Can you help solve this question? >Unit-of-production methodThis method amortizes the costs of oil and gas industry activities andis dependent on the accounting method chosen by the owner of theassets. The following general formula shows the concept of unit-of-production amortization:[unamortized costs at end of period]+|production for period[Amortization for period]=!reserves at the beginning of period Economic evaluation>Example [Reference 1] Unit-of-production amortizationAssuming total capitalized costs at the end of the period are equal to$1 500 000, accumulated amortization taken in prior periods is equalto $500 000, estimated remaining recoverable reserves at the end ofthe period are equal to 440 000 BOE, and production during the periodis equal to 60 000 BOE, calculate the amortization for the period usingthe unit-of-production method.

Answered: >Example [Reference 1]…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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>Unit-of-production method
This method amortizes the costs of oil and gas industry activities and
is dependent on the accounting method chosen by the owner of the
assets. The following general formula shows the concept of unit-of-
production amortization:
[unamortized costs at end of period]+|production for period
[Amortization for period]=!
reserves at the beginning of period

Economic evaluation
>Example [Reference 1] Unit-of-production amortization
Assuming total capitalized costs at the end of the period are equal to
$1 500 000, accumulated amortization taken in prior periods is equal
to $500 000, estimated remaining recoverable reserves at the end of
the period are equal to 440 000 BOE, and production during the period
is equal to 60 000 BOE, calculate the amortization for the period using
the unit-of-production method.

Expert Solution

Step 1

In order to compute the amortization using the unit of production method, the unamortized cost of the asset is multiplied with the production volume of the year and is divided by the remaining total production volume of the asset.

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