Batter Sea Shipping Limited is a South African shipping company that transports crude oil from Saudi Arabia to South Africa. On 28 September 20X9 one of the company’s oil tankers was damaged in a violent storm off St Lucia on the KwaZulu Natal coastline (South Africa) and started leaking oil.

Management contracted a specialist repair contractor to repair the damage temporarily at sea, in order to prevent the oil from leaking further. The necessary repairs were carried out on 29 September 20X9 at a cost of C365 000, which was invoiced immediately.

The tanker was then sailed to Durban harbour, South Africa, where the cost of repairing it was assessed to be C2 750 000. Management entered into a contract on 12 October 20X9 to repair the ship at the harbour dry dock. The cost of the repairs would be financed by a loan from the bank at prime +1%.

The oil spill affected a 15 kilometre stretch of coastline and by 29 September 20X9 there had been a huge outcry from the general public, as well as environmentalists who were concerned about the damage to an area of such environmental significance. In light of this, the managing director made a public announcement on 30 September 20X9, on television and in the newspapers, of the company’s intention to clean up the entire area affected by the spill.

Clean up of the environment would only commence once an expert team of environmentalists had assessed the extent of the damage and the most effective method of removing the spilt oil.

On 20 October 20X9 management engaged a team to perform this assessment. The assessment will be available before 31 October 20X9.

The company’s financial year end is 30 September and the financial statements are scheduled to be approved on 15 November 20X9.


Discuss how the directors of BatterSea Shipping Limited should account for and disclose:

a) The repairs at sea

b) The repairs at the dry dock, and

c) The cost of cleaning up the environment in the financial statements for the year ended 30 September 20X9 in accordance with the Framework and IAS 37. A discussion of an expense is not required.

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