification - F7 Financial Reporting - International


    December 2008 past exam paper
    4 (a) The definition of a liability forms an important element of the International Accounting Standards
    Boards Framework for the Preparation and Presentation of Financial Statements which, in turn,
    forms the basis for IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
    Required:
    Define a liability and describe the circumstances under which provisions should be recognised.
    Give two examples of how the definition of liabilities enhances the reliability of financial
    statements. (5 marks)
    (b) On 1 October 2007, Promoil acquired a newly constructed oil platform at a cost of $30 million
    together with the right to extract oil from an offshore oilfield under a government licence. The terms
    of the licence are that Promoil will have to remove the platform (which will then have no value) and
    restore the sea bed to an environmentally satisfactory condition in 10 years time when the oil
    reserves have been exhausted. The estimated cost of this on 30 September 2017 will be $15 million.
    The present value of $1 receivable in 10 years at the appropriate discount rate for Promoil of 8% is
    $0 46.
    Required:
    (i) Explain and quantify how the oil platform should be treated in the financial statements of
    Promoil for the year ended 30 September 2008; (7 marks)
    (ii) Describe how your answer to (b)(i) would change if the government licence did not
    require an environmental clean up. (3 marks)
    (15 marks)


    OUP is grateful to the Association of Chartered Certified Accountants (ACCA) for permission to
    reproduce past examination questions.

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