Reference no: EM132996319

The Gulf Strait Oil Company Limited incurs the following exploration and evaluation costs at two sites. Area A and Area B, over the years indicated:

Year            Area A (millions)          Area B (millions)
2022                    $11.0                      $12.0
2023                    $12.0                      $14.0
2024                    $14.0                      $16.0

• In relation to the above expenditure, in each year 20 percent relates to intangible assets and the balance of the expenditure relates to property, plant and equipment. At the end of 2024, oil of an economically recoverable nature is discovered at Area A but Area B is abandoned.

• In 2025, following the discovery of oil at Area A, roads and other infrastructure are constructed at a cost of $2 million. Portable buildings at a cost of $0.50 million are also put in place. After the above constructions, Area A commences operation.

• It is assumed that the entity adopts the cost model and does not perform revaluations.

Required

Problem 1: Provide the necessary journal entries for the years ending 2022, 2023, 2024 and 2025 using the area-of- interest method.