Reference no: EM132838632

State Mongolia Ltd commenced mining operations in Queensland on 1 July 2016. During the first year of exploration, it incurred the following costs (in millions of dollars) in relation to 3 areas: Kynuna 5M, Longreach 4M, and Middleton 7M. Total Cost = 16M.

• In 2019 Coal was discovered at site Middleton. Explorations continued at site Kynuna, however, exploration at site Longreach was not considered to be economically viable and was abandoned. In relation to exploratory expenditure, 35% relates to intangibles and the remainder to property, plant, and equipment. Up until 30 June 2019, the company incurred development costs of $2 million in relation to infrastructure and property, plant and equipment for site Middleton. Costs will be written off on a production basis. Kynuna further $1.5 million in exploration and evaluation costs were incurred at site Kynuna.
• On 1 July 2019 production commenced at site Middleton. It is estimated that the site contains 40,000 tonnes of Coal. The current sale price is $1 750 per tonne. Production to the 30 June 2020 extracted 6,500 tonnes of coal incurring a production cost of $1.5 million. At the end of the financial year 2 500 tonnes of coal had been sold.
• Management also decided that exploration at site Kynuna was no longer viable and abandoned work. Restoration costs of $1.5 million were also spent to restore the site back to its previous condition.
• State Mongolia Ltd's financial year ends on 30 June.

Required:

Problem 1: Prepare journal entries using the area of interest method for 2018, 2019, and 2020. Calculations should be rounded to the nearest dollar.