Answered You can hire a professional tutor to get the answer.
Question: West Perth Ltd commences operations on 1/7/2013. They explore two areas and incur the following costs; Exploration Evaluation Expenditure...
Question:West Perth Ltd commences operations on 1/7/2013. They explore two areas and incur the
following costs;
Exploration & Evaluation Expenditure ($m)
Site Crawley 10.2 Site Northbridge 14.8 Total 25.0
Other information:
- Financial year finishes 30/6/xx
- In Financial year of 2015, oil is discovered at Site Northbridge.
- Of Site Crawley, $7.2 million relates to tangible assets, $3 million to intangible assets.
- Site Crawley is abandoned as no economically-viable value (recoverable resources) exists and an impairment loss is recognised.
- Of the $14.8 million (Site Northbridge), $13 million relates to tangible assets, $1.8 million to intangible.
- Development costs - $10.5million are property, plant and equipment, $3.5 million are in intangibles.
- Development at Site Northbridge concludes at the end of 2015, production commences start of 2016.
- Development costs - are to be written off on a production basis in 2015 for Site Northbridge.
- It is estimated that Site Northbridge will produce 8 million barrels of oil, current price is $80 per barrel.
- In 2016, 400,000 barrels are extracted; production cost is $3.9 million. Sales for 2016 are 350,000 barrels
Required:
- a) Prepare the journal entries for the costs incurred 2014, 2015 and 2016 (using the
- area-of-interest method of accounting).
- b) Explain the difference between Area of Interest method and Full-cost method?