Assume that Hunter Ltd commences operations on 1/7/2018. It explores two areas (Site East and Site West) and incurs the following costs:

Other information:

• Financial year ends on 30 June.

• In the year 2018, oil is discovered at Site West. Site East is abandoned as no proof of the existence of economically recoverable resources, and an impairment loss is recognized.

• 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 the 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.

Prepare the necessary journal entries for the costs incurred in 2018, 2019, and 2020 (using the area-of-interest method of accounting).

Transcribed Image Text:

Exploration & Evaluation Expenditure ($m) tangible intangible Site East 18 12 6. Site West 24 15 Total 42 Exploration & Evaluation Expenditure ($m) tangible intangible Site East 18 12 6. Site West 24 15 Total 42

Answer rating: 100% (QA)

Journal Entries Date Account Titles and Explanation Debit Credit 30 th June 201... View the full answer