Reference no: EM132707467
Question - Assume that Hunter Ltd commences operations on 1/7/2018. It explores two areas (Site East and Site West) and incurs the following costs: Exploration & Evaluation Expenditure ($m) Tangible ($m) Intangible ($m) Site East 18 12 6 Site West 24 15 9 Total 42 Other information:
Financial year ends at 30 June.
In the year of 2018, oil is discovered at Site West. Site East is abandoned as no prove of existence of economically recoverable resources, and an impairment loss is recognised.
Of Site East, $12 million relates to tangible assets, $6 million intangible assets.
Of the $24 million of Site West, $15 million relates to tangible assets, $9 million intangible.
Development costs of $26m are incurred at Site West in 2019. Out of the $26m, $16 million are property, plant and equipment, $10 million are in intangibles.
Development costs are to be written off on a production basis in 2019 for Site West. Development at Site West concludes at the end of 2019 financial year, production commences at the start of July 2020.
It is estimated that Site West will produce 20 million barrels of oil.
In 2020, 1.4m barrels are extracted at a production cost of $3.2m.
Required - Prepare the necessary journal entries for the costs incurred in 2018, 2019 and 2020 (using the area of-interest method of accounting).
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