XYZ Ltd commences operations on 1 January 20X2. During 20X2, XYZ Ltd explores two areas and incurs the following costs. Site Exploration and evaluation expenditure ($m) A 20 B 8 28 Other information: In 20X3, oil is discovered at Site B. Site A is abandoned owing to the failure to prove the existence of economically recoverable resources, and an impairment loss is recognised in relation to Site A. Of the $8 million incurred at Site B, $5 million relates to tangible assets and $3 million relates to intangible assets. At Site A, $14 million of the expenditure related to tangible assets and $6 million related to intangible assets. b. Development costs of $19 million are incurred at Site B (to be written off on a production basis) in 20X3. The development costs include $13 million in PPE and $6 million in intangibles. This expenditure will be depreciated/amortised on a production basis. C. Development at Site B concludes at the beginning of 20X3, and production also commences at site B at the start of 20X4. d. It is estimated that the amount of oil at Site B is 12 million barrels. The current sale price is $36 per barrel. In 20X4, XYZ Ltd extracts 1.8 million barrels at a production cost of $3.8 million and sells 1.1 million barrels. Required Provide the necessary journal entries using the area-of-interest method.
XYZ Ltd commences operations on 1 January 20X2. During 20X2, XYZ Ltd explores two areas and incurs the following costs. Site Exploration and evaluation expenditure ($m) A 20 B 8 28 Other information: In 20X3, oil is discovered at Site B. Site A is abandoned owing to the failure to prove the existence of economically recoverable resources, and an impairment loss is recognised in relation to Site A. Of the $8 million incurred at Site B, $5 million relates to tangible assets and $3 million relates to intangible assets. At Site A, $14 million of the expenditure related to tangible assets and $6 million related to intangible assets. b. Development costs of $19 million are incurred at Site B (to be written off on a production basis) in 20X3. The development costs include $13 million in PPE and $6 million in intangibles. This expenditure will be depreciated/amortised on a production basis. C. Development at Site B concludes at the beginning of 20X3, and production also commences at site B at the start of 20X4. d. It is estimated that the amount of oil at Site B is 12 million barrels. The current sale price is $36 per barrel. In 20X4, XYZ Ltd extracts 1.8 million barrels at a production cost of $3.8 million and sells 1.1 million barrels. Required Provide the necessary journal entries using the area-of-interest method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:XYZ Ltd commences operations on 1 January 20X2. During 20X2, XYZ Ltd explores two areas
and incurs the following costs.
Site
Exploration and evaluation expenditure ($m)
A
20
B
8
28
Other information:
a.
In 20X3, oil is discovered at Site B. Site A is abandoned owing to the failure to prove the
existence of economically recoverable resources, and an impairment loss is recognised
in relation to Site A. Of the $8 million incurred at Site B, $5 million relates to tangible
assets and $3 million relates to intangible assets. At Site A, $14 million of the expenditure
related to tangible assets and $6 million related to intangible assets.
Development costs of $19 million are incurred at Site B (to be written off on a production
basis) in 20X3. The development costs include $13 million in PPE and $6 million in
intangibles. This expenditure will be depreciated/amortised on a production basis.
Development at Site B concludes at the beginning of 20X3, and production also commences
at site B at the start of 20X4.
It is estimated that the amount of oil at Site B is 12 million barrels. The current sale price is
$36 per barrel.
In 20X4, XYZ Ltd extracts 1.8 million barrels at a production cost of $3.8 million and sells
1.1 million barrels.
b.
C.
d.
e.
Required
Provide the necessary journal entries using the area-of-interest method.
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