Question - Big Promises Exploration Company, a small independent oil company owns an oil field drilling rig. Big Promise purchased the rig new for $2.5 million during the height of the energy boom when prices for crude oil were high. The rig was taken out of service following a free fall in the world oil prices and has been out of service for years. Its carrying amount is $2 million.
Big Promises management believe that the undepreciated invested cost of the rig is recoverable because the downturn in oil prices is only temporary and prices will return to record highs once again. Unfortunately, the current price of oil is relatively low and there is virtually no market for used drilling rigs, although a scrap metal dealer recently offered Big Promises $100,000 for the rig.
Required: How should Big Promises accurately record the value of its drilling rig? Should it be regarded as an impaired asset and carrying amount be written down? If so, to what amount?